Energy Sector Updates: CVN, SEA, WPL & STO

By the closure of the trading session, on 18 July 2019, the Australian benchmark index, S&P/ASX 200 Index was at 6649.1 points, down by 0.4% (as on 18 July 2019). The S&P/ASX 200 Energy (Sector), trades on ASX under the code XEJ, and was at 10,580.30 points, down by 2.32%.

In this article, we would discuss the four stocks from the energy sector; these four have released updates related to quarterly activities, guidance and sale of the assets.

Carnarvon Petroleum Limited (ASX: CVN)

On 18 July 2019, Carnarvon Petroleum Limited notified an update related to the Dorado-3 appraisal well. Admittedly, the Dorado-3 is an extension of appraisal of the Dorado oil & gas field discovered in 2018. Also, the exploration at Dorado 1 was consequential to the discovery of hydrocarbon bearing reservoirs in the Lower Keraudren Formation within Caley Baxter, Crespin Milne Members. Besides, Dorado 2 also confirmed the hydrocarbon bearing reservoirs in the Caley Baxter, Crespin Milne, which has depicted connectivity in reservoirs between Dorado 1 & 2.

Dorado field (Source: Company’s Announcement)

As per the release, Dorado 2 is located 2.2km north east of Dorado 1 well, while Dorado 3 is approximately 900 metres north west of the discovered location in Dorado 1. Also, it is planned that flow tests targeting Caley Baxter, Crespin Milne reservoirs would be conducted at Dorado 3. Besides, the flow test would also target ~380 metres of full-bore core in the Caley Baxter, Crespin Milne Members.

Objectives- Dorado 3

Reportedly, the well is designed to promote the joint venture confidence and is focused on the acquisition of significant full-bore core on every reservoir section, along with full bore well flow tests and detailed wireline logging. Also, the core would provide understanding of the reservoir architecture, petrophysical models, permeability and hydrocarbon saturation to Joint Venture along with rock samples for studies. Besides, full-bore well testing would provide data related flow potential of reservoirs to optimise eventual development facilities.

Plans for the Well

The company anticipates taking one month to drill at the Caley reservoir. Admittedly, a full-bore core would be extracted over the Caley Baxter, Crespin Milne reservoirs, and information related to coring would be limited due to the nature of coring operations. Also, the information related to the reservoir and hydrocarbons discovered would be assessed three weeks post the coring when the wireline logging is completed.

Besides, a 7’’ liner would execute the well testing, and the company has planned for two or three tests in the well. Further, it would test the flow capabilities of the oil in the Carley reservoir, and either one or both of the Baxter and the Mine intervals.

Carnarvon Petroleum is expecting to take around 30-40 days to complete subject to frequency of test along with close to 36 hours of hydrocarbon flows in each test. Also, following the completion of well testing, the rig would be released after leaving the well in a safe condition.

On 18 July 2019, CVN’s stock last traded at A$0.435, up by 3.571 per cent from the previous close.

Sundance Energy Australia Limited (ASX: SEA)

On 18 July 2018, Sundance Energy Australia Limited reported that a definitive agreement was executed to sell the assets in the Dimmit County, TX for a purchase price of US$29.5 million, subject to customary adjustment at closing.

Available Liquidity (Source: AGM Presentation, May 2019

Reportedly, the assets consist of 19 gross producing wells on ~6,100 net acres, which contributed 1,051 boepd in average daily sales for the first quarter of 2019. Also, the sale is expected to close before the end of September 2019, and SEA’s recently notified increase in its borrowing base facility did not include any reserves associated with the Assets in the calculation of the borrowing base.

Besides, the previously released public guidance did not consider the contribution from the assets beginning in May 2019. Further, the borrowing base would remain unchanged upon the close of the sale.

Chief Executive Officer and Managing Director of Sundance Energy, Mr Eric McCrady, stated that the sale with an attractive price would add on to the company’s strong liquidity position, and the cash consideration provides additional liquidity cushion, in addition to the existing availability within the borrowing base. He also mentioned that the company is working to reach free cash flow generation in the second half of the year.

On 18 July 2019, SEA’s shares last traded at A$0.22, down by 8.333% from the previous close.

Woodside Petroleum Ltd (ASX: WPL)

On 18 July 2019, Woodside Petroleum Ltd released the second quarter report for the period ended 30 June 2019. Accordingly, the company had delivered a sales revenue of $738 million with a production of 17.3 MMboe, and strong LNG production performance from the North West Shelf.

As per the release, the production was down to 17.3 MMboe in Q22019 compared with 22.1 MMboe in Q22018, and it was affected by Pluto turnaround. Also, the sales revenue of $738 million in Q22019 was down from 1,082 million in Q2 2018.

Besides, the company provided the half-year guidance with production costs expected between $260 million to $300 million, net finance cost expected to be between $90 to $130 million. Further, the guidance for taxes in royalties and excise at $95 million to $135 million, PRPT benefit estimated at $30 million to $70 million and income tax estimated at $200 million to $240 million.

Sales Revenue (Source: Company’s Announcement)

Developments

Greater Enfield

Reportedly, the project remains on schedule and budget, and at the end of the quarter was 95% complete. Also, in excess of five million work hours were completed during the major refit of the Ngujima-Yin FPSO at Keppel Tuas Shipyard in Singapore, without any recordable injuries. Further, the Ngujima-Yin FPSO returned to waters off the North West Cape on 5 May 2019. Moreover, the offshore commissioning has commenced, with first oil production from the Greater Enfield reservoirs targeted in the coming week.

North West Shelf Project

As per the release, the Browse Joint Venture (BJV) approved the Browse to NWS Project basis of design in May 2019. Also, during June, the company completed the geotechnical and environmental elements of the proposed trunkline route survey. Besides, BJV is aligned on being ready to commence FEED by the end of 2019.

On 18 July 2019, WPL’s shares last traded at A$34, down by 2.718 per cent from the previous close.

Santos Limited (ASX: STO)

On 18 July 2019, Santos Limited published the Second Quarter Activities Report for the period ended 30 June 2019. Accordingly, the production was down to 18.6 MMboe in Q22019 compared with 18.4 MMboe in Q12019, and the sales volume was 22.4 MMboe in Q22019 against 22.8 MMboe in Q12019. Also, the sales revenue was at $959 million in Q22019 compared with $1,015 million in Q12019, down by 5%. Besides, the capex was up by 53% to $270 million in Q22019 compared with $177 million in Q12019.

Comparative Performance (Source: Company’s Announcement)

It was reported that the second quarter sales volume were down due to the timing of LNG and liquids shipments. Also, the two PNG LNG cargoes remained on the water at the end of quarter, while the liquid cargoes were lifted in early July. According to the release, the second quarter sales revenue were down from the first quarter due to subdued average oil-linked LNG and domestic gas prices along with the timing of LNG and liquid shipments.

2019 Guidance

Reportedly, the production guidance has been contracted to 73-77 MMboe while the sales guidance was 90-97 MMboe. Also, the unit production cost guidance has been lowered to $7.25-7.75 per boe. Further, the company would release the half-year results on 22 August 2019.

Guidance (Source: Company’s Announcement)

Balance Sheet & Net Debt

The company had previously notified about the adoption of AASB 16 Leases standard in 2019 in previous full-year statements. Further, the estimated balance sheet debt of the lease liabilities was $294 million, as at 31 December 2018.

Reportedly, the net debt was narrowed to $3.1 billion as at 30 June 2019, which does not consider the impact of the adoption of AASB 16. Also, the company had cash and cash equivalents of $1.2 billion and gross debt of $4.3 billion as recorded on 30 June 2019, which excludes the impact of AASB 16.

On 18 July 2019, STO’s stock last traded at A$6.92, down by 1.705% from the previous close.


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