WTI $83.42 +46c, Brent $85.72 +72c, Diff -$2.40 +28c, NG $5.17 +8c, UKNG 232.22p -7.7p
It is fairly quiet in oil markets this week, the underlying is still quite strong but even stock data has been mixed and yesterday’s number was equally unbalanced. Crude itself showed a small drop of 431/- barrels which was better than the API build but as forecast earlier in the week saw impressive draws at Cushing. Stock levels are now 6% below the 5 year average.
Much more interesting was the situation in the product market, gasoline drew 5.4m b’s and distillates fell by 3.9m. With a refinery rate of 84.7% being down 2 points as you might expect at this time of year, as maintenance increases to move from gasoline to heating fuels the major surprise was that gasoline production increased to 10.1m b/d.
The figures on Tuesday on retail gasoline prices did show another rise, your average gallon was $3.322 which was 5.5c up w/w, 13.8c m/m and $1.283 y/y. Buying gasoline in California is still a privilege as you will be rushed $4.53 out west this week.
It has been a busy few days for Reabold, post the WN malarkey they announced yesterday that they had commissioned a CPR at Victory and a strategic review for Corallian overall. Today they have announced the signing of a conditional equity exchange agreement between Daybreak Oil and Gas Inc, a US OTC traded oil and gas operator with assets in California.
The Transaction will result in Reabold becoming a major shareholder of Daybreak via the issuance of new Daybreak shares to Reabold, in exchange for Daybreak acquiring Reabold California LLC, Reabold’s subsidiary which holds, inter alia, Reabold’s licence interests in California.
Per the conditions of the Equity Exchange Agreement, prior to completion of the Transaction, Daybreak is required to raise a minimum of US$2.5 million via an equity raise; the proceeds of which will be used to grow production across Daybreak’s enhanced portfolio. In addition, Daybreak will be required to complete a conversion of certain of its debt into equity. Reabold will hold up to 46.5 per cent. of the Daybreak’s share capital as enlarged by the completion of the Transaction. The longstop date in the Equity Exchange Agreement is 14 February 2022.
This deal creates a self-funded, OTC traded, Californian oil and gas operator, with a strong balance sheet, in which Reabold will have a major shareholding, Daybreak will utilise its existing in-state management team and expertise to grow the portfolio through development of existing licences as well as considering strategic acquisition opportunities. With a clear focus in California, Daybreak can utilise significant market opportunities for consolidation in the state, creating further opportunities for synergistic growth.
As a result of the transaction, Reabold’s interests in California will be exchanged for shares of an OTC traded entity, creating flexibility and funding opportunities for the Daybreak going forward.
Sachin Oza, co-CEO of Reabold, commented:
“This transaction creates liquidity for Reabold and forms a new, cash flow producing business with the skills and capability to capitalise on growth opportunities from its existing portfolio, and attractive acquisitions presented by the market dynamics in California.”
“Our Californian portfolio has been a significant deliverer for Reabold, with 5 discoveries over 5 wells since we began our drilling program. With a dedicated management team with significant in-state expertise now at the helm, we look forward to the next phase of its development as a large shareholder.”
With so many things to consider Stephen Williams gave me some of his time to update me on what’s going on. At West Newton the partners are still keen to get back into business and the important technical studies, key questions and the next steps are being evaluated. As one can imagine the appeal format is being handled with utmost ‘subtlety’ and it’s good to see this landmark asset being treated like that.
The news yesterday on Corallian and its key asset Victory might smoke out industry buyers for this major project which is ‘progressing really well’, in addition there is a decent exploration portfolio in there as well. With the news from the total portfolio it is unsurprising that they have also decided to action California where putting the two companies together makes a lot of sense.
There is much to do and this will mean some transactional risk, Daybreak has to convert its debt into equity and raise cash but that should be doable with its very low valuation. Subject to execution, RBD ends up with a business with no debt, they will not add cash, just its own assets and the resultant valuation should be set to rise.
To me, this working of the portfolio makes a good deal of sense, assuming all goes according to plan they get to keep hands on the biggest and core asset at West Newton and an arms length ownership of the Californian assets whilst, possibly taking some money off the table at Corallian and thus Victory. Reabold has always had a good reputation for asset evaluation and trading, it looks like this is what is happening right now.
In the Champions League last night the Red Devils came back from 0-2 down to win 3-2, Chelski beat Malmo FF 4-0. Tuesday night saw very solid away wins for both the Noisy Neighbours and Liverpool.
In the T20 World Cup on Tuesday Scotland beat Papua New Guinea and yesterday Sri Lanka beat Ireland, Scotland are in action against Oman at 3pm this afternoon.