Tag: OIL

the company has earned solid economic profits for decades. It reached the front of the pack in wireline evaluation in the 1920s, and it hasn’t relinquished its position since. Since then, Schlumberger has used its unrivaled expertise in understanding oil and gas reservoirs to not only drive a continuous stream of profits in its legacy business lines (embedded in the reservoir characterization segment), but also develop other oilfield-services business lines with nearly unwavering success. As one of many examples, the company pioneered directional drilling in the mid-1980s, a technology that today is recognized as an indispensable ingredient in the shale revolution.

Schlumberger is now applying its expertise to a somewhat different strategic focus: lowering the cost per barrel of oil and gas development via the provisioning of performance-linked services. Also, the company is prioritizing its digital capabilities, which will further support its capacity to boost efficiencies for Schlumberger and its customers.

Financial Strength

Despite COVID-19’s disruption of oil markets, Schlumberger remains in excellent financial health, with net debt/EBITDA of about 2 times in 2019. The company has $3 billion in cash and $3.5 billion in credit facility availability, and only about $3.5 billion in debt is coming due through 2023. The company to remain substantially free cash flow positive in the near term even as oil markets are still in the recovery phase.

Bulls Say’s

• Schlumberger has long spent more on R&D than all its service company peers combined and more than all the oil majors.
• The company has a multide cade record of innovation and a proven ability to generate shareholder value in even dismal oil market conditions.
• Asset Performance Solutions is a hidden gem within the company, likely to generate growth with high returns on capital in years to come.

Company Profile 

Schlumberger is the world’s largest supplier of products and services to the oil and gas industry. The company operates its business via multiple groups: reservoir characterization, drilling, production, and Cameron. It is investing more than any other services firm to make its offerings more bundled, which it believes is likely to be one of the key industry trends during the next 10years. Efforts on this front are most visible via the Schlumberger Production Management business, which now accounts for 10% of its revenue.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis:

• Superior free cash flow breakeven price relative to peers have been generated by quality assets (NWS, Pluto, Australia Oil, Browse, Wheatstone) 
• Focus on cost reduction and positioning of the business for lower oil price environment
• Earnings improvement through improving oil and gas prices 
• WPL well positioned to fulfil increasing LNG demand 
• Strong balance sheet position
• Good with free cash flow generation
• Potential exploration success in Myanmar, Senegal, Gabon. 
• Change in CEO could either result in some uncertainty around future strategy or it could also be an opportunity to refresh the strategy with a “fresh” set of eyes 

Key Risks:

• Imbalance in supply and demand in global oil/gas markets
• Low oil / LNG prices
• Not meeting cost-out targets (e.g. reducing breakeven oil cash price)
• Disruptions in production

Key Highlights:

• WPL reported 31% increase in operating revenue, buoyed by higher realised prices mainly driven by the recovery in demand for LNG and oil
• Underlying NPAT was up +17% 
• Board declared an interim dividend of US 30cps (up +15% over pcp), representing a payout ratio of ~80% of underlying NPAT
• Announcement of merger with BHP’s oil and gas business, which is expected to deliver cost synergies north of US$400m p.a. by leveraging combined capabilities and capital efficiency, creating a higher margin oil portfolio
• Improvement in balance sheet with gearing declining -110bps over 2H20 to 23.3%, remaining within target range of 15-35% and free cash flow (FCF) was up +18% to $311m.
• Appointment of Meg O’Neill as the new permanent CEO and managing director
• Revenue generated by WPL segments are; Pluto contributes 47% of the total revenue, NSW contributes 26%, Australia Oil contributes 14% and Wheatstone contributes 13%.
• EBITDA generated by WPL segment are; Pluto contributes 49% of the total EBITDA, NSW contributes 24%, Wheatstone contributes 15% and Australia Oil contributes 12%.

Company Description:

Woodside Petroleum Ltd (WPL) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. WPL owns producing assets in the North-West Shelf (NWS) project, Pluto LNG and Australian Oil. WPL is currently developing Browse, Sunrise, Wheatstone, Grassy Point and Kitimat LNG. WPL is currently undertaking exploration activities in Myanmar, Senegal, Morocco, Gabon, Ireland, NZ and Peru.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis

• Management provides strong FY22 guidance.
• Sole will result in significant increases in production and free cash flow.
• Sole’s volumes are mostly contracted out, providing greater certainty at a lower risk of price fluctuations. Sixty-one percent of COE’s 2P reserves (Proved and probable reserves) are undertake-or-pay contracts, with uncontracted gas primarily beginning in 2024.
• Upside from CEO’s exploration activity Gippsland and Otway Basin.
• Over 25 years Industry/Developing LNG Project with companies such as BG Group, Woodside petroleum and Santos Ltd which leads by CEO/MD David Maxwell with strong management team.
• Favorable industry on the east coast gas market – with tight supply could lead to higher gas prices.
• Recent De- Rating Considered as a Potential Merger & Acquisition activity.

Key Risks

• Execution Risk – Drilling and exploration risk.
• Commodity Price Risk – movement in oil & gas price will impact uncontracted volumes.
• Regulatory Risk – such as changes in tax regimes will adversely impact profitability.
• M&A Risk – value destructive acquisitions in order to add growth assets.
• Financial Risk – potentially deeply discounted equity raising to fund operating & exploration activities should debt market tighten up due external macro factors.

FY21 Results Highlights

• COE achieved record sales and revenue sales volume up +69 percent to 3.01 MMboe and revenue up to +69 percent to $132 million.
• COE achieved record production of 2.63 MMboe up to +69 percent.
• COE’s sole gas sales agreement was a significant milestone driving, 2H21 revenue and earnings.
• Sound balanced sheet maintained with debt adjustments finalized.

Company Profile 

Cooper Energy Ltd (COE) is an oil & gas exploration company focusing on its activities in the Cooper Basin of South Australia. The Company’s exploration portfolio includes six tenements located throughout the Basin. Gas accounts for the major share of the Company’s sale revenue, production and reserves. COE’s portfolio includes: (1) gas production of approximately 7PJ p.a. from the Otway Basin, most of which comes from the Casino Henry gas project which it operates. (2) COE is developing the Sole gas field to supply 24 PJ of gas p.a. from 2019. (3) Oil production of approximately of 0.3 million barrels p.a. from low cost operations in the Cooper Basin. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Worley shares are hovering at just over AUD 11.00 and are currently only somewhat undervalued. Worley’s last traded price was 11.06 AUD, whereas its fair value estimate is 12 AUD, which makes it an undervalued stock. Worley paid out a final dividend of AUD 25 cents bringing the full fiscal year to better than expected AUD 50 cents, in line with fiscal 2020 thanks to a higher 94% payout ratio.

Underlying EBITDA fell 25% to AUD 649 million, marginally ahead of the expectations. And net operating cash flow fell by 24% to AUD 533 million. The robust cash performance facilitated a 10% reduction in net debt to AUD 1.24 billion. Worley is comfortably leveraged at 18% and 1.9 net debt/EBITDA at end fiscal 2021, that solid outcome delivered in a COVID-19-impacted period. The debt Worley does have is a hangover from its AUD 4.6 billion ECR takeover. 

Worley’s business has stabilized over the second half of fiscal 2021 including the work backlog increasing by 6% to AUD 14.3 billion at end June 2021 versus AUD 13.5 billion at end December 2020. Underlying fiscal second half EBITDA of AUD 386 million was nearly 50% ahead of the fiscal first half. And second-half EBITDA margin of 9.0% bettered the first half’s 5.9% by a considerable gap.

Company’s Future Outlook

It is forecasted AUD 45 cents for the full year, the higher payout sending a strong signal of the board’s confidence in the outlook. The full-year payout equates to an unfranked 4.5% yield at the current share price. Worley is expecting an improved fiscal 2022. However, different sectors and regions will recover at different rates. The company is starting to see activity levels increase with key awards in the early phases.

Company Profile

Worley is a leading global provider of professional services, such as engineering, procurement, and construction management, to the oil, gas, mining, power, and infrastructure sectors. Purchase of Jacobs ECR in April 2019 reduced revenue contribution from hydrocarbons to just over 50%, from a prior 75%-80% position. Metals and mining contributes 23% and infrastructure and chemicals the balance. Worley has a global presence with about 59,000 staff in more than 50 countries. It has a strong presence in many developing economies, including Africa.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

The PNG oil and gas producer reported first-half 2021 underlying net profit after tax, up 460% to USD 139 million. Lower-than-expected operating costs were the driver of outperformance. 

Net operating cash flow increased 52% to USD 308 million. This allowed group net debt to fall USD 254 million in the first half to USD 2.10 billion, excluding operating leases. Leverage (ND/(ND+E)) was 27% with annualized first-half net debt/EBITDA still somewhat elevated at 2.3, though likely to improve given stronger second-half LNG prices.

Oil Search declared an interim USD 3.30 cent dividend, up from zero in the previous corresponding period and ahead Oil Search maintained all 2021 guidance including production of 25.5-28.5 mmboe, unit production costs of USD 10.50-11.50 per boe, and investment expenditure of USD 250 million-350 million. The current AUD 6.10 Santos share price implies an Oil Search value of AUD 3.83 and Oil Search shares trade close to that mark. 

Company’s Future Outlook

Oil Search shareholders will hope to achieve the ultimate value potential through Santos shares. It is forecasted a 70% increase in group production to 46 mmboe by late this decade, capturing PNG LNG expansion and the Papua LNG projects, but not yet inclusive of Alaska North Slope’s oil, pending Pikka front-end engineering and design, or FEED, outcome. This, regardless, drives an 11.8% 10-year group EBITDA CAGR to USD 1.85 billion by 2030, from a coronavirus-affected 2020 launch year.

Company Profile

Oil Search was founded in 1929 and operates all of Papua New Guinea’s oilfields. The PNG government holds a 10% interest. Oil Search had successfully run PNG oil fields since assuming operatorship from ExxonMobil in 2003. However, the tyranny of distance saw the large and high-quality gas fields largely stranded until 2014. The PNG LNG project is the first step to monetize those vast gas resources, again under the direction of ExxonMobil. First-stage construction is complete, with potential for expansion from two trains to five.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment thesis

• Positive trends in the sale of Alaskan equity interests.
• Following the recent capital raising, the balance sheet is in good shape. More deleveraging will be beneficial as well.
• Globally appealing assets with a favourable cost structure.
• Although expensive, downside hedges to lower oil prices are a good thing in the event of a black swan event.
• Possible M&A activity.
• Rising oil and gas prices

Key Risks

The following are the key challenges to the investment thesis:

• Global oil and gas markets are experiencing a supply and demand imbalance.
• Lowering of oil and LNG prices.
• Disruptions in production.
• Execution risk associated with LNG expansion.
• Adverse policy changes in PNG (the government is a major backer of the project).

Highlights of key FY21 results

• Revenue of $667.7 million was up +7% as the oil and LNG markets recovered from the initial effects of Covid-19 (average oil and condensate realisation of $64.66 was up 80% over the pcp). Total production was 13.5 million metric tonnes, a -8 percent decrease from 14.5 million metric tonnes. 
• EBITDAX of $488.8 million increased by 8%.
• Core EBIT of $278.8 million increased by 88 percent. OSH is on track to achieve a 40% reduction in underlying operated opex by 2023. Free cash flow increased significantly to $284.3 million (up from $12.8 million in 1H20). 
• OSH made a revenue of $139.0 million, a huge improvement over the -$266.2 million reported in 1H20. Given the LNG price lag to Brent, management expects solid operating cashflows to continue in 2H21.
• Net debt fell -11 percent to $2,122.2 million. Gearing was reduced from 29.9 percent to 27.2 percent in the pcp. Under financial covenants, OSH has significant headroom, according to management. 
• The Board declared an interim dividend of US3.3 cents per share, representing a payout of 49 percent of NPAT and consistent with OSH’s dividend policy of a target payout ratio of 35 to 50 percent of core NPAT.

Company Description  

Oil Search Limited (OSH) explores for and produces gas and oil through operations in Papua New Guinea. The company’s activities are located in the Papuan Highlands which include Kutubu, Hides, and Gobe oil and gas projects.   

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

spinning off its retail gas and refinery businesses. Historically, the company’s capital efficiency was skewed to the weaker end of the peer group range, even after this transformation, but management has since narrowed the gap by downsizing the portfolio and shifting capital toward higher-margin projects.

The firm is a top-five producer in the Gulf of Mexico, and the region accounts for almost half of its production. It signed a joint-venture agreement with Petrobras in late 2018, giving it an 80% stake in the combined assets of the two companies. Murphy has a number of expansion projects lined up there that should offset legacy declines and enable it to hold production flat in the next few years. There is regulatory risk, though: U.S. President Joe Biden has pledged to halt offshore oil and gas permitting activity (to demonstrate his climate credentials). 

 Like other shale producers, the firm has made considerable progress cutting costs and boosting productivity since the post-2014 downturn. However, while the firm still has over 1,400 drillable locations in inventory, fewer than 350 of them are in the prolific Karnes County area. When this portion is exhausted, well performance, and thus returns, could deteriorate. 

Financial Strength

The COVID-19-related collapse in crude prices during 2020 has taken its toll on most upstream oil firms, and Murphy has seen its leverage ratios tick higher as well. At the end of the last reporting period, debt/capital was 40% and net debt /EBITDA was 2.37 times. The firm currently holds about $2.8 billion of debt, and has roughly $1.7 billion in liquidity ($200 million cash and about $1.5 billion undrawn bank credit). The term structure of the firm’s debt is reasonably well spread out, and only about 20% of the outstanding notes come due before 2024 (the firm has maturities totaling $500 million in 2022). Murphy is likely to generate free cash flows of at least $100 million-$150 million in 2021 and 2022, based on strip prices, and its potential for generating free cash should increase further in 2023 (when some of the firm’s longer-term investments in the Gulf of Mexico start producing oil and contributing to cash flows). So the firm should have no issues covering the 2022 notes with cash, but if the operating environment deteriorates, management could always try to refinance the 2022 notes or lean on the revolver.

Bulls Say

• The joint venture with Petrobras is accretive to Murphy’s production and generates cash flows that can be redeployed in the Eagle Ford and offshore.
• The Karnes County portion of Murphy’s Eagle Ford acreage offers economics that are as good as or better than any other U.S. shale.
• Murphy’s diversified portfolio gives it access to oil and natural gas markets in several regions, insulating it to a degree from commodity price fluctuations or regulatory risks.

Company Profile

Murphy Oil is an independent exploration and production company developing unconventional resources in the United States and Canada. At the end of 2020, the company reported net proven reserves of 715 million barrels of oil equivalent. Consolidated production averaged 174.5 thousand barrels of oil equivalent per day in 2020, at a ratio of 66% oil and natural gas liquids and 34% natural gas.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Well-timed East Australian coal seam gas purchases and subsequent partial sell-downs bolstered the balance sheet and set the scene for liquid natural gas, or LNG, exports. Santos is now one of Australia’s largest coal seam gas producers and continues to prove additional reserves. It is the country’s largest domestic gas supplier.

Coal seam gas purchases increased reserves, and partial sell-downs generated cash profits, putting Santos on solid ground to improve performance. Group proven and probable, or 2P, reserves doubled to 1,400 mmboe, primarily East Australian coal seam gas. Coal seam gas has grown to represent more than 40% of group 2P reserves, despite partial equity sell-downs. A degree of confidence can be drawn from project partners. U.S. energy supermajor ExxonMobil, the world’s largest publicly traded oil and gas company, is 42% owner and the operator of the PNG LNG project.

The Gladstone LNG project was built and is operated by GLNG Operations, a joint venture of owners Santos (30%), Petronas (27.5%), Total (27.5%), and Kogas (15%). Petronas is Malaysia’s national oil and gas company and the world’s second-largest LNG exporter. The company increasingly enjoys export pricing on its gas. In addition to Santos’ Gladstone LNG, several other third-party east-coast LNG projects conspire to drive domestic gas prices higher. As the largest domestic gas supplier, Santos can expect significant bang for its buck, with limited additional capital or operating cost required to capture enhanced prices.

Financial Strength

Santos has moderate leverage (ND/ND+E) of 28% and maintenance of strong net operating cash flow is reassuring. Santos’ debt covenants have adequate headroom and are not under threat at current oil prices. The weighted average term to maturity is around 5.5 years. Capital expenditure of USD 4.0 billion, beginning 2022 on the Dorado oil project and the Barossa to Darwin LNG upgrade. But this is excellent near-term bang-for-buck expenditure, increasing group production by 65% to 125mmboe by 2026. Capital efficient development and fast up-front cash flows from Dorado’s oil should combine to ensure Santos’ leverage ratios continue to decline from current levels despite outgoings.

Bull’s Say

• Santos is a beneficiary of continued global economic growth and increased demand for energy. Aside from coal, gas has been the fastest-growing primary energy segment globally. The traded gas segment is expanding faster still.
• Santos is in a strong position, with 0.9 billion barrels of oil equivalent proven and probable reserves, predominantly gas, conveniently located on the doorstep of key Asian markets.
• Gas has about half the carbon intensity of coal, and stands to gain market share in the generation segment and elsewhere as carbon taxes are rolled out.

Company Profile

Santos was founded in 1954. The company’s name is an acronym for South Australia Northern Territory Oil Search. The first Cooper Basin gas discovery came in 1963, with initial supplies in 1969. Santos became a major enterprise, though over-reliance on the Cooper Basin, along with the Moomba field’s inexorable decline, saw it struggle to maintain relevance in the first decade of the 21st century. However, the stage has been set for a renaissance via conversion of coal seam gas into LNG in Queensland and conventional gas to LNG in PNG.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

In other coronavirus news, Russia’s overall virus cases have topped 6 million, and Turkey’s infections have tripled since earlier this month.

China, the world’s largest petroleum importer, reported 76 new COVID-19 cases, the most since the end of January, amid a surge of local illnesses in Nanjing, in eastern China.

Floods and a typhoon have wreaked havoc on China’s central and eastern regions.

With robust demand in the United States and forecasts of restricted supply underpinning prices, investors are now looking for direction from the Federal Reserve meeting and reports on US oil inventories.

(Source: Factset)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.