WTI $77.85 +86c, Brent $80.80 +80c, Diff -$2.95 -6c, NG $3.88 -16c, UKNG 240.95p +8.95p

Oil price

It would have been more, the US markets were confused by the inventory stats, first a big rise after a crude draw but then easier after the huge product rise of 10.1m b’s of gasoline and 4.4m of distillates brought sellers out. Quite how much driving is going on in the USA is a moot point, the number of Omicron cases is biblical over there as it is in the west in general but its efficacy seemingly no worse than a cold it may be short lived. The duration of isolation is the problem as key workers are sent home making the situation appear worse than it is.

Angus Energy

Today it is Angus, tomorrow it might be you…

The Board of Angus Energy plc whilst remaining fully committed to achieving first gas at Saltfleetby as soon as possible has simultaneously been addressing the urgent need for transition energy projects in particular in the geothermal sector in the south west of England. Even though progress in these twin goals is steady and sure, the Board share the outlook of some of our shareholders that our market capitalisation doesn’t reflect the short-term value of existing hydrocarbon assets and their immediate cashflow potential and any long-term value in the Company’s scaleable geothermal project.

This valuation mismatch, also experienced by many other smaller energy companies, has resulted in a series of approaches with interest in, and in one instance an indicative non-binding offer for,  some or all of the Company’s 51% interest in the Saltfleetby Gas Field asset which is under consideration.  Additionally, the Board has received indications that certain parties may be interested in making an offer for the Company.

Whilst not wishing to be distracted from our immediate aims we must meet our responsibility to shareholders to evaluate any proposals. As such, the Board has been considering options for the Company with its advisers.  In light of these developments, and to better position the Company for further growth, and to maximise value for existing shareholders, the Board has now determined to undertake a review of the strategic options. These options include, but are not limited to, a sale of the Company which will be conducted under the framework of a “formal sale process” in accordance with the Takeover Code.

The Board is unanimous in its support for such a strategic review and has appointed Beaumont Cornish (“BC”) as its financial adviser. Parties with a potential interest in making a proposal should contact BC, whose details are set out below.

In an Operational Update, progress continues apace at Saltfleetby and whilst some suppliers have advised of delays of the order of a few weeks and the Board anticipates a further increase in the contingency for the project (up to 10% of budget), the Directors are confident of achieving first gas in a timeframe which will not be materially different from that advised.  A detailed week by week construction and commissioning timetable will be issued during the course of January 2022 as matters become clearer.

George Lucan, CEO, commented:
“The speed of transition has surprised the energy market in general and the resulting shortage of new gas supply, and deficit of renewable sources, is likely to lead to periodic crises such as we saw recently in the UK and a very high forward gas price in years to come.  Presently, the market is attributing little value to hydrocarbon reserves in general, or in our instance, the immediate cashflow prospects of the Saltfleetby Gas Field.  Accordingly, in the light of this and the interest expressed by other energy market participants, we think it in the best interests of shareholders to conduct this strategic review and formal sale process.”

It will come as no surprise to readers to know that I am not one bit surprised at this announcement nor even that it is Angus that has started the process off. This is a cyclical industry and we are at the point at which the vultures have seen a great deal of hard work and a massive amount of investment injected in projects which are at the tipping point of very substantial returns. 

A while ago when I first started writing about Angus post its corporate disaster zone I met CEO George Lucan who gave me chapter and verse about his dreams for Saltfleetby, I believed the story then and now someone has seen it grow into a perfect sized asset in an international gas business which only becomes obvious when it is on the evening news. 

For Angus there is only so much one can say because it is now in a bid situation but the way that the market has unsurprisingly hugely undervalued its assets is regrettably the case across the board, so investors should look at other assets equally undervalued if they havent already done so. The fact that Angus has rung the first bell is of massive credit to the CEO and the board who are allowing shareholders the chance to evaluate what appears on the table. After a long time in which the value has lain unnoticed, it is time for the bidders to put the money down, if it is not enough let’s hope the shareholders don’t follow the disappointing record of institutions caving early and cheaply..

I have been very positive on the oil price since the bounce in mid 2020 and last year the price was up over 50%, this was at a time that oil companies cut costs to the bone, sometimes way too much, leading to the price rises that are already coming through. But do not forget the natural gas price which for different reasons has increased by even more than oil since then and has also left a vast panoply of undervalued assets. 

Speaking to a leading fund manager recently on how this is panning out for investment in the hydrocarbon sector this year he put it very succinctly. When huge cash flow meets significant capex and opex reductions, the profitability and the inevitable cash flow of the sector is going to result in growth in earnings, asset values and shareholder returns. With WTI at $80 today the scope is incredible and by that I mean downside, after all most companies are doing their sums at say, $50 but most work down to $30, just what are the returns on that basis? 

So, Angus has fired the starting gun but as I said it could be anyone, in the US last year it won’t surprise you to know that Devon Energy was top pick with Chevron not far behind, other E&P’s and majors are available. Right now the asset hunters have raised the flag, if you own an asset or your company is a collection of them then someone is coming for you make no mistake…

So, in the vernacular of the property sector these oil and gas companies are in the right postcode, mostly have kerb appeal and gazumping is going to be rife, buy now while the very best properties remain, everyone else retain your defence teams…

Advance Energy

Advance has provided an update on the Buffalo-10 well being drilled offshore Timor-Leste. The Operator, Carnarvon Petroleum Timor, Lda., has advised that since the last announcement on 31 December 2021, the conductor has been installed and cemented in place, and the 17 ½” hole has been drilled down to planned section total depth of approximately 804 metres measured depth (“MD”).

The rig is now setting and cementing the 13 3/8” casing and installing the wellhead, before drilling ahead in the 12 ¼” hole section to approximately 2,800 metres MD and then setting the 9 5/8” casing, after which the target Elang reservoir interval will be drilled and logged. No hydrocarbons are anticipated to be intersected in the 12 ¼” hole section of the well. 

The Buffalo-10 well is being drilled offshore Timor-Leste within the TL- SO T19-14 Production Sharing Contract in a water depth of approximately 30 metres with a target depth of approximately 3,500 metres. The well is being drilled to test for the presence of commercial quantities of high-quality light oil that is expected to lead to the early re-development of the Buffalo field.

Expect regular updates from this important well which, should it come in will signal the substantial development and be a huge opportunity for Advance. 

SDX Energy

SDX has announced the commencement of oil production at the MSD-21 infill development well on the Meseda field in its West Gharib concession, Egypt (SDX: 50% working interest). MSD-21, which encountered the primary top Asl Formation reservoir at 4,040ft MD (3,251ft TVDSS) and reached 4,740ft TD, after drilling through 62.3ft of good-quality, net oil pay sandstone with an average porosity of 21.3%. The well has now been successfully perforated, tied-in to the existing facilities, and flow tested. It is expected that, post-clean up, the well will achieve a stabilised gross production rate of c.300bbl/d which is in line with pre-drill estimates.

MSD-21 is the first well in a fully-funded, 12-well development campaign at the Meseda and Rabul oil fields in the West Gharib concession, Egyptian Eastern Desert. The development drilling campaign is aiming to grow gross production from current rates of c.2,100bbl/d to c.3,500 – 4,000bbl/d by early 2023. The rig is now in the process of moving to the next well in the campaign, MSD-25, which is expected to spud by mid-January.

Mark Reid, CEO of SDX, commented:
“We are pleased to get MSD-21 successfully perforated and connected to our infrastructure. The well is now producing and, when it has fully cleaned-up, we expect it to contribute c.300bbl/d of gross oil production. This campaign provides a low-cost, highly beneficial exposure to the oil price and with a netback of US$35/bbl at US$68/bbl Brent in the first nine months of 2021, West Gharib is a very high margin asset in our portfolio. MSD-21 and subsequent wells are expected to significantly boost the production and cashflow from these fields in the coming months and I look forward to updating the market further as the campaign progresses.”

I am continuing to get good vibes about what is going on at SDX and this is just the sort of good news that will ensure a recovery in the share price. After a long period in which little of note happened I can see very decent drilling programmes in both Egypt and Morocco which will help rebuild SDX and I can see no reason why a target of 20p cannot be put on the shares. 

KeyFacts Energy Industry Directory: Malcy's Blog