Jadestone Energy Share Discussion Threads

[zengas] 26/10/2018 20:30

Quadrant bought 2 months ago for £1.6b.

JSE on a reserves and conversion of 2C to 2P, (up to 75 mmboe 2P combined) production moving to circa 18,000 boepd this coming year - JSE current m/cap = £189m @ 41p.

Ball park possibility they should be worth 4X (ie £750m) at circa 110 mmboe/26,000 boepd simplistic basis comparrison to the likes of Quadrant (before any further acquisitions/use of cash flow etc) ?

The $2.15b (USD) takeover of Quadrant Energy by Santos plus potential contingent payments -

Quadrants 2P reserves were 220 mmboe end 2017).
19 mmboe annual production ( = 52,000 boepd).

Acquisition of 100% of Quadrant Energy (Quadrant) for US$2.15 billion plus potential contingent payments related to the Bedout Basin Fully funded from existing cash resources and new committed debt facilities, with rapid de-gearing expected to <30% by the end of 2019

Value accretive acquisition of long-life WA conventional natural gas assets with stable cash flows

Consistent with Santos' growth strategy of building on existing infrastructure positions around core assets to deliver sustainable shareholder returns

Advances Santos' aim to be Australia’s leading domestic natural gas supplier Increases proforma 2P reserves by 220 mmboe, up ~26% and proforma annual production2 by 19 mmboe, up ~32%

Significant portfolio overlap with Santos provides combination synergies estimated at US$30-50 million per annum (excluding integration and other one-off costs)

Upside through further material synergies, near-term developments and exploration

Material earnings, cash flow and value per share accretion

Opportunities to leverage Quadrant’s offshore operating capability across Santos’ Western Australia and Northern Australia portfolio

Quadrant’s portfolio of high-margin conventional domestic natural gas assets backed by medium to long-term CPI-linked offtake contracts provide strong and stable cash flows, and compliment Santos’ predominantly oil-linked revenues

[zengas] 26/10/2018 19:52

Hopefully this is positive for JSE closing on the Ogan Komering PSC with Pertamina over the next 6-8 weeks.

"Petronas, Pertamina, and PetroVietnam are all likely to be on the lookout for new partnerships in 2019"

15/10/2018

The Asia-Pacific’s oil and gas industry looks set to rebound over the next 12 months as rising demand, stronger commodity prices, and an uptick in merger and acquisition activity bring greater confidence to the region, according to a recent report from Wood Mackenzie.

Firstly, Asian LNG demand continues its robust rise, driven by Chinese coal-to-gas switch policies. Chinese LNG demand increased by a record 8 million tonnes in 2017 and is set to jump by another record 12 million tonnes in 2018. This makes up 50% of global LNG demand growth. Given China is only through its 5-year clean air policy, the China LNG demand growth story is far from finished.

While China grabs many of the headlines, LNG demand growth is a reality throughout Asia. In total, Asia-Pacific LNG demand is set to rise a further 60% to reach 337 million tonnes/year by 2030. By comparison, the rest of the global market is only 75 million tpy currently.

M&A activity

M&A activity also is seeing a resurgence in the region, with more than $6.8 billion worth of upstream assets changing hands in 2018—the highest level of activity since 2014. Australia accounts for much of this uptick, with Santos Ltd.’s $2.2-billion acquisition of Quadrant Energy, the pick of the deals down under.

More recently, OMV AG’s $800-million entry into Malaysia suggests that the corporate landscape in Southeast Asia could also be set for an injection of fresh capital and ideas.

As NOCs in the region are increasingly burdened by maturing assets and growing domestic energy demand, the need for partners with technical and financial capacity to help maximize recovery will rise. Petronas, Pertamina, and PetroVietnam are all likely to be on the lookout for new partnerships in 2019, to support continued investment in both old and new field developments.

“The uptick in activity in Southeast Asia has been slower, but we are seeing the first signs of new entrants showing interest again, to fill the gap left by some of the larger IOCs that have exited or deemphasised the region. Look out for more deals in Malaysia and Indonesia, particularly after Indonesia’s general election in April 2019,” Harwood said.

[mount teide] 26/10/2018 18:33

The short-term energy outlook from the US Energy Information Administration this week said it expects Brent crude to average US$81 a barrel for the rest of the year.

Looking ahead to 2019, it expects an average of US$75 a barrel.

The EIA report addresses the concerns around Iranian sanctions, saying it estimates a fall of Iranian crude to one million barrels a day in 2019, down from the country’s usual output of 3.8 million barrels a day. The report also noted that “total volumes of crude oil and condensate coming off the market will become more apparent in the months following the full implementation of sanctions in November,” and added that it will be watching the reaction from OPEC and friends “to compensate for lost supplies.”

Considering the oil market fundamentals and pipeline bottleneck constraints expected to continue impacting US shale oil production for most of next year together the pipeline bottlenecks already putting a cap on Canadian production, other than Saudi Arabia, its difficult to see where the additional supply is likely to come from until additional pipeline capacity comes on line in the US towards the end of the year. This is likely to give swing producer Saudi Arabia the ability to adjust the tap to covertly keep oil in its preferred range $75 - $85.

Anywhere around the Saudi's preferred range would likely suit JSE just fine considering the performance of Montara at an average of $73 oil from Jan-Sept 2018.

[mount teide] 26/10/2018 14:38

Considering the sector fundamentals I think the inflation unadjusted 10 year Brent average price of circa $80 could well prove to be the average price over the next five years - $80 oil today is equivalent to $66 oil in 2008 after inflation adjustment.

Most assets valuations have a remarkable tendency to revert to their long term mean line.

The SE Asia, China, India and Pacific Rim oil consumption growth chart has been following a near straight 45 degree line for the last 38 years - as this region has been responsible for over 75% of global oil consumption growth since 1980, it would take an incredibly brave or foolish investor to bet against letting "the trend be your friend"! Particularly with China and India both reporting oil import growth increasing to above 6% this year to date.

[zengas] 26/10/2018 13:41

Hi Spangle.

One thing that is certain, there will be further acquisitions given the current position they are in - whether 3, 6 months or a year+. We don't know what size or scale they may be, but they could do a further transformational deal at some point leveraging off the strong cash flow/current assets.

Ogan Kommering is not in the CPR or current valuation. If it is approved then well and good - a bonus, but if not, it's no loss and the company is pursuing acquisitions.

The reason it's an investment opportunity for me is that there is potentially £1b of value out there at some point from what's in the portfolio. Like every company its about moving them up the value chain and how much of that we can acheive from the base valuation. I don't think anyone is saying or expecting them to be worth £1b today but it's all about closing the value gap. If one or two don't make the mark hopefully other assets will fill that gap. Everything i see that we have is either production or 2C or discoveries, much better than base exploration hopes.

4X from here would not be dissapointing in the slightest. If the oil price averages $66-$68/b i will be more than happy. Anything above is a bonus. Knowing that the company is making significant cash at those levels and is seeking to add both production and development assets hopefully will acheive strong growth.

[spangle93] 26/10/2018 12:07

Mount T - I wasn't saying that it wasn't possible for JSE to make improvements. If we didn't believe that, we wouldn't be here.

I was saying that many of the planned improvements are already built into the 4x mark up they are showing, i.e. that the "modest improvements" that you cite are banked in their presentation target before they have happened.

Yes we've had a nice uplift from the oil price rising above the price when the deal was struck, but it's not sound to bank on this being the status quo, even if IMHO $80 is a realistic price over the field life

[mount teide] 26/10/2018 10:11

Spangle - this is an investment play about betting on a management team with long experience of the region continuing to add to their proven track record of delivering exceptional returns from second phase oil field management.

Like Stag before JSE took over operatorship, the Montara Field/FPSO has been managed extremely poorly over recent years, with low levels of field uptime/asset productivity and high operating cost.

Operating the FSPO for circa 8 months out of CLASS tells its own damning story about the professional abilities and extremely casual approach to safety of the previous owners Oil Field/FPSO management (considering the previous history of the Field, how the Australian Authorities allowed them to continue getting away with it for so long without shutting them down for failure to quickly rectify the situation is a complete mystery).

At Montara, I have no doubt JSE's management team will have little trouble quickly generating material operational improvement and reducing costs ( as evidenced by the FPSO getting brought back into Class within 1-2 months of their technical personnel joining the FPSO to work with the onboard team).

I agree the upside is "somewhere between 2 and 6" - but with this management and the oil sector fundaments over the next three years I believe "4 to 6" is a far more realistic prospect with the risk skewed heavily to the upside should oil creep back up towards $100.

The potential of Montara alone is staggering when considering the field performance during the first 9 months of 2018 at an average of $73 Brent, saw a $92m cash surplus generated on handover - a period during which the Field/FPSO had a very low uptime and production performance and high operating cost. Even modest further improvement should have a highly material impact on cash generation - and should they achieve a similar cost reduction performance to Stag and oil averages around $80 next year (its ten year inflation unadjusted average price) the returns have the potential to be considerably greater than anything suggested in that presentation.


A good example of the potential possible in the recovery phase of a long term highly cyclical market was the shipping sector in 2008/9, where Capesize bulk carriers(with an average working life of 20 years) were earning more in profit in a year in the spot market than the $70m build cost of a new vessel.

[spangle93] 25/10/2018 23:25

Thanks Zengas, for posting link and your observations

Ref slide 14, I think the key is that blue colour is Auatralasia, green colour is SE Asia, rectangle-shape is production circle-shape is development. If you take the hopper literally, that would be 2 development opportunities in SE Asia, and 4 production opportunities, two of which are in Australia. To be honest, I read the slide as indicative of a structured high-grading process, rather than there literally being exactly 6 dataroom and evaluation candidates, but none is shown as being in commercial negotiations.

Slide 13, with all due respect to Jadestone, appears quantitative but is a real mix of assumptions.

For instance, it's showing Vietnam as part of total tangible value, but it's not even approved for development, capex numbers are pre-FEED, and they have no gas price. So it's questionable whether it should be there, but if it is, the numbers carry a big range, even if you base it on a single P50 reserves number (which of course has its own uncertainty range).

The Montara and Stag 2P includes successful delivery of FUTURE wells, which certainly flies in the face of conservatism. So if the planned wells are drilled, they aren't adding value, they merely confirm/preserve what is already shown in this graphic.

In a similar vein, the NPV numbers also assume that Jadestone WILL deliver opex savings. So again, any failure to do so (to the degree promised) drops that total tangible value number, rather than any success adding to it.

And yet Ogan Komering is a fuzzy grey line with "future" upside, but appears as real as the others from its slide.

Don't get me wrong, there is a clear upside to this stock that is not yet realised in the market cap / share price, but that figure to me says it's "somewhere between 2 and 6", rather than "4x".

[highly geared] 25/10/2018 20:17

Sensible 5x upside which shows what deep value there is here with anything like reasonable oil price ($70_85). I continue to hold.

[mount teide] 25/10/2018 19:29

Zengas - good spot - a very interesting read.

[zengas] 25/10/2018 18:57

Very impressive October Presentation now up (has update with 4 Potential Acquisitions under evaluation - 2 producing and 2 development.)

Page 5
On closing on 28th Sept 2018 JSE recieved $92m cash and 217,000 bls oil.
Gross debt shown at $120.2m at Oct 15th 2018.

Further improvements at Stag.
Stag 49H infill well on schedule for late Q4 spud. (Ensco 107 rig due December for 34 day drill page 23).

Negotiations ongoing woth Pertamina for re-entry to Ogan Komering PSC.
NamDu/U Minh project feed and gas sales negotiations now underway.

Page 9
Breakeven at Stag since taking operatorship reduced from $78 to $39/b. Targeting under $30/b

Page 12
Production graph now showing from first 2 infill wells at circa 18,000 bopd.

Page 13 (Current valuation at 41p = $245m = £189m at £1=$1.30)
Stag and Montara 2P CPR reserves value = $564m.
Stag and Montara with 3P upside potential value = $915m (£703m).
Nam Du/U-Minh 2C + southern channel = $322m (£247m).
Potential valuation target of $1.237 billion (£950m).
Doesn't include Tho Chu, Ogan Komering or other assets currently in the portfolio or other acquisitions.

Page 14
Three acquistions completed in first 2 years of new management.
Several high-graded opportunities under active evaluation.
From the graphic - 2 producing and 2 development.

Page 15
Fully funded development programme.
Long term fixed price and fixed escalation take or pay contracts providing support against oil price volativity.

Page 25
Comprehensive satus update on Nam Du/U Minh development progress.

Page 26
Progress update on Ogan Komering PSC participation (expected this quarter).

[zengas] 25/10/2018 18:54

Very impressive October Presentation now up ( has update with 4 Potential Acquisitions under evaluation - 2 producing and 2 development).

Page 5
On closing on 28th Sept 2018 JSE recieved $92m cash and 217,000 bls oil.
Gross debt shown at $120.2m at Oct 15th 2018.

Further improvements at Stag.
Stag 49H infill well on schedule for late Q4 spud. (Ensco 107 rig due December for 34 day drill page 23).

Negotiations ongoing woth Pertamina for re-entry to Ogan Komering PSC.
NamDu/U Minh project feed and gas sales negotiations now underway.

Page 9
Breakeven at Stag since taking operatorship reduced from $78 to $39/b. Targeting under $30/b

Page 12
Production graph now showing from first 2 infill wells at circa 18,000 bopd.

Page 13 ((Current valuation at 41p = $245m = £189m at £1=$1.30).
Stag and Montara 2P CPR reserves value = $564m (£433m at £1/$1.30).
Stag and Montara with 3P upside potential value = $915m (£703m).
Nam Du/U-Minh 2C + southern channel = $322m (£247m).
Potential valuation target of $1.237 billion (£950m).
Doesn't include Tho Chu, Ogan Komering or other assets currently in the portfolio or other acquisitions.

Page 14
Three acquistions completed in first 2 years of new management.
Several high-graded opportunities under active evaluation.
From the graphic - 2 producing and 2 development.

Page 15
Fully funded development programme.
Long term fixed price and fixed escalation take or pay contracts providing support against oil price volativity.

Page 25
Comprehensive satus update on Nam Du/U Minh development progress.

Page 26
Progress update on Ogan Komering PSC participation (expected this quarter).

[mount teide] 25/10/2018 17:32

SE Asia, China, India and the Pacific Rim's 4.2 billion population's insatiable appetite for energy, most of which it needs to import, means the region pays by far the highest price for its energy.

Yet, one of the most remarkable oil market statistics is that since 1980 while consumption in the UK/Europe and USA collectively has remained static, in China, SE Asia, India and the Pacific Rim, it has increased by a collective 24 million bbls a day.

This increase is equivalent to 24 times the annual oil production output of the North Sea - and yet today Chinese and Indian oil consumption per capita is still only one seventh (14%) and one eleventh (8%) respectively of the USA.

Since 1980 there have been few certainties in life other than death, taxes and the growth of oil consumption in SE Asia, China and the Pacific Rim (the chart has followed a 45 degree line for 38 years).

After oil and copper market capital investment fell over 60% between 2013 and 2016, its a paradox that although the supply/demand curve has since been strongly signalling a need for it to rise, and rapidly, commodity pricing is still to reflect this, resulting in the industry largely continuing to sit on its capital investment hands (outside of the heavily loss making US oil shale sector).

A similar situation occurred in the early 2000's and led eventually to a huge spike in the price of copper and oil to rapidly drive up investment in new production.

On the balance of probabilities the very low level of new investment in this latest cycle is likely playing into the hands of investors with the foresight to take exposure to the oil and copper sectors - since every passing day increases the certainty of either much higher or very much higher pricing in the future - as the demand from the 4.5 billion population Chinese, SE Asian and Indian economic/urban infrastructure development juggernaut is still in its infancy, accelerating and likely has many decades still to run.

Chinese and Indian oil consumption growth in 2018 has increased by over 6% ytd and, Chinese Natural Gas imports by a staggering 34.8% this year to 57.2 mt as a result of a number of new LNG terminals opening or increasing capacity.

Data Source: Mostly from BP's Statistical Review of World Energy 2018

[mount teide] 22/10/2018 22:47

Stag Field - First of the 3 in-fill wells to be drilled by Q3/2019 is due to spud in Q4/2018 - The Ensco 107 drilling rig is scheduled to arrive at the Field in December for an estimated 34 day well.

From Admission Document:

'The Company is now focused on increasing production and intends to drill five in-fill wells by the end of 2020 (being four producers and one water injector), targeting an average of 1.1 MMbbls of oil for each producing well, which also provides additional reserves from the field as a whole through field life extension.

The initial production rate of each well is expected to be circa 1.2 mbbl/d before following a natural decline rate. The additional production derived from the first infill well to be drilled is expected to further reduce 2019 per unit operating costs (excluding work-overs) to US$25.9/bbl and enhance cash flow resiliency, even at low oil prices.'

Initial expected production rate from the first in-fill well is targeting an increase in field production of 36%, while reducing operating costs per bbl by 22%.

[mount teide] 22/10/2018 07:44

Cash flow development - Brent has averaged 11% higher since the beginning of September compared to the three month prior period. Gross revenue will have increased by circa $3.3m(Monthly)/$40.0m(on an Annualised basis).

Average Brent Price:
$73 June - Aug
$81 Sept - to date

[basem1] 22/10/2018 07:21

Buying price 41p - just taken 20,000

[mount teide] 21/10/2018 17:07

World oil and liquids supply surpassed 100 million barrels a day for the first time in Q3/2018 - IEA

Global supply rose to 100.3 million bpd in Q3 the IEA said on Friday in its monthly oil market report. Output, which includes crude oil, natural gas liquids, biofuels and refinery processing gains, was 2.3 million barrels a day higher than Q3/2017 when Brent average circa $53.

So, despite increasing global oil and liquids production some 2.3% over the last year while Cushing stocks fell from circa 60m bbls to circa 25m bbls; such was the demand the price of Brent still rose over 60% from $53 to more than $85 at the recent peak - suggesting a much tighter market than the "adequately supplied" political language used by the IEA.

[mount teide] 21/10/2018 15:31

Asia's 4.6 billion population set to see it's oil deficit surge 30% to 35m bopd by 2025 - a forecast growth of 8 million bopd in just 6 years. They have got to find a supplier for an additional 1.3 times the North Sea's annual oil production EVERY year through to 2025.


Asia’s Thirst for Oil will Continue - Oil & Gas Bulletin - 15 October 2018

'Asia’s oil deficit will widen to 35 million barrels per day (bpd) by 2025, up about 30% from the current 27 million bpd, amplifying global trade flow imbalances, a senior executive at French oil and energy group Total said on Tuesday.

At the same time, Europe’s imports will be stable at 10 million bpd, while exports from North America and the Middle East will increase, said Thomas Waymel, the company’s president of trading and shipping.

The United States will export shale oil, but its refineries will continue to import medium and heavy sour grades, Waymel said during the Asia Pacific Petroleum Conference (APPEC) in Singapore.

Regulatory changes like IMO 2020, which will cap sulfur content in ship fuel, will be another driver for growth and changing trade flows, he said.

“The fuel oil flows will be reduced. At the same time, the shipping industry will need distillates … so Europe and Singapore will attract more distillates,” Waymel said.

New trade flows might emerge for high sulfur fuel oil either in coker capacity or power plants switching back from coal or gas to high sulfur fuel oil.

Light sweet crude will be more in demand, while heavy sour grades will need to be processed by complex refineries, he said.

“Regulatory changes will dramatically affect an increase in flows of both crude and products. It should also have positive impact on freight rates which is finally good news for ship owners,” he said.'

[zengas] 17/10/2018 15:03

Updated with Charts

[zengas] 17/10/2018 11:24

In the latest presentation (page 24) and the 5 year illustration depicting 30,000 boepd production.

2018 post Montara acquisition currently 13,900 bopd.

Next years 2019 graph moves up and if you apply a scale to the 2018 graph and 30,000 boepd used for 2023 graph then production should be around 17,300 bopd next year. Notably this states from "First Two Infills".
There is in fact 1 infill this year and 4 next year on the previous page schedule.

Further infills for 2020 and the graph increases and would translate to around 19,000 bopd and 23,000 boepd the following year.

OK gas fields are shown as coming on in 2022 but makes no allowance for the possible current net production which was recently 1400 boepd (65% oil). PSC terms awaited and expected this quarter (not guaranteed until signed off). This could and should add additional production when/if signed off.

Given the cash flow and their previous experience at Talisman in growth via acquisitions, could they make a further one in the next year or so perhaps adding a few extra or similar Montara scale thousand barrels in the process ?

"Well positioned to take advantage of the retrenchment by majors and independents in the region"

"Leveraging managements proven track record of accretive business development"

[zengas] 11/10/2018 21:42

Brent 2018 YTD 9 months = approx $72/b

My estimate from the chart gives Q1 average circa $66.50/b. Q2 $74/b. Q3 $75.50/b.

Plus a $2/b premium lifts the average to $74/b so imo has run at an approx 12% premium to $66/b used for 2018 with payback by Q4 next year for Montara. ($67/b being used for next year 2019, then $68/b thereafter).

[dorset64] 11/10/2018 21:40

Some great posts guys, great to have a 'quiet' board with some quality 'technical' input from you guys too. :)

[spangle93] 11/10/2018 21:01

Mount T - I think the acquisition price looks increasingly better for JSE with the oil price having gained after the deal was struck, though as Zengas says, there are additional burdens in this case (that I hadn't included in those rough payback calculations, thanks Zengas!)

Unlike some deals where majors exit an asset to allow a niche, low cost operator to manage late life field extension, as far as I can see, PTTEP has no decommissioning obligations. That's quite a prize for them.

[mount teide] 11/10/2018 20:36

Zen - great posts - 'transformative potential' are much over used words these days with respect to acquisitions but, increasingly Montara does look like the Thai's priced the asset to sell.

With the previous safety history of the field under their operator-ship in mind - selling out to a buyer that specialises in facilities management of mid life and mature fields capable of taking on the operator-ship of the field and FPSO within a short timeframe to enable a clean exit looks like it was reflected in the sale price.