Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below
Market Update: WednesAIM:day 25 August 2021
Challenger Energy (AIM:CEG): Saffron-2 production testing update
Brent Oil US$70.1/bbl vs US$69.5/bbl yesterday
WTI Oil US$67.3/bbl vs US$66.2/bbl yesterday
Natural Gas US$4.01/mmbtu vs US$3.93/mmbtu yesterday
Oil Price News
Oil prices recovered for the second day in a row yesterday, fuelled by optimism about falling COVID-19 infections in China and by a major production outage in the Gulf of Mexico
The EIA’s estimate for oil production in the US rose by 100,000bopd for the third week in a row to an average of 11.4MMbopd
US crude inventories fell 3.2MMbbls last week to 435.5MMbbls, their lowest since January 2020, according to US Energy Department figures
Gasoline stocks, however, rose modestly, and gasoline product supplied to the market, a measure of demand, was 9.5MMbopd, just 1% below 2019 levels
Fuel demand in the world’s top consumer has steadily increased throughout the year with the four-week average of overall US product supplied was 20.8MMbopd, in line with pre-coronavirus levels from 2019
That has come just as the OPEC+ agreed to raise output by 400,000bopd every month into next year, returning some of the supply the group has held back since early 2020
The IEA estimates that demand for oil is expected to increase at a slower rate over the rest of 2021 because of surging cases of the Delta variant
Also bearish for the markets in the longer term, a US offshore regulator yesterday said efforts to resume a federal oil and gas leasing program were underway and would soon bear results following a court decision ending a suspension
Gas Price News
After looking a bit cooler for late August, weather models are looking healthier for natural gas prices
Once the coolest of the datasets, the European 15-day outlook gained about 12 gas-weighted degree days (GWDD) because of hotter changes seen in the eastern half of the continent
The La Nina base state remains intact, which, especially in the back half of summer, correlates to above-normal heat, according to Bespoke Weather Services
This appears to be the main driver of the changes, which put the final week of August now close to a weekly record in terms of GWDDs for those dates
The price action is pointing towards the current low storage levels, and elevated summer temperatures in the US and Europe
Carbon dioxide emissions from the energy sector will increase 7% to 4.9 billion mt in 2021 given growing economic activity, according to the EIA’s Short-Term Energy Outlook
The sector’s emissions fell 11% in 2020.
With summer heat nearing what traditionally is the peak period this month, weather forecasts have once again become a driving force for gas markets
The American and European data each saw a difference of less than 2 cooling degree days (CDD) for the coming 15 days
Challenger Energy (AIM:CEG): Saffron-2 production testing update
Share price: 1.3p, Market Cap: GBP10.8m
Challenger has provided an update in relation to ongoing production testing of the Saffron-2 appraisal well.
A commercial production rate (81bopd) has been established at Saffron-2, from approximately 66ft of Middle Cruse reservoir units; produced oil is already being sold and generating immediate revenues for the Company.
To maximise near-term production income additional clean-up, testing, and optimisation of producing zones is currently underway; the Upper Cruse reservoir units also remain to be perforated and produced.
The Lower Cruse reservoir units exhibited good pressure and produced high-quality oil (480 API), but testing of these zones was halted due to the impact of mobile shales on the well bore; these lower zones have been isolated from the currently producing horizons, capable of being re-entered for future remedial actions in support of production.
Well data and projection of aggregated well performance is being used to reassess overall Saffron field resources and economics, with work underway to determine the optimal forward plan for development of the Saffron project as a whole.
Our take: Whilst commercial, the current flow rate being produced from Saffron-2 will come as a disappointment to shareholders in our view. Nevertheless, Challenger has preserved the ability to re-enter and produce the lower zones in the future, and planning of further wells is already underway.
Research – Oil & Gas
Sam Wahab – 0203 470 0473 / 0784 385 5037
Richard Parlons – 020 3470 0472
Abigail Wayne – 020 3470 0534
Rob Rees – 020 3470 0535
Grant Barker – 020 3470 0471
Prince Frederick House
35-39 Maddox Street London
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Oil Brent, WTI – ICE
Natural Gas – NYMEX
Disclaimer Non-Independent Research
This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services and is a marketing communication for the purposes of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research and is not subject to any prohibition on dealing ahead of its dissemination.
SP Angel considers this note to be an acceptable minor non-monetary benefit as defined by the FCA which may be received without charge. In summary, this is because the content is either considered to be commissioned by SP Angel’s clients as part our advisory services to them or is short-term market commentary. Commissioned research may from time to time include thematic and macro pieces. For further information on this and other important disclosures please the Legal and Regulatory Notices section of our website Legal and Regulatory Notices
While prepared in good faith and based upon sources believed to be reliable SP Angel does not make any guarantee, representation or warranty, (either express or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein.
The value of investments referenced herein may go up or down and past performance is not necessarily a guide to future performance. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.
The investments discussed in this note may not be suitable for all investors and the note does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. Investors must make their own investment decisions based upon their own financial objectives, resources and appetite for risk.
This note is confidential and is being supplied to you solely for your information. It may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose. If this note has been sent to you by a party other than SPA the original contents may have been altered or comments may have been added. SP Angel is not responsible for any such amendments.
Neither the information nor the opinions expressed herein constitute, or are to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. Opinions and estimates included in this note are subject to change without notice. This information is for the sole use of Eligible Counterparties and Professional Customers and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority (“FCA”).
Publication of this note does not imply future production of notes covering the same issuer(s) or subject matter.
SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).
SPA has put in place a number of measures to avoid or manage conflicts of interest with regard to the preparation and distribution of research. These include (i) physical, virtual and procedural information barriers (ii) a prohibition on personal account dealing by analysts and (iii) measures to ensure that recipients and persons wishing to access the research receive/are able to access the research at the same time.
SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP. SP Angel Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority whose address is 12 Endeavour Square, London E20 1JN.
Recommendations are based on a 12-month time horizon as follows:
Buy – Expected return >15%
Hold – Expected return range -15% to +15%
Sell – Expected return < 15%