Today’s Oil & Gas Update – Echo Energy, PetroTal and others


Echo Energy (LON:ECHO) Increasing production to take advantage of strong commodity pricing

PetroTal (LON:PTAL) Interim results, FY21 EBITDA guidance significantly increased

SOA Energy (Private) – SOA spuds the Ofek-2 well on the New Ofek Licence, on-shore Israel

Energy Prices

Brent Oil US$71.5/bbl vs US$70.1/bbl yesterday

WTI Oil US$67.5/bbl vs US$67.3/bbl yesterday

Natural Gas US$4.12/mmbtu vs US$4.01/mmbtu yesterday

Oil Price News

Oil prices slipped in early trading today for the first session this week as renewed concerns about demand amid rising COVID-19 infections cut short a three-day rally, and as production returned in Mexico

Fresh outbreaks fuelled by the delta variant of the coronavirus are raising concerns about the strength of the economic recovery globally, hitting demand for oil and other commodities

Helping to boost prices around 10% through Wednesday, US crude inventories fell last week for a third consecutive week while overall fuel demand increased to the most since March 2020 according to the Energy Information Administration (EIA)

The headline draw was welcome news but a steep drop in crude exports and lacklustre jet fuel demand prevented prices from extending gains

Distillate stockpiles, which include diesel and jet fuel, rose last week, gaining 0.6MMbbls to 138.46MMbbls, against expectations for a 0.3MMbbl drop, according to the EIA data

Oil stocks dropped by 3MMBbbls in the week to 20 August, a little above an analysts’ expectation in a Reuters poll for a 2.7MMbbl drop

At 432.6MMbbls, crude stocks were at their lowest since January 2020

Gains this week in prices have been helped by a major outage in Mexico, where a fire on Sunday on an offshore platform killed at least five workers and knocked out over 400,000bopd of production

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

Company News

Echo Energy (LON:ECHO): Increasing production to take advantage of strong commodity pricing

Share Price: 0.6p, Market Cap: GBP7.8m

Echo has provided an operational update regarding its Santa Cruz Sur assets, onshore Argentina.

Following installation of the pipeline required to bring back online the liquids production, which was shut in April 2020, the infrastructure has now been commissioned for operation and shut-in wells are being brought online.

This follows an upgrade of the electrical infrastructure, which was designed to support the first tranche of production from the Campo Molino and Chorillos oil fields to provide sufficient power to support sustained production from the associated ten wells.

These upgrades are also part of the Company’s strategy to control critical infrastructure previously rented from contractors.

To date, the Campo Molino oil field has been brought back online with four of the shut-in wells now back in operation and producing from the Springhill reservoir.

This first tranche of restored production will increase the number of active producing oil wells at Santa Cruz Sur to 18.

As of 23 August 2021, the recently reactivated wells have contributed to an almost 50% increase in total liquids production at Santa Cruz Sur compared to the period immediately prior to this (281bopd gross, 197bopd net to Echo – during the period 1 -17 August 2021).

This represents an increase of 137bopd gross, 95bopd net to Echo and work continues to bring the remainder of the first tranche of shut-in production back online.

The production levels from the initial reactivated wells indicate that the shut-in period has not had a detrimental impact on reservoir behaviour in the Campo Molino oil field. Prior to shut-in, the combined gross production from the ten oil wells was approximately 138bopd gross, 96bopd net to Echo, approximately the same level now being achieved from the initial four wells, with the associated upgraded infrastructure.

Daily operations across the asset base in Santa Cruz Sur continue with the delivery of produced gas to industrial customers under contract with premium winter pricing being achieved.

Production over the period from 1 January 2021 to 23 August 2021 reached an aggregate of 381,243boe net to Echo, which included 48,211bbls of oil and condensate and 1,998MMscf of gas.

Our take: Echo continues to make strong operational progress and increasing its liquids production in particular is an important milestone in our view. There remains further production upside through the programme of reopening previously shut-in wells. Increased production combined with the continuing marked upswing in global commodity will have a corresponding positive impact on the Company’s liquidity position.

PetroTal (LON:PTAL) Interim results, FY21 EBITDA guidance significantly increased

Share price: 15.8p, Market Cap: GBP121.8m

A strong set of interim results issued by PTAL today confirmed that the Company ooutperformed Q2 2021 production guidance by 2% and Q1 2021 production by 21%, delivering 8,839bopd under constrained production conditions.

This led to a significant increase in revenue to US$42.8m (US$53.20/bbl) in Q2 2021 versus US$32.4m (US$41.91/bbl) in Q1 2021.

PTAL achieved record netback and net operating income in Q2 2021 of US$36.88/bbl and US$29.7m, respectively.

Operating and direct transportation costs in Q2 2021 were US$10.8m (US$13.45/bbl) as compared to US$10.6m (US$13.78/bbl) in Q1 2021.

The Company generated free cash flow, before leverage and working capital adjustments, in Q2 2021 of US$2.4m and in H1 2021 of US$11.5m.

PTAL remains in a strong liquidity position, building total cash quarter over quarter to over US$79.5m as at 30 June 2021, up 5% from the end of Q1 2021.

Net income was US$11.4m for the quarter, demonstrating an efficient operating cost structure, attractive capital base, and supportive fiscal terms.

The Company exited Q2 2021 with a 0.41x leverage ratio which included US$40.6m of net debt calculated per the bond indenture.

Continued to de-risk commodity price exposure that brings the total corporate hedge percentage to 44% for the remaining four months of 2021 forecast production, protecting prices of US$60/bbl Brent.

The field can now actively dispose of approximately 80,000bwpd and 100,000bwpd when the modifications are completed in September.

Achieved payback on well 7D, approximately 2.5 months post completion.

Current constrained production is 8,513bopd (last seven-day average to August 20, 2021).

Unrestrained production is expected to be restored in September.

Revised H2 2021 production guidance as a result of a rescheduled and deferred drilling program stemming initially from the COVID-19 protocol’s impact and from the water disposal well drilling delays.

The 2021 average production range is now guided at 10,000-11,000bopd (from 11,000-12,000bopd).

Exit December 2021 production has been slightly revised down to 17,000-18,000bopd (from 18,000-19,000bopd), as the impact of the BN-10H well won’t be incorporated until early next year.

The Company updated its 2021 EBITDA guidance is between US$140-US$145m, up materially from the original 2021 US$90m budget.

Operationally, PTAL successfully drilled BN-8H subsequent to the quarter end which is now being completed and expected to be on time and under budget.

Our take: A very strong set of results announced by PTAL today underlining the robustness of the Company liquidity position, boosted by strong commodity pricing. The reopening of the Bretana oil field operations has led to a step change in the Company’s cash flow position notwithstanding a much stronger oil price globally. Indeed, the revised FY21 EBITDA guidance of US$140m underlines the compelling project economics and netback achieved at current prices, and we therefore see the Company’s current share price as an attractive entry point for investors given the significant development activity slated for the second half of this year. After successfully completing the 7D well that continues to outperform its 3P forecast, PTAL completed the 3WD well which will effectively double its water disposal capacity to c.100,000bwpd. The Company is now starting to drill more of its prolific horizontal wells (including BN-8H) which are weighted to the back half of the 2021 capital investment program.

SOA Energy (Private) – SOA spuds the Ofek-2 well on the New Ofek Licence, on-shore Israel.

SOA has confirmed the Company has spud the Ofek-2 well on the New Ofek Licence, on-shore Israel.

SOA will act as owner and operator on the Licence, working in partnership with Israel’s largest Oil and Gas company, Delek Drilling (TASE:DEDR.L).

The Ofek-2 side-track well offers a low risk, short term, production prospect and according to volumetric reports prepared by PETECH the license has the potential of 600Bcf of gas and 30MMbbls of oil.

Today’s announcement marks the start of two drilling campaigns, with the Yahel-1 exploration well to follow in early 2022.

The Yahel prospect has the potential of 2.2Tcf of gas and 180MMbbls of oil.

Our take: The spudding of the Ofek-2 well marks the start of a potentially transformational drilling programme for the Company. Alongside the drilling campaigns, SOA has a 21% Working Interest in the promising Shimshon Lease offshore Israel, further adding to portfolio of exploration assets with high impact potential.


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