WTI $52.05 -31c, Brent $54.75 -35c, Diff -$2.70 -4c, NG $2.74 n/c, UKNG 55.5p -0.21p

Oil price

A funny day, low volumes due to markets being closed for MLK Day saw a drift but all looks better now that the market has seen the upbeat Chinese GDP data, up by 6.5% in Q4 2020 and +2.3% for the year. With the inauguration tomorrow all eyes are on Washington and the traditional last day pardons.

Genel Energy

A trading and operations update from Genel this morning, net production was 31,980 bopd in 2020 with Q4 showing 31,510 bopd. Tawke will be active in 2020 with 8 new wells to be drilled and multiple workovers in order to maintain production above 100,000 bopd. At Sarta where production started in November last year the 3 well has provided an average 5,500 bopd in 2021 so far with the S-2 well now expected in February.

The exciting 2021 appraisal drilling campaign is targeting a material portion of the 250 MMbbls of existing contingent resources, and prospective resources, in Jurassic formations. The campaign will begin at the start of Q2. Sarta-5 and Sarta-6 will be drilled back to back, with results from the first well expected in Q3, and operations on both wells complete in Q4 2021. Re-entry and deepening of the Sarta-1 (S-1D) well is expected around the middle of the year. Should S-1D be successful, a flowline will be constructed in order to enable the well to enter production around the end of 2021. As far as Taq Taq is concerned no drilling is planned for this year with activity limited to workovers that will help manage field decline.

With regard to the pre-production assets, at Qara Dagh (40% WI and operator), preparatory activities are ongoing for the QD-2 well, as Genel continues to target a spud date late in Q1 2021. The water well project successfully completed in December, providing them with water for the drilling operations The well is expected to drill, complete, and test before the end of the year, with the field holding resources estimated by Genel at gross mean c.400 MMbbls. As for Bina Bawi little changes ‘Discussions with the KRG are ongoing at the highest levels relating to our proposals submitted in August and December 2020, which would enable the Company to progress the next stage of activity’ and little if any capex is being used until ‘certainty of alignment with the KRG is achieved.

Guidance for 2021 production is to be ‘slightly above the 2020 average of 31,980 bopd with the potential for a higher rate and further growth in 2022 depending on the success of the Sarta appraisal programme’. Payments from the KRG continue to be made as per the last nine months and the override payments are to resume from the January 2021 invoice. As for the repayment of the $159m of receivables, discussions are ongoing seemingly based on a model which starts at $50 and increments upwards according to this structure.

As always Genel is maintaining ‘significant flexibility’ over its capex with this year expected to be c. $150-200m and currently looking to be at the top end of the range. Production and growth accounts for some $180m and Opex is expected to be c.$50m up from $33m due to the early costs on Sarta this equates to some $4/bbl thus ‘retaining our advantageous low operating cost position’. Finally, as was the case last year Genel is expected to pay ‘a material dividend’ in order to offer shareholders a  mixture of growth and income.

Bill Higgs, Chief Executive of Genel, said:
“Executing our strategy in 2020 through delivering low-cost production, paying a material dividend, and retaining our financial strength in order to invest in growth has helped lay the foundations for year on year production increases in this year and the years ahead. Bringing Sarta to production in 2020 despite the challenges of COVID-19 now means that we are generating revenues from our fourth field as we rapidly move to further appraise its huge reserve potential.

The successful early refinancing provides us with the liquidity and financial certainty to continue prudently investing in growth while retaining a robust balance sheet and delivering returns to shareholders. We expect to drill 12 wells across the portfolio this year. These wells have the potential to add incremental low-cost and cash generative production at the Tawke PSC, add and convert contingent resources to reserves and add production at Sarta, and open up a new field at Qara Dagh. With numerous catalysts in the year and a more promising external environment than 2020, Genel is looking confidently ahead to 2021.”

Genel shares have performed very well through a difficult 2020 and should the vaccine trade keep the oil price in the $50’s the mix of assets will deliver plenty of upside for investors in both capital and income. One of the strongest managements in the sector have ploughed their own furrow and delivered the goods, the best is yet to come.

PetroTal Corp

PTAL has announced the completion of an agreement with Petroperu which has extended for an additional 2 years until December 2022. At PetroTal’s expense, Petroperu will place commodity price hedges on all oil sold through the ONP, after the oil is delivered by PetroTal to Pump Station # 1 at Saramuro, which will substantially limit PetroTal’s exposure to the impact of oil price fluctuations in the period until Petroperu ultimately sells the oil from the Bayovar port.

The amount of the contingent liability at November 30, 2020 was $16.6 million.  PetroTal will pay this amount to Petroperu over three years in equal monthly instalments, with interest at an annual rate of 6.12%.  The amount can be prepaid at any time, without penalty and is expected to be prepaid following successful completion of the contemplated bond issue announced on January 12, 2021.

Based on the current Brent oil price forward curve, when the physical oil sales are arranged by Petroperu, which is expected over the next six months, this will result in PetroTal receiving payments from Petroperu totalling approximately $26.1 million; and the Company continues to develop an alternative export route through to the Atlantic, based on the success of the first 106,000 barrel pilot in December 2020, and PetroTal has now arranged a second 200,000 barrel pilot in February 2021, FOB Bretana. 

These are smart moves by PTAL who take away the risk of running up high bills as per before and not influenced by any rapid change in oil prices thus limiting exposure.  They pay back at a very reasonable rate and at a time of  their choosing whilst also developing alternative export routes that will diminish risk.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“PetroTal is pleased to finalize this agreement with Petroperu that effectively deals with the legacy contingent liability and ensures that PetroTal is substantially protected against future oil price volatility through hedging arrangements.  Petroperu’s pipeline and refinery network are important elements of PetroTal’s ongoing Bretana oil field development, and the Company embraces the strong working relationship it has with Petroperu.  In addition to the Company’s recently announced successful pilot oil export through Brazil, this agreement with Petroperu that ensures future oil sales into the ONP, along with settlement of the contingent liability, significantly enhances PetroTal’s operations.” 

This is good news for PetroTal and gets the company out of the mess that was brought upon them when the oil price collapsed due to the Russian/KSA row over market share last spring which was exacerbated by the Covid-19 pandemic. It wasn’t the only announcement today, in the RNS PTAL they also commented on the third-party sale of shares announced recently, as per this:

On December 14, 2020, the Company announced that it had been informed by Gran Tierra Resources Ltd. (“GTRL”), a control person of PetroTal, that GTRL had entered into a private purchase and sale agreement with Remus Horizons PCC Limited (“Remus”) in respect of the purchase by Remus of 218,012,500 common shares of PetroTal currently held by GTRL.

On January 18, 2021, GTRL informed PetroTal that the purchase and sale agreement has been terminated.  PetroTal was not a party to the agreement and would not have received any proceeds from the transaction had it been completed. 

Whilst the GTRL comment seems terminal, the Remus statement indicates that it may still be alive.

Remus Horizons

With regard to the above, and indeed to the Remus approach to Far Limited it is worth looking at the Remus statement released yesterday.

CEO of Remus Corporation, Sath Kanagarajah says:
“Whilst we share the ongoing frustrations of COVID with most businesses, the effect on Remus has escalated to an unforeseen extent. As a UK-domiciled company, with London-based advisors, almost all our internal and external team are confined to their homes by law. Indications of a return to relative normality after the Christmas break have proved optimistic and even the simplest of tasks, and the most basic forms of communication, remain significantly hampered.”

‘Despite these hurdles, Remus has sourced funding for two of its priority transactions:

• the offer, to Gran Tierra Resources, for 218,012,500 common shares in PetroTal;
• the indicative proposal to acquire 100% of the shares of FAR Limited.

Final regulatory approvals and the subsequent onboarding of the investor capital are, however, subject to considerable delay, as a direct result of the COVID-related restrictions referred to above. Remus remains fully committed to completing the Petrotal and FAR transactions and is confident that the delays in regulatory approvals will be overcome’.

As I mentioned recently I am sure that the company has a lot on its books and is ambitious within the sector. ‘Remus is also actively progressing other M&A transactions and has sourced funds to execute those in 2021. Further updates regarding this growing pipeline will be announced in due course’.

Furthermore, Remus has recently boosted its senior team with new appointments including a CFO, COO and CTO, plus heads of HSSE, Corporate Affairs and Communications.

Mr. Kanagarajah concludes: “I am immensely proud that, during this COVID constrained period, we have managed not only to attract world class investors and deal-flow, but also a deeply experienced team of technical, commercial and communications professionals. Our team of nearly 50 now totals: more than 500 ‘person years’ of E&P experience; across 20 countries on four continents; with responsibility for at least US$ 100 billion of assets; extracting well over 500 million barrels of oil equivalent. It is especially gratifying to see this breadth and depth of expertise being acknowledged in the media.”

You have been warned, there is a new beast in the jungle and it sounds like it is in it for real…

Zephyr Energy

Zephyr recently announced that the State 16-2 well in the Paradox Basin, Utah has been completed ahead of schedule with a great degree of success and with hydrocarbons discovered. Since the well spudded the shares have indeed doubled and the market cap is now £7.3m. Yesterday I interviewed Zephyr CEO Colin Harrington and the link is below.

I would challenge anyone to listen to his words, maybe look as well at the last interview and not think that the shares should be way above the 1.175p especially given that the data from this well is being analysed and the well can be re-entered and drilled horizontal as a potential producer extremely quickly and cheaply. This has a first rate management team and looks like as an outstanding opportunity to make money that I have seen for many years.

Core Finance CEO Interview: Colin Harrington, Zephyr Energy PLC

Falcon Oil & Gas

Falcon Oil & Gas Ltd has announced that Origin Energy B2 Pty Ltd., a subsidiary of Origin Energy, its Joint Venture partner, has submitted a notification of discovery and an initial report on discovery to the Department of Industry, Tourism and Trade of the Northern Territory (“DITT”) on the Kyalla 117 N2-1H ST2 well (“Kyalla 117”) in the Beetaloo Sub-basin, Australia as a petroleum discovery.

The Notification of Discovery is supported by preliminary production test data and petrophysical modelling.

This follows the introduction of nitrogen to lift the fluids in Kyalla 117, which has enabled Kyalla 117 to flow unassisted for a period of seventeen hours and unassisted gas flow rates ranging between 0.4-0.6 MMscf/d over seventeen hours were recorded.
Flow back of hydraulic fracture stimulation water to surface over the same period, averaged between 400-600 bbl/d and initial analysis suggests a liquid-rich gas composition with less than 1% CO2 whilst condensate shows were also observed.

Philip O’Quigley (CEO of Falcon) commented:
“The Notification of Discovery and Initial Report issued by Origin mark an encouraging development and the results to date meet our objective to flow liquids rich gas from the Kyalla formation.
We look forward to our operator, Origin, putting in place longer term measures to flow back sufficient hydraulic fracture stimulation water to allow the well to flow continually without assistance and enable production testing to occur in the coming months during the dry season.
In addition to this we welcome the news from the Australian Government to invest a further A$217m in the Northern Territory in infrastructure to support gas development and other industries in and around the Beetaloo sub-basin”.

I have followed FOG for many years and whilst it has taken longer than maybe I expected it looks like Philip’s faith in the project has been justified. This is as much as the company could expect for now in the wet season.

Kosmos

Kosmos has announced an oil discovery in the Gulf of Mexico at the Winterfell 12X well (17.5%) with 26m of  oil pay in two intervals. The Winterfell exploration well was a part of their proven basin infrastructure-led exploration program, located in Green Canyon Block 944, the Winterfell exploration well was designed to test a sub-salt Upper Miocene prospect and encountered about 26 meters (85 feet) of net oil pay in two intervals.

The well de-risks prospectivity in several neighbouring blocks held by Kosmos, with approximately 100 million barrels of gross potential within Kosmos’ acreage position.