WTI $114.09 +$3.76, Brent $117.40 +$3.37, Diff -$3.31 -39c, USNG $8.91 -6c, UKNG 139.1p -6.5p, TTF €83.395 -€3.505

Oil price

Ahead of the Memorial Day holiday weekend oil has been firm, up around 5 dollars this week as both crude and products remain firm. The driving season looks like being a record after two years of Covid but jet fuel is also high on huge bookings for air travel and vacations.

Everything else is as expected, the EU are still claiming that an agreement will be made by the 30/31 May summit and Hungary will be bought off, sorry, step into line. China is, apparently lifting curbs in Shanghai and Opec+ is meeting next week but I expect no change there.

Now to the Windfall tax, or the Energy Profits Levy or as I like to call it the Looney Tax after he who caused it by his intemperate and downright foolish comments. Indeed he gets the Tony Hayward award for saying the wrong thing at the wrong time, have BP learned nothing? I am collating information so it may be a few days before we can get an idea about the winners and losers.

The tax looks like it may only help those with impending capex and the sunset date may be sooner than the end 2025 originally planned if oil prices ‘normalise’. Also there is an investment allowance for expenditure to offset against the levy with an effective discount of 90p in the £.

Those with substantial, expensive imminent projects win whilst the likes of Hurricane will have to pay tax despite their accumulated losses but they might attract a bigger buyer. Some companies with say Dutch assets will gain and contrary to thoughts it will not be like the sophisticated system in Norway with regard to historic tax losses. More later…

Southern Energy Corp

Southern Energy has announced the release of its first quarter financial and operating results for the three months ended March 31, 2022.

Southern is an established producer with natural gas and light oil assets in Mississippi characterized by a stable, low-decline production base, a significant low-risk drilling inventory and strategic access to the best commodity pricing in North America. Selected financial and operational information is outlined below and should be read in conjunction with the Company’s unaudited consolidated financial statements and related management’s discussion and analysis for the three months ended March 31, 2022, which are available on the Company’s website at www.southernenergycorp.com and have been filed on SEDAR.

All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.

FIRST QUARTER 2022 HIGHLIGHTS

• $2.2 million of adjusted funds flow from operations[1] in Q1 2022, an increase of 121% from the same period in 2021
• Petroleum and natural gas sales of $5.9 million in Q1 2022, an increase of 54% from the same period in 2021
• Q1 2022 average production of 11,515 Mcfe/d[2] (1,919 boe/d) (92% natural gas), an 11% decrease from the same period in 2021
• Rig released two (2.0 net) wells of the three well program at Gwinville in Q1 2022 with the third well rig released in April 2022
• Net loss of $1.9 million in Q1 2022 ($0.02 per share – basic and diluted), with an unrealized loss on derivatives of $2.9 million, compared to a net loss of $0.6 million in Q1 2021
• Exited Q1 2022 with Net Debt1 of $10.7 million, and Net Debt to Q1 2022 annualized Adjusted Funds Flow from Operations1 of 1.2x
• Average realized oil and natural gas prices for Q1 2022 of $95.20/bbl and $4.87/Mcf, respectively, reflecting the benefit of strategic access to premium-priced US sales hubs
• On February 1, 2022, Southern disposed of all of its assets from its non-core Smackover cash generating unit for net proceeds of $0.8 million

SUBSEQUENT EVENTS

On April 8, 2022, Southern entered into a second amendment  to its senior secured term loan of up to $8.5 million which, combined with the first amendment effective December 30, 2021, resulted in: (a) an increase of Tranche B to $4.5 million ($4.0 million available to borrow); (b) an extension of the availability to June 30, 2022; and (c) the exclusion of transaction costs related to the Company’s August 2021 admission to the AIM market of the London Stock Exchange from the calculation of EBITDAX 

Operational Update

In May 2022, Southern commenced completion operations on the three-well horizontal padsite in the Gwinville asset. The first well to begin flowback following the stimulation was the GH 19-3 #3 well, which came on-line on May 25, 2022. The GH 19-3 #2 and GH 19-3 #4 wells are expected to be on-line shortly, and the Company is looking forward to providing initial production results in the coming weeks.

During Q1 2022, the Company experienced high third-party pipeline operating pressures in the Mount Olive field which negatively impacted production, but this situation has since been resolved by optimizing compression needs in the field. Current May 2022 production estimates are back to expected levels of approximately 11,820 Mcfe/d[3] (1,970 boe/d). Q1 2022 also reflects the first quarter of the non-core oil dispositions which amount to a loss of approximately 240 Mcfe/d[4] (40 boe/d).    

Financial Highlights

Outlook

With the results of our three well drilling program at Gwinville expected imminently, our focus remains on the delivery of these results in an efficient and safe manner. Success with these three wells may see Southern commencing a continual drilling program at Gwinville, taking advantage of our low-risk drilling inventory.

These first three Gwinville horizontal wells could deliver material production increases for the Company and, given the current commodity prices and production not being hedged from these wells, will deliver significant near-term cash flow.

As part of its risk management and sustainability strategy, Southern has entered into some fixed price and costless collar hedges which will cover its existing production wells to mitigate the effects of market volatility while retaining the ability to participate in potential natural gas price appreciation during 2022. On January 28, 2022, Southern entered into a fixed price hedge on production of 2,000 MMBtu/d of natural gas at a price of $4.61/MMBtu from March 1, 2022 through December 31, 2022. On April 4, 2022, Southern entered into a costless collar with a floor of $3.50/MMBtu and a ceiling of $20.00/MMBtu for 2,000 MMBtu/d of natural gas from November 1, 2022 through March 31, 2023. A complete list of the fixed price and costless collar contracts can be found within Southern’s first quarter MD&A.

The Company’s long-term strategy remains consistent into 2022, with an unwavering commitment to environmental, social and governance (“ESG”) principles that support the continued development and consolidation of prolific reservoirs that are outside of the more expensive shale basins. Cost savings and financial discipline will remain a priority through the continued enhancement of operations and the ongoing evaluation of opportunities to reduce operating and capital costs.

Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities.

Ian Atkinson, President and CEO of Southern, commented:
“With the significantly increased commodity prices experienced in Q1 2022, Southern has started the year very positively. Our balance sheet is getting stronger and we are being rewarded for our investment strategy in prior quarters with strong production yielding significant cash flow.

In the immediate future, our focus remains on the three well development program at Gwinville which, if successful, not only means increased production from these wells, but speaks volumes as to the potential for our operational strategy to deliver multi-year growth from the wider Gwinville field, highlighting the significant opportunity and optionality we have in providing transformational production, reserves and cash flow growth for shareholders. 

As always, I would like to thank the staff and shareholders of Southern Energy Corp. for their continued hard work and support. We look forward to providing further updates in due course.”

This is early days in my coverage of Southern but I recently met over Zoom with the management and I was most impressed. I have put the whole statement above for those who, like me need to see all the numbers right now. I expect to see a sharp rise in revenue and cash flow in the second half of this year with the Gwinville wells coming onstream with more to come. 

Southern is a conventional play in the Cotton Valley in the US Gulf Coast, expect plenty more on the acquisition front, building significant cash flow and in due course regular dividends. 

Reabold Resources

Reabold has announced its audited results for the year ended 31 December 2021.

Reporting period highlights

West Newton

• During H2 2021, West Newton B-1Z and A-2 completion and testing operations commenced, evaluating the hydrocarbons in the conventional Kirkham Abbey Formation reservoir, which is key for the future development of the West Newton licence (PEDL183) and, in particular, for informing the optimal location for the drilling of the horizontal B-2 development well.
• With both gas and liquid hydrocarbons recovered to surface, the test programme provided further evidence that there is a substantial hydrocarbon column and resource in place. The updated Most Likely Median Case of in-place hydrocarbons over PEDL183 was estimated to be 412.3 mmbbl of oil and 183.5 bcf of gas.

Corallian   

• A further investment of £1.0 million into Corallian Energy Limited (“Corallian”) was made by way of a Convertible Loan to fund the submission of a draft Field Development Plan (“FDP”) for the Victory gas field, which was submitted at the end of 2021. The Company sold 50% of its Convertible Loan for net proceeds of £0.5 million to a group of strategic investors.
• Reabold acquired an additional 13.12% of Corallian shares from existing Corallian shareholders, in exchange for 468,994,086 new Reabold shares, resulting in the Company owning 49.99% of Corallian, thereby increasing its interest in the Victory gas discovery, wholly owned by Corallian.
• Completion of Environmental Baseline Survey, which was a key element in the submission of the Environmental Statement (“ES”) for Victory.
• A CPR for the Victory project was completed, calculating a gross 2C recoverable resource of 179 bcf. The Victory development plan is relatively simple because, inter alia, it is adjacent to significant gas infrastructure. Corallian’s 2C economic valuation (NPV10) of Victory, based on a historical average gas price of 50p/therm, is £193 million. Victory is an important resource and could contribute meaningfully to the UK’s energy needs.

Reabold California

• Reabold entered into a conditional equity exchange agreement with Daybreak Oil and Gas Inc. (“Daybreak”), a US over-the-counter (“OTC”) traded oil and gas operator with assets in California, whereby Reabold will acquire up to 46.5% of Daybreak via the issuance of new Daybreak shares to Reabold, in exchange for Daybreak acquiring Reabold California LLC, Reabold’s subsidiary, which holds, inter alia, Reabold’s licence interests in California.

Corporate and Other Activities

• The 18 month extension of the Parta Exploration Licence in Romania, held 100% by Danube Petroleum Limited, in which Reabold has a 50.8% equity interest, for the current exploration phase until 3 December 2022.
• Oversubscribed placing and subscription at a premium to the prevailing market price to raise gross proceeds of £7.5 million, supported by key existing and new institutional investors.

Post reporting period highlights

• On 26 May 2022, Reabold announced the completion of the equity exchange agreement with Daybreak. Reabold California LLC, Reabold’s subsidiary which holds, inter alia, Reabold’s licence interests in California, has now become a wholly owned subsidiary of Daybreak, which, in exchange, has issued 160,964,489 new Daybreak shares to Gaelic Resources Limited, a wholly owned subsidiary of Reabold. Reabold now indirectly owns 42%of Daybreak’s share capital, as enlarged by the completion of the transaction.
• On 4 May 2022, Reabold announced that Corallian had received a non-binding, conditional offer from a credible party for the acquisition of its entire issued share capital. Corallian’s board considers the Potential Sale to be sufficiently attractive to seek to conclude a sale process and is progressing negotiations with the potential purchaser.
• As part of the Potential Sale process, Reabold announced that it had entered into a conditional sale and purchase agreement (“SPA”) to acquire Corallian’s working interest in all the non-Victory licences within the Corallian portfolio for a cash consideration of £250,000. The licences that will be acquired by Reabold are P2396, P2464, P2493, P2504 and P2605 (all at 100% working interest) and P2478 (36% working interest), which the Board believes have significant prospective potential.
• RPS Group estimated that a horizontal optimised well drilled at West Newton could deliver an initial production rate of ca 35.6 mmcf/d of gas over the first month of production.
• East Riding of Yorkshire Council Planning committee approved planning applications for drilling and production at Rathlin’s West Newton A site as well as a time extension to allow for further drilling at the West Newton B site, paving the way for the next phase of activity at West Newton towards development.

Nothing new here for Reabold, the results are history and we have been told about developments at Corallian and Daybreak. The other key is clearly what happens at West Newton where the signs are continually more positive.

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