WTI (July) $76.99 -92c, Brent (August)* $81.14 +4c, Diff -$4.15 +20c.
USNG (July) $2.59 +2c, UKNG (July) 86.25p +2.25p, TTF (July) €35.735 +€0.935
*Denotes July contract expiry.
Oil price
Oil has fallen sharply today as the market thinks that the Opec+ deal to take oil off the market until 2025, whilst I can see why traders can bet against it but stock draws should soon prove them wrong.
Diversified Energy Company
Diversified has announced that on May 30, 2024, the Company closed on an asset backed securitization (“ABS”) refinancing, creating the ABSVIII note. Diversified will use the proceeds from the Transaction to repay the outstanding principal of the previously issued ABSIII and ABSV notes, retiring those notes from the Company’s outstanding debt. The additional proceeds from the Transaction will be used to reduce outstanding borrowings under the Company’s revolving credit facility and for general corporate purposes. As previously announced on March 19, 2024, the Company intends to fund a portion of the acquisition of the working interests from Oaktree Capital Management using the Company’s revolving credit facility
The Transaction is backed by collateral securing the ABSIII and ABSV notes representing working interest in Proved Developed Producing (“PDP”) wells. The Transaction was significantly oversubscribed with over $1.7 billion in orders from a broad group of 18 unique investors.
Transaction Highlights
Key Terms
• ABSVIII note amount of $610 million (gross)
◦ Net proceeds of $592 million, inclusive of fees, expenses and interest reserve
• Blended fixed coupon of 7.28%
• Fully amortized expected maturity of March 2033
• Investment-grade ratings for note ABSVIII Class A-1 and A-2 (Fitch Ratings, Inc.)
◦ Class A-1: A rating
◦ Class A-2: BBB+ rating
Sustainability-Linked
Sustainable Fitch has again-provided a Second Party Opinion that the instrument’s Key Performance Indicators (the “KPIs”) align with the International Capital Markets Association (ICMA) framework for sustainability-linked bond principles, highlighting Diversified’s commitment to aligning its financing with the Company’s overall sustainability strategy.
Rusty Hutson, Jr., CEO of the Company, commented:
“This transaction marks the eighth ABS since the start of our securitization program in 2019 and signals the confidence in the Diversified business model from the energy structured finance community as well as with the broader capital markets. The transaction was well received by both new and existing investors delivering high demand from the largest order book for an oil and gas securitization. The offering was assigned the first flat “A” rating on an operated PDP securitization and allowed for the Company to achieve an extremely competitive cost of capital. We believe that the record-breaking transaction will change the way people in the energy sector think about this product and the successful execution showcases Diversifieds ability to provide reliable production and consistent cash flows.”
Another smart financing move here from DEC who have completed securitising a tranche of assets with the issue of ABS VIII of $610m gross, net $592 at a blended fixed coupon of 7.28%. This is particularly impressive given the cautious state of some financing markets at the moment.
The funds will be used to retire other debt, reduce the FCF and for general corporate purposes. It is such a good barometer of how the market sees DEC and its financial strength and in return the company has fixed up the balance sheet and used positive investor demand to indirectly invest in the acquisition from Oaktree via the FCF.
Zephyr Energy
Zephyr has provided an update on the State 36-2R LNW-CC well (the “State 36-2R well”) at its project in the Paradox Basin, Utah.
Drilling operations continue to proceed safely and effectively.
The 8 ½-inch section reached the planned section total depth of 10,084 feet, after which the 7-inch casing string was set and cemented in place successfully.
Drilling will shortly commence on the final section of theState 36-2Rwell. The objective for this short section is to land the well safely within theCane Creekreservoir (the “Cane Creek”) and drill the remaining 320 feet (of which 270 feet will be drilled horizontally within the reservoir) to intersect both the reservoir and the productive natural fracture system encountered by the State 36-2LNW-CC well (the “original well”).
After reaching total depth and setting a production liner, the drilling rig will be demobilised and the well will be prepared for production testing.
At the current depth of 10,084 feet, the State 36-2R well is ten feet from the original well.
Colin Harrington, Zephyr’s Chief Executive, said:
“I am pleased to report that drilling operations on the State 36-2R well continue safely and with such precision. Over the next few days we plan to intersect the Cane Creek and target the same natural fracture network identified by the original well.
“We will keep our stakeholders updated as drilling operations progress.”
So, Zephyr is very close now to the Cane Creek reservoir and is about to drill the final few feet into the natural fracture system that caused all the trouble before. Indeed as it points out above the two wells are only ten feet away, somewhat spooky I would have thought…
This is now getting very exciting, all the is required at TD is to set the liner, take away the rig and then test….
Deltic Energy
Deltic has provided the following update in relation to Licence P2252 and the Pensacola discovery.
Deltic has been granted a short period of additional time from Shell UK Ltd, in its capacity as Licence Operator of P2252, which will allow Deltic until 12 June to progress discussions with potential counterparties in relation to a possible transaction. There is however no guarantee that discussions will be concluded successfully within that timeframe and, in such circ*mstances, Deltic will be required to withdraw from the Pensacola licence and transfer its interest in Pensacola to its Joint Venture partners.
The Company will make further announcements in due course.
There really isn’t much to add to this, one cannot second guess the state of play as it could be any one of a number of scenarios, the approaching AFE brings a decision that will finalise the situation for once and for all.
Hunting
Hunting has announced that it has secured a second OCTG order with KOC, through our distributor in Kuwait, with an order value totalling $86 million. The OCTG casing and connections related to this order are similar to those announced on 15 May 2024.
This second order continues to strengthen Hunting’s relationship with KOC and supports key initiatives in-country by KOC to increase annual hydrocarbon production, in addition to further developing natural gas output.
With this order, Hunting has now been awarded contracts with a total value of $231 million from KOC for OCTG casing and its premium connections.
Including this new order, the Group’s sales order book has increased to c.$751 million, which including other Subsea and Advanced Manufacturing orders, extends Hunting’s revenue visibility into 2025 and 2026, supporting the strong outlook for the Company.
As noted in the announcement on 15 May 2024, more detailed revenue and working capital guidance for full year 2024 and 2025 will be provided in the Company’s H1 2024 Trading Statement to be announced on Tuesday 9 July 2024.
Commenting on this second KOC order win, Jim Johnson, Hunting’s Chief Executive, said:
“We would again like to thank KOC for this order and the confidence shown in Hunting’s proprietary premium connection technologies and strategic OCTG supply chains.
“The order supports our improving outlook for 2025, as international and offshore activity continue to accelerate.”
This further order from KOC adds a certain icing to the cake of the order announced recently by Hunting. The addition of a further $86m for delivery in 2025 makes the order worth $230m making a total current order book of some $751m.
Clearly the guidance for next year will need to go up and although the shares have more than doubled on the year they are still massively undervalued on any reasonable valuation metrics, whilst peer group comparables are difficult to use Hunting should be a lot higher.
Hunting continues to use its high end premium technologies to add to the order book, I continue to say that the management is of extremely high quality and that I wouldn’t be at all surprised to see further contract wins and subsequent gains in the share price.
Beacon Energy
Beacon has provided the following operational update in relation to the Schwarzbach 2(3.) sidetrack well (“SCHB-2 sidetrack”) in the Erfelden field.
·The SCHB-2 sidetrack kicked off from the original well bore at a depth of 2,145 metres and extended for an additional 85 metres in length
·In the Lower PBS, the SCHB-2 sidetrack is estimated to be approximately 9 metres from the original wellbore
·Following insertion of the production liner, an electrical submersible pump (“ESP”) was successfully installed and tested
·Since deployment, the ESP has produced intermittently with frequent stalling – a stabilised rate has therefore not yet been established
·However, based on bottom hole pressures and flow rates observed, initial response from the reservoir appears to be poor
·The well will now be temporarily shut-in to allow the rig to be demobilised
·During this time, pressure build-up data will be obtained to better inform our understanding of the reservoir response
·Once the rig has left the drilling site, remedial actions will be undertaken on the ESP and the well will be reconnected to the Schwarzbach facility to allow well clean-up and a long-term flow rate to be established.
The Company will provide an update once a stabilised flow rate has been achieved.
Stewart MacDonald, Incoming CEO of theCompany, said:
“Having safely drilled the SCHB-2 sidetrack and installed the ESP, it is disappointing a sustained flow rate has not yet been achieved. Whilst pressure build up data, to be obtained in the coming days, will provide clarity, the initial response from the reservoir appears disappointing. Following reconnection to the production facility, a long-term stabilised flow rate should be established. We remain convinced that Erfelden is a material and potentially highly valuable onshore oil discovery with Best Estimated recoverable reserves of 7.2mmbbl. The Company will now consider its options to maximise the value of the resource we have discovered.”
Nothing we can do from here is to wait on the data, with the ESP problem it may just need pressure build up but reservoir problems cannot be ruled out. Right now its time to sit and wait, I haven’t spoken with the new management yet.
And finally…
Euro friendlies ahead of the tournament, Scotland are playing Gibraltar and England Bosnia-Herzegovina today.
In the T20 World Cup wins yesterday for the USA and the Windies, today has seen the first tied game with Namibia beating Oman in the Super over. Sri Lanka are currently struggling against the Proteas.
And RIP Rob Burrow, total superstar and legend.
