Opportunists are at the ready as crude oil prices seemingly head back towards US$50 a barrel.
When (or if) crude reaches the psychologically important price it will mark a near 100% rally from the early 2016 lows.
The push from around US$45 to near US$50 comes amid a temporary supply side squeeze, with separate issues impacting exports from Canada and Nigeria. At the same time, there's evidence of an unexpected lowering of crude stockpiles in the USA.
Regardless of how long that lasts, sentiment has been improving for some time and crude oil prices have recovered markedly from the lows seen in the first quarter of 2016.
Assuming the crude capitulation has now been committed to the history books, investor attentions are likely to be turning to the sector’s survivors, and those stocks most leveraged to any continued oil price recovery.
Here, we take a look at some of London’s high profile oil stocks that will likely be on most investor’s watch lists.
Premier Oil: Production growth that’s highly leveraged to crude recovery
As well as recovering crude prices, Premier Oil is also benefitting from production growth from the Solan field, in the North Sea, which achieved ‘first oil’ in April and newly acquired North Sea assets.
A trading update in early May indicated it was on track to deliver at the top end of its production guidance for 65,000 to 70,000 barrels oil equivalent per day for the whole of 2016. In the first four months of the year output amounted to 57,300 boepd.
Solan’s ramp up is expected to continue through the remainder of the year, and next year the company looks forward to the start-up of another new field – Catcher.
The stock’s performance is closely tied to oil price gyrations, though the company also highlighted it had US$750mln of cash and undrawn bank facilities, whilst saying it is talking with lenders regarding financial covenant waivers.
Deutsche Bank analyst Lucas Herrmann, in a recent note, said he expected Premier to secure waivers by early in the third quarter in return for “a small coupon increase” and associated fees.
“Market sentiment has improved with the start-up of the Solan field and closure of the Eon deal and we expect completion of its covenant renegotiations to add further impetus in Q3,” he said.
Tullow Oil: Exploration success in Kenya presents silver lining
Disruptions to operations offshore Ghana have been an additional concern for investors, with the Jubilee field affected by equipment damage on a floating production and storage and offloading (FPSO) vessel. Throughout, Tullow said it is covered by its insurance.
Elsewhere, meanwhile, exploration successes onshore Kenya provided silver linings for investors through the downturn.
A series of onshore discoveries was recently assessed by consultant DeGolyer and MacNaughton (commissioned by Tullow’s partner Africa Oil) estimating some 754mln barrels of contingent resources in the South Lokichar basin.
Tullow has said there’s further exploration potential within the Kenyan assets, which it believes could contain 1bn barrels.
The company has, meanwhile, emphasised tight control of its current operations.
In January, it highlighted the cushion provided by hedging arrangements priced at US$75. In February, the company told investors it could shave down its capital budget down to US$300mln a year from 2017 onwards.
Tullow’s next trading update is scheduled for the end of June, and interim results are due in July.
Rockhopper: Drilling and acquisitions boosts Sea Lion appeal
A number of diversification efforts have yet to really change the conversation for investors in Rockhopper Exploration Plc (LON:RKH) - which very much remains focussed on the Falklands and the Sea Lion field.
Successful drilling though 2015 and the acquisition of Falkland Oil & Gas (FOGL) have boosted underlying asset value, and since early April the AIM share has rallied around 60% to trade at around 38p.
As a remote offshore project, Sea Lion is the kind of asset that definitely needs a supportive oil price.
The advancement of Sea Lion field into field development depends on Premier Oil, the operator, which wants to add an extra partner.
Last month, Premier highlighted that a final investment decision for Sea Lion depends on the “evolution of project economics” and oil prices.
Sea Lion certainly became more marketable this week thanks to a new assessment of the Sea Lion area which estimated 747mln barrels of discovered oil equivalent resources.
The ERCE Audit confirmed in excess of half a billion barrels of 2C oil resources in reservoirs that together make up the Sea Lion Complex, and those resources could be developed in two phases.
Phase 1 would focus on the resources in the north-east of the Sea Lion area.
Sam Moody, Rockhopper chief executive, said: “The Sea Lion Complex itself holds over half a billion barrels with almost 270 million barrels of low risk near field upside (including the SL20 west flank in oil-bearing case) which we believe could be assessed with as few as 3 or 4 more optimally targeted wells.”
88 Energy: AIMs standout in early 2016 thanks to Alaska shale success
Success in Alaska saw the shares rise as much as 800% as it released a series of results from the Icewine well through the first four months of 2016.
The Icewine well confirmed the targeted HRZ shale play, with all early indicators measuring above expectations.
A new independent resource estimate, unveiled on April 6, saw some 1.4bn barrels of oil equivalent in a ‘productive area’ of the HRZ shale that spanned around 42% of the Icewine project area.
The consultant, DeGolyer & MacNaughton (D&M), also upgraded its view on the ‘probability of geologic chance of success’ to 60%, from 40%.
Internally, meanwhile, 88 Energy and Basinski’s Burgundy Exploration estimate there is some 3.6bn barrels of resources, across a larger 70% of the Project Icewine area.
The next phase of operations will be designed to reveal material insights into the project's commercial production potential. It could prove crucial in 88 Energy proving the very promising estimates.
Falcon Oil & Gas: Aussie shale discovery prompted a stellar start to 2016
Falcon is sitting on US$12.7mln in cash, which would be enough to fund it through the next three years. Importantly, it is also fully carried on a drill programme in the highly prospective Beetaloo basin.
Here, it has 30% of what is shaping up to be an exciting gas project and is partnered with Aussie firm Origin Energy and South African gas to liquids specialist Sasol. The Australian permits cover 4.6mln acres that are estimated to be host to 162 trillion cubic feet of gas.
It is fair to say drilling to date on the Kalala and Amungee wells, which are 25km apart, have delivered the expected results.
Importantly they confirmed the potential of the Middle Velkerri shale reservoir. Key findings point to something that, if it all hangs together, could be really special, analyst say.
Near-term, preparations are underway to case the horizontal section of the Amungee well on the Beetaloo acreage. A multi- frack operation will then be carried out to assess the full potential of the shale.
The horizontal frack is expected to get underway in early July.
Empyrean Energy: Cash pile singles out this small cap explorer
A stock market statement on May 17 triggered a 20% jump in the group’s share price, and the contents of the announcement at the same typified why Empyrean Energy Plc (LON:EME) finds itself in this list.
The proposition is pretty simple - Empryean has cash.
In February, the company sold its minority stake in Marathon Oil’s Sugarloaf project, in the Eagle Ford, in a deal worth up to US$71.5mln.
Management has been working to square off the group’s tax position, as well as clearing debts and organising a possible shareholder pay-out.
It will be left with an amount of cash, and the intention thereafter appears to be to reinvest and rebuild a new exploration business.
Cash in hand will likely prove to be a strong strategic advantage when the Empyrean team sit at the deal table – as such the stock should be closely watched in the coming months.
Gulf Keystone: Will a Houdini debt deal save investors?
The once mighty share price has ground all the way down to around 5p and, unlike other stocks mentioned so far, Gulf Keystone has yet to mount a meaningful rally.
The collapse of oil prices is actually among the lesser worries for the Kurdistan – given the regional instability, ISIS, Iraq’s economic problems, uncertainties over crude payments and a backlog of arrears.
But, Gulf Keystone’s big problem is its debt pile – it owes US$575mln, most of which are due to mature next year.
And, earlier this year the company warned it needed fresh capital otherwise production the flagship Shaikan field would go into decline. The company said it needed US$71mln to maintain production at 40,000 bopd, whereas plans to grow production to 55,000 bopd required US$88mln.
At the end of April, a standstill agreement with reached with the bulk of Gulf Keystone’s lenders so that it could pursue a debt restructuring. That standstill runs to Friday May 20, though it can be extended to the May 31.
Experts believe restructuring could see debt being swapped for equity alongside some form of capital injection – both of which would heavily dilute existing holders.
The future is far from secure for Gulf Keystone, but it is worth noting that at current prices it is valued at a knock-down £51mln.
Punting on whatever outcome Gulf Keystone can come up with would certainly not be for the widows and orphan funds, nevertheless, a glance at recent trading volumes suggest some speculators are hoping some form of Houdini deal does emerge.
*First published May 17