WTI $110.28 +39c, Brent $112.55 +51c, Diff -$2.27 +12c, USNG $8.08 -23c, UKNG 138.0p -16.65p, TTF €84.645 -€4.62

Oil price

No real change to the influences on energy prices last week as China remains a mixed bag, short term Covid pressures which when finished will lead to significant increases in oil demand as the economy fires up. Elsewhere the EU are doing what they do best, prevaricating and delaying but are still saying that a deal will be signed by the time of the the special meeting of the European Council which will take place on Monday 30 and Tuesday 31 May.

Product markets remain weak, as I discussed last week and despite high gasoline prices in the US, the call on products show that demand there is proving insensitive to prices at the gas station. This is quite concerning ahead of the Memorial Day holiday next Monday and with it the formal start of the driving season. It is normally associated with increased demand for jet fuel as well and advance airline bookings are high for early summer.

Part of the noxious emissions and of course unnecessary use of jet fuel is as a result of the WEF at Dav-OH where the worlds self promoted influencers are hanging out. For your $52,000 annual membership and $19,000 for this week’s conference you get to move and shake and be on panels and of course attend cocktail parties and dinners. Pass the sick bag….

Union Jack Oil

Union Jack has announced that material landmark net revenues of US$6 million have been achieved from the Wressle hydrocarbon development, located within licences PEDL180 and PEDL182 in North Lincolnshire on the western margin of the Humber Basin.

Union Jack holds a 40% economic interest in this producing hydrocarbon development.

Highlights

• Landmark US$6 million revenues generated to Union Jack since re-commencement of production during August 2021
• Well continues to produce under natural flow with zero water cut
• Site upgrades ongoing
• As at 23 May 2022, the Company’s cash balances and short term receivables stand at in-excess of £7.7 million
• The Company is covered for all G&A, OPEX and contracted or planned CAPEX costs, including any budgeted drilling activities for at least the next 12 months
• Debt free

Executive Chairman of Union Jack, David Bramhill commented: 
“Another period of stellar performance from the Wressle-1 development has been achieved.

“Union Jack is now on a material growth trajectory which augers well for the future of the Company and its shareholders.”

Another excellent release from UJO who say that with the $6m of net receivables from Wressle since August 2021 the company has now cash and receivables in excess of £7.7m. With so much potential upside from Wressle, not to mention West Newton and other parts of the portfolio for which costs are now covered, scope for profitable development is immense.

This comes before the consideration of returns to shareholders which is highly likely in coming months and which will ensure a revaluation of the shares upwards. 

IOG

IOG has provided a further operational update.

Over the past month, Blythe and Elgood hydrocarbon liquids (condensate) flowing into the Saturn Banks Reception Facilities (SBRF) slugcatcher have fluctuated considerably, reaching peak levels of up to 1,850bbl/d. The SBRF, which lies adjacent to the main Perenco Bacton terminal, is co-owned by IOG and CalEnergy Resources Limited and operated by Perenco (UK) Limited (PUK). All liquids streams coming into Perenco Bacton, including Saturn Banks liquids, are processed through the terminal’s Condensate Stabilisation Unit (CSU).

In the past week, a PUK operational risk assessment has identified a drainage system deficiency in the CSU’s two recycle compressors, which has been highlighted by the increased Saturn Banks liquid rates. PUK has concluded that this must be addressed before any further Saturn Banks liquids can be processed and has limited the SBRF slugcatcher to a 15% maximum liquid level. Consequently, after progressive reduction in flow rates to manage these constraints, PUK has now enforced a full shut-in of Blythe and Elgood production to prevent further liquids entering the slugcatcher.

PUK has been developing a modification to their CSU compressor drainage system to resolve the issue. Subject to a safety review scheduled for Monday 23rd May, one compressor is expected to be modified within approximately one week, enabling limited initial resumption of Saturn Banks production (currently projected to be c.30 mmscf/d of gas). Following modification of the second compressor, which is expected to take approximately one further week, Saturn Banks production is expected to be gradually restored to normal levels over the following weeks. The outcome of PUK’s safety review may yet affect this provisional timeline.

As previously indicated, Blythe and Elgood condensate yields per unit of gas produced are expected to decline relatively rapidly during the first year of production. This should reduce any longer-term potential for such onshore liquids handling challenges. Southwark is expected to have far lower condensate yield.

Average aggregate Saturn Banks gas production over the 30 days prior to 20th May was 41 mmscf/d, achieving uptime of 74% at Blythe and 78% at Elgood. During that period, the volume weighted average realised gas price was 100p/therm. Over recent weeks, UK NBP day-ahead prices have continued to diverge both from European benchmark day-ahead prices and NBP forward curve prices, following record high LNG inflows into the UK, lack of domestic storage and interconnector capacity driving significant short-term price volatility.

Andrew Hockey, CEO of IOG, commented:
“Whilst relatively high liquids flows are welcome and generate revenue, liquids handling issues within the Perenco Bacton terminal have unfortunately required a short-term shut-in of Saturn Banks production. This is a very frustrating interruption to our efforts to maintain stable, consistent early gas flows, however, maintaining the highest safety standards must always be the first priority.

We are in close dialogue with Perenco at both management and technical levels to ensure the modification to their plant is rapidly expedited. Subject to their risk review, we currently expect a limited re-start after approximately one week with a gradual return to full production levels over the following weeks.”

CEO Andrew Hockey is right to suggest that this is a frustrating short-term interruption to the company’s efforts in the early months of production from Blythe and Elgood but safety standards at the terminal need to be maintained. Over the longer term I think that it will be seen to have been a blip in what will be a big operation in the SNS for IOG.

The current cut back in production is ironically being done at a time when NBP gas prices are relatively low and whilst the short term stays that way right now, should mean that IOG will be increasing production when increased domestic demand returns later in the year. After all this is part of a portfolio of long-term assets, so short term outages like this shouldn’t alter long term value calculations. 

Reabold Resources

Reabold has announced that at a Special Shareholder Meeting for Daybreak Oil and Gas Inc., Daybreak shareholders voted to approve the Equity Exchange Agreement, as initially announced by the Company on 21 October 2021.

Reabold California LLC, Reabold’s subsidiary which holds, inter alia, Reabold’s licence interests in California, will become a wholly owned subsidiary of Daybreak, which, in exchange, will issue up to 160,964,489 Daybreak shares  to Gaelic Resources Limited, a wholly owned subsidiary of Reabold. Consequently, Reabold will indirectly be interested in approximately 42 per cent. (subject to customary adjustments) of Daybreak’s share capital, as enlarged by the completion of the Transaction. All material conditions precedent associated with the Transaction have now been satisfied, and completion of the Transaction is expected to take place this week, including the transfer of the Consideration Shares to Reabold.

Sachin Oza, Co-CEO of Reabold, commented:
“With material production, favourable commodity pricing dynamics and multiple organic growth opportunities available to it, Daybreak, combined with the Reabold California portfolio, is now ideally positioned to capitalise on opportunities in its core focus area of California.

“As a significant shareholder in the combined entity, we look forward to seeing the full potential of Daybreak being unlocked, with a dedicated management team with significant in-state expertise now leading the company and focused on driving growth.”

It seems to have taken rather a long time for Reabold to get their California dream together but right now it looks like being ready to go and to deliver on the portfolio opportunities they have assembled. Daybreak now has the cash to get drilling very soon.

KeyFacts Energy Industry Directory: Malcy's Blog