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Market Update: Thursday 29 October 2020 

Royal Dutch Shell (LON:RDSB) – Shell raises its dividend following upbeat Q3 results

Diversified Gas & Oil (LON:DGOC)): Q3 2020 results, healthy dividend maintained

Gulf Keystone Petroleum (LON:GKP): September 2020 payment received from the KRG

Lekoil* (AIM:LEK): Strategic Alliance Agreement signed with NAMCOR

Touchstone Exploration (AIM:TXP): Cascadura Deep-1 well spudded ahead of schedule

Zoltav Resources* (AIM:ZOL) H1 2020 results, strong operational progress


Energy Prices         

Brent Oil US$39.8/bbl vs US$39.9/bbl yesterday

WTI Oil US$37.2/bbl vs US$38.7bbl yesterday

Natural Gas US$3.27/mmbtu vs US$3.01/mmbtu yesterday

Oil Price News

Oil prices fell again in early trading on reports that the CEO of Aramco Trading stated that global demand currently is not supportive for OPEC+ easing the oil production cuts on January 2021

OPEC and its Russia-led partners will likely consider “a lot of demand issues” before tapering their cuts

OPEC+’s decision will depend on how economies recover, including the US economy from a potential stimulus

OPEC+ is set to relax the current collective cut of 7.7MMbopd to 5.8MMbopd beginning in January next year

However, the second COVID-19 wave in Europe and the US is threatening economic and demand recovery and has increased market talk and speculation that OPEC+ may not and/or should not increase oil supply at the start of next year

Currently, the only bright spot in demand is China, which is expected to sustain solid demand in the fourth quarter and into the start of 2021, Aramco Trading’s Al-Buainain told Gulf Intelligence.

While demand in China is holding up and is back to nearly normal levels, demand in the developed economies in Europe and in the US is not bright, due to the spike in new cases

The second wave is a threat to demand and is delaying the recovery from the slump in the second quarter, oil industry executives and OPEC itself have warned recently

Gas Price News

Natural gas prices moved higher again as tropical storm Zeta makes its way into the Gulf of Mexico

The movement of the storm is expected to reduce production in the Gulf of Mexico by approximately 20%

The weather is expected to be moderate and then warmer than normal throughout most of the US which reduced heating demand

Stronger than expected Durable Goods Orders is likely to buoy manufacturing helping to generate more demand for natural gas

Hedge funds have now added to long position and reduced short position in futures and options according to the latest commitment of trader’s report

According to the CFTC, managed money increased long position in futures and options by 4.7K contracts while reducing short positions in futures and options by 11.5K contracts

Managed money open interest that is long futures and options outnumbers open interest that is short by 2.2 to 1


Yesterday’s Risers and Fallers


Company News

Royal Dutch Shell (LON:RDSB) – Shell raises its dividend following upbeat Q3 results

Share price: 886p, Market Cap: £71,817m

Shell’s latest Q3 2020 results has seen the Company look to placate its income institutional investor base by raising its dividend only months after cutting it for the first time since the second world war.

Reporting a modest profit for the third quarter, Shell confirmed it would pay investors a dividend of 16.65 cents for the three-month period, in addition to a promise to boost the dividend on an annual basis.

Earlier this year the Company significantly cut its dividend to 16 cents/share from 47 cents because of the “crisis of uncertainty” facing oil companies amid the coronavirus pandemic.

Shell set out the 4% pay out alongside its upbeat results.

Adjusted earnings were US$955m, well ahead consensus of US$146m, but still well below the US$4.76bn recorded for the same quarter last year amid the collapse of global oil prices.

The quarterly results show a sharp positive turnaround following the much-publicised US$18.3bn loss recorded in Q2 2020, down sharply from a net profit of US$3bn over the same period last year and US$2.7bn in the first three months of 2020.

In addition, Shell outlined a long-term plan to reduce debt to US$65bn and to aim for shareholder distributions of 20-30% of cash flow.

Its debt at the end of September was US$73.5bn, down from US$77.8bn in the previous quarter.

Shell’s capital investment will remain in a range of between US$19 and US$22bn in the near term while it targets annual divestments of US$4bn.

The company cut the value of its oil and gas assets, alongside many of its peers (BP, Exxon, Total, Chevron), as market prices fell sharply in response to falling demand during the height of the pandemic.

Shell reduced the value of these assets through a post-tax impairment charge of US$16.8bn in the second quarter and reported another write down of almost US$1bn on its Australian gas project (Prelude), in its Q3 results.

Earlier this year, Shell estimated oil prices to average US$35/bbl in 2020, rising to US$40/bbl in 2021, US$50/bbl in 2022 and US$60 in 2023.

The average oil price in 2019 was US$64.36/bbl.

Our take: Shell’s shares have dropped by more than 60% so far this year, more than any other major oil company, suggesting many of its income fund investor base took their business elsewhere due to the material cut in its dividend. Much of today’s results centre on a major restructuring as part of ‘a complete overhaul’ to reduce greenhouse gas emissions to net zero by 2050. In line with its strategy to reduce its oil and gas portfolio, plans are in place cut back its oil refineries in particular from 14 sites to six energy and chemical parks. The results have clearly come as a welcome surprise to the market with the shares currently trading up over 2% (at the time of writing) however we believe it will take a larger sustained dividend to recoup investment from the share register it boasted at the start of the year.

Diversified Gas & Oil (LON:DGOC): Q3 2020 results, healthy dividend maintained

Share price: 110.4p, Market Cap: £778m

Another positive trading update from DGO announced today showing Q3 2020 total net daily production, including a full quarter of production from the May 2020 Carbon Energy and EQT asset acquisitions, averaged 107kboepd (640MMcfe/d) (+8% vs. 2Q20, +17% vs. 3Q19).

In addition, DGO’s Smarter Well Management program continues to successfully offset natural production declines, with production from legacy assets maintained at 69kboepd (415MMcfe/d), delivering a ninth consecutive quarter of consistent production.

Another encouraging update is that the recently acquired Carbon and EQT assets are performing in-line with expectations and DGO plans to bring two PDNP unconventional wells onto production in December 2020 with aggregate estimated net initial production of 4MMcf/d.

Since the pandemic’s outbreak, the Company has safely operated its assets essentially with no impact from COVID as its

From a financial standpoint, the Company reported Q3 2020 adjusted EBITDA of US$75m, hedged (Q2 2020: US$68m, Q3 2019: US$64m).

This led to a 52% margin (34% unhedged) consistent with Q2 2020 (52%) and Q3 2019 (51%) hedged margins, demonstrating the effectiveness of the Company’s robust and proactive hedging program.

The Company achieved an average realised natural gas price of US$2.24/mcf, hedged (US$1.58/mcf, unhedged) (2Q20: US$2.21/mcf hedged, US$1.47/mcf unhedged; 3Q19: US$2.28/mcf hedged, US$1.91/mcf unhedged).

DGO ended the quarter with US$221m of available liquidity, and achieved a net debt to adjusted EBITDA of 2.2x (net debt of US$730m).

The Company repaid US$33m of debt in Q3 2020 through scheduled amortisation and elective credit facility payments (US$71m repaid YTD).

DGO’s semi-annual borrowing base redetermination process is currently underway, benefiting from an improved natural gas price outlook since the spring redetermination that enhances the Company’s long-life, low-decline reserve base.

DGO expects to complete the RBL redetermination in November, and will provide an additional update upon its conclusion.

The Company has also declared its Q3 2020 dividend of 4.0¢/share attributable to the operating period, payable on 26 March 2021.

The declared dividend represents 7% increase of the Company’s 3.75¢ declared Q2 2020 dividend (+14.3% in 2020), reflective of a full quarter contribution from the recently acquired assets from Carbon and EQT.

Our take: DGO continues to buck the trend of its US peers, growing production through opportunistic acquisitions whilst maintaining a healthy dividend. We would not be surprised to see the Company announce further purchases given its US peers need solutions to their debt problems and assets are available at compelling prices. The natural gas dynamic in the US is looking more positive in our view, as we head towards 2021 associated gas volumes fall with US domestic oil production boosting prices.


Gulf Keystone Petroleum (LON:GKP): September 2020 payment received from the KRG

Share price: 68.7p, Market Cap: £145m

The Company confirms that a gross payment of US$9.9m (US$7.7m net to GKP) has been received from the Kurdistan Regional Government (KRG) for Shaikan crude oil sales during September 2020.

Since March 2020, the KRG has paid for the last six months of oil sales in the following month as per its commitment to international oil companies.

GKP retains a strong balance sheet with a current cash balance of c.US$140m and no debt repayments until mid-2023.

Operationally, the Shaikan reservoir continues to perform in line with expectations, with current gross production of c.36,000bopd and average 2020 gross production of 36,272bopd.

At the time of suspension of investment plans in March 2020, key drilling and facilities activities were on track to achieve the 55,000bopd target in Q3 2020.

GKP is preparing to return to production growth, and has identified a number of quick payback projects, which are expected to increase gross production by c.5,000bopd for an aggregate gross cost of c.US$3m.

After successfully managing the impacts of COVID-19 over the last several months, management has reinstated its FY20 production guidance at 35,000bopd to 36,000bopd.

In line with its stated growth strategy, GKP continues to progress growth opportunities at Shaikan and will also consider potential value accretive inorganic options on an opportunistic basis.

Our take: With the Company’s ongoing prudent approach to managing its financial position and the decisive measures taken to reduce its cost structure to preserve liquidity, GKP remains financially resilient to manage through the current macro environment in our view. While waiting to resume the 55,000bopd project, the Company has identified a number of simple, low-cost, high-impact investments that have the potential to increase the current base level of gross production by c.5,000bopd and, subject to a satisfactory operating environment, could be implemented in the near-term.


Lekoil* (AIM:LEK): Strategic Alliance Agreement signed with NAMCOR

Share Price: 2p, Market Cap: £11m

Lekoil has confirmed that the Company has entered into a Strategic Alliance Agreement (SAA) with NAMCOR.

NAMCOR is a subsidiary of the national oil company of Namibia, which seeks to invest capital in the acquisition of interests in well-managed oil producing assets in politically stable jurisdictions as a means of securing long-term sustainability.

The SAA will leverage the technical capabilities of the respective parties towards the joint evaluation and acquisition of low-risk quick-to-production oil and gas assets across Africa.

Lekoil has a long-standing history in Namibia with its holding of an 80% stake in Lekoil Namibia, providing an entitlement to 90% of income distributed by the subsidiary.

Lekoil Namibia previously owned a 77.5% Participating Interest in two Namibian offshore exploration blocks (Blocks 2514A and 2514B) and continues to maintain a strong relationship with NAMCOR.

Our take: Despite a challenging market backdrop, exploration in Namibia is now back in fashion following the recent confirmation of a working petroleum system offshore and the region’s underexplored status. This has understandably led to a land grab from many of the world’s leading explorers, and Lekoil’s strong relationship with NAMCOR will potentially provide the Company access to new and existing licences. The next 18 months will see up to five exploration wells drilled on behalf of Exxon, Total, Maurel and Prom, Shell, and Galp, which will be monitored closely by sector investors in our view. E&P’s such as Eco (Atlantic)**, Chariot, and Global Petroleum also have a key presence in the region highlighting the broad spectrum of companies with active geological datasets.

 *SP Angel acts as Broker to Lekoil

 **SP Angel acts as Research Provider to Eco (Atlantic) Oil & Gas



Touchstone Exploration (AIM:TXP): Cascadura Deep-1 well spudded ahead of schedule

Share Price: 98.50p, Market Cap: £183m

TXP has announced that the Cascadura Deep-1 well in the Ortoire onshore exploration block Trinidad and Tobago has been spudded ahead of schedule.

The surface hole has a planned casing depth of 900ft, with the bottom hole anticipated to be 1,300ft to the south-east.   

The well is targeting three distinct Herrera thrust sheets and is designed to reach a depth of 10,600ft.

Advancement at the Cascadura Deep-1 well enables the Company to move forward with designing a program to commence testing the Chincook-1 well before the end of the year.

The T&T government has notified the Company that the exploration phase of the Ortoire exploration and production license has been extended by nine-months out to 31 July 2021.

Additionally, the 2D seismic commitment has been reduced from 85-line to 20-line.

The Company has agreed to drill an additional well to a true vertical depth of 10,000ft prior to June 2021.

TXP anticipates approval of the required Certificate of Environmental Clearance to commence Coho-1 surface operations by the end of November.

Negotiations continue on the natural gas agreement with NGC, the deal is expected to be executed by the end of the year.  

Our take: Following the successful production tests at Cascadura, TXP has pushed forward with operations at Cascadura Deep-1 and Chinook-1 ahead of schedule. While the pandemic has caused delays regarding the tie-in of Coho-1, extensions to the production licences will bring welcome breathing space in our view.

Zoltav Resources* (AIM:ZOL) H1 2020 results, strong operational progress

Share Price: 34p, Market Cap: £48m

Average net daily production (sold to customers) in H1 2020 was 24.3mmcf/d of gas (H1 2019 26mmcf/d) and 215bbls/d of oil and condensate (H1 2019: 207bbls/d).

Total production was 4.4Bcf of gas (H1 2019: 4.7bcf), and 39,216bbls of oil and condensate (H1’19: 37,389bbls)

Operations as the Western Gas Plant continued unabated in H1 2019 with no COVID-19 related disruption.

Sidetrack development well program at West Bortovoy field continued with Zhdanovskoye Well 8 out into production in January 2020 and Karpenskoye Well 19 completed in February.

The latter encountered oil and will require intervention.

A further two vertical development wells and construction of a 7.2km of pipe were initiated; Zhdanovskoye Wells 106 and 105 were put into production in July and September respectively.

The development drilling program on West Bortovoy is expected to deliver sustainable gas production of 35.3mmcf/d by the end of 2020.

Well operations and technical analysis as part of a feasibility study on East Bortovoy were completed in H1.

The project has been reviewed by an independent technical team with a decision on investment expected to be made subject to financing.

Revenues declined 12% in H1 to RUB 552m but COGs fell 29% and Operational and G&A costs decreased 20% enabling the Company to make an operating profit of RUB87.2m (H1 2019: operating loss of RUB 105m).

Cash generated from operating activities increased 39% to RUB257.5m while total cash at the end of the period was RUB31m (H1 2019: RUB330m).

A revolving loan facility of US$9m was announced after period-end in July 2020.

Our take: The Company continues to receive the support of its core shareholder, which endorses its compelling asset base in Russia in our view. Zoltav’s focus will now centre on its feasibility study on East Bortovoy to the point at which the Company can source project financing and make a final investment decision, and to support the development drilling programme on West Bortovoy which is necessary to sustain production levels.

*SP Angel acts as Nominated Advisor and Broker to Zoltav Resources


Research – Oil & Gas

Sam Wahab – 0203 470 0473



Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  


SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London



+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.


Sources of commodity prices


Oil Brent, WTI


Natural Gas




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Recommendations are based on a 12-month time horizon as follows:


Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

SourceBio International shares defy the gloom to move to a premium on their AIM debut

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