FoxDavies Daily Monitor - Tullow Oil, Salamander Energy and Soco International

Wednesday, February 13, 2013

JKX (LON:JKX) - Sweating the Assets: Today's announcement from the Company underlines the fact that the Company is seeking to better sweat its asset base by extracting as much value from its fields as possible. Yesterday we posed the question as to whether this was the end of the transition period; today would further support the question that it is. Pretty soon, however, the Company needs to address the issue of its medium and longer term strategy, which will be required to drive JKX forward to the next level.
In this news:

  • Commissioning of the new LPG equipment at Novo-Nikolaevskoye is expected in May 2013
  • The additional equipment will enable JKX to enhance the recovery of propane

    • 15% increase in LPG production
    • Current LPG yield 1.94Te/mm cf (produced)
    • Upgraded yield 2.23Te/mm cf (produced)

  • Pricing has increased to over $1,000/Te.

Salamander Energy (LON:SMDR) - Will Salamander's Drilling Form Hold?: The Company today announces that it has spudded the latest well in its Indonesian drilling campaign. This well follows its recent drilling success in Indonesia, which in turn has reflected the uptick in investment in the country brought about by the relaxation of the licencing laws, aimed at encouraging the smaller independent sector.

  • North Kendang-1 spuds

    • 75% WI
    • South East Sangatta PSC
    • Targeting gas and oil pay in a series of stacked Pliocene - Upper Miocene sandstone reservoirs
    • TD expected to be 2,600m
    • Drilled by the Ocean General semi-submersible rig in a water depth of 465 metres

  • Combined mean pre-drill estimate of prospective recoverable resources is approximately 770bcf and 91mm bbl
  • On completion the rig will return to the Bontang PSC to drill the Bedug prospect

    • The Bedug location is 4 km east and 500 m up-dip of the recent South Kecapi oil and gas discovery.

SOCO International (LON:SIA) - 2013 Starts as 2012 Ended: Today's operation update highlights the progress that the Company has made in 2012, especially in bringing projects on-line. While the bottom line is important, this has also flowed through to the cash flow, with cash increasing by ~$100mm. This in essence forms the basis for this announcement's key take aways, namely that the cash flow is buoyant, 2013 has continued the growth trend, the Company is well funded, it has a well-stocked exploration hopper for fuel future growth, and would appear to have reached a point at which it has become self-sustaining. The only note of caution in the announcement, and one area in which any bears of the stock could get excited about, is the uncertainly surrounding the size of reservoir in the Ca Ngu Vang ('CNV') field. Uncertainty arises in the CNV field to the fact that the oil flows from vugs in the fractured basement rock, which is essentially blind to seismic, which in turn offers the operators no idea of size. Still, calculations can be inferred from productivity and pressure responses. We believe that the Company's outlook remains buoyant and 2013 will make for another interesting year.
In this news:

  • 2012 net production ~14.8m boepd

    • +170%

  • January net production averaged ~18.8m boepd for January 2013
  • Net cash and liquid investments as at 31 December 2012 was $211.4mm

    • 31 December 2011: $113.5 million

  • An on-going independent reservoir engineers' assessment of the Te Giac Trang field in Vietnam currently ascribes an original oil in place range up to 958mm bbl
  • The expiry of the option to sell the Company's (80%) majority interest in SOCO Cabinda Limited ('SOCO Cabinda') to the entity's minority shareholder has been extended to the middle of February 2013. SOCO Cabinda has a 17% participating interest in the Cabinda North Block, onshore the Angolan enclave of Cabinda.

Tullow Oil (LON:TLW) - Will Tullow be Able to Top 2012?: Today's announcement from Tullow reflects the progress that the Company has made in 2012, with success at the drillbit mirrored by a more robust financial performance. However, to some extent, this will also make it difficult for the Company to replicate. However, it won't be for lack of trying. With 40 exploration or appraisal wells for the year, as well as a significant amount of development work, there is every chance that the Company will replicate its 2012 performance. That notwithstanding, we are concerned (as ever) with the cash flow, which despite higher realisations is showing signs of decline. While we accept that we are talking marginal effects here, it is perhaps the first sign that we are seeing that all companies face as they mature (i) that greater successes are required to 'move the needle;' and (ii) a maturing portfolio costs more to maintain than a newer field, requires greater investment to maintain, and typically requires more manpower to keep it running (all per unit of production). Tullow is not going to become unsustainable, and if there is a disaster scenario, with the financial firepower at its disposal it can always spend its way out of trouble. So the question then becomes, at what point will the Company start to rationalise its portfolio? At these levels, we believe that the valuation is undemanding, and with a dividend stream also in the mix, we believe that it should be the mainstay of any O&G portfolio.
In this news:

  • Financial results in line with market expectations and balance sheet substantially strengthened through debt re-financing and $2.9bn from Uganda farm-down
  • Following successful and cost-effective well remediation, the Jubilee field is now producing around 110,000 bopd; A 2013 exit rate in excess of 120,000 bopd is expected
  • Tweneboa-Enyenra-Ntomme (TEN) project Plan of Development submitted; approval expected shortly
  • Major basin-opening discovery in Kenya with the Ngamia-1 and Twiga South-1 wells; Twiga South-1 well flow-tested at a combined rate of 2,351 barrels of 37 degree API oil from two zones with the final test ongoing
  • Significant strategic portfolio management with a renewed focus on light oil including the acquisition of Norway's Spring Energy for $372m and the disposal of gas assets in Europe and Asia
  • Additional new country entries in Africa and the Atlantic margins; Guinea, Greenland, Uruguay and Mozambique
  • 40+ E&A well campaign planned for 2013; High-impact wells expected in Kenya, Ethiopia, Mauritania, Mozambique, Norway, French Guiana and Côte d'Ivoire.

Contribution by
from FoxDavies Capital

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This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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