WTI $115.31 -$3.62, Brent $118.51 -$2.66, Diff -$3.20 +96c, USNG $7.42 +23c, UKNG 269.8p +64.8p, TTF €128.005 +€26.005.

Oil price

A bad day for oil as the Fed confirmed worst fears and hiked rates by 75bp’s. Today the Swiss and UK central banks decide and the ECB had a special meeting, wish I had been there…

Sleepy Joe has written to the top 7 refiners threatening to kick ass if they don’t cut gasoline prices, inventories are low, capacity is tight and demand huge so good luck with that….

The IEA came out with its usual tripe but believe it if you will, waring as they do about downside risks later in the year when call on Opec is lower, good thing that as they can’t pump enough right now.

The EIA inventory stats  were mixed, the wet behind the ears teenage scribblers reported that a 2m rise in crude was worse than expected, I would advise take that number and subtract the 7.7m barrels released from the SPR…Meantime refineries are still flat to the boards and as above demand high, remember the product markets juniors…

Triple witching tomorrow  which is always fun, I may be around first thing if you get my drift…

PetroTal Corp

PetroTal has announced the following sales related update.

720,000 barrels of oil under contract for export from Bayovar.  Approximately 720,000 barrels of PetroTal’s Bretana oil has now been successfully tendered at the Bayovar port by Petroperu for the July lifting.  Following an accelerated and temporary re-opening of section II of the Northern Peruvian Pipeline (“ONP”) which had been previously closed due to maintenance operations, Petroperu has been able to deliver a material amount of oil to Bayovar over recent weeks.  This oil previously entered the ONP in 2020 and was part of the restructured oil sales arrangement with Petroperu, announced in late 2020, with the Company receiving approximately $45/bbl of value.  PetroTal will receive the difference between this tender price and the restructured $45/bbl price in the contract, generating over $60 million of price adjustment revenue.

Section II of the ONP line temporarily online.  Petroperu recently informed PetroTal that it was able to temporarily pump all the oil from Station 5 (approximately 550,000 barrels) to the Bayovar port.  The ONP section II has an approximate capacity of 2.1 million barrels with an estimated 82% being Bretana oil.  Section I of the line between pump stations 1 and 5 remains closed due a maintenance delay from ongoing social protests in one community near pump station 1.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“We applaud Petroperu’s efforts to resume partial pipeline operations in a safe and reliable way.  The true up revenue to be received from this tender was previously anticipated in Q4 2022 and will provide assurance that we can execute our shareholder strategy on time and as indicated in our corporate presentation.”

Yet more good news from PTAL this morning as the price adjustment revenue adds some $60m of gains. With all options open on delivery optionality with regard to Bretana oil the numbers at PetroTal certainly sparkle, as ive said before, Man I love this stock…

Zephyr Energy

Zephyr Energy has provided an update on recent activity on its non-operated asset portfolio in the Williston Basin, North Dakota, U.S, including the acquisition of working-interests in a further 11 wells

Zephyr’s non-operated portfolio now consists of WIs in 219 wells, the vast majority of which are currently in production.

Highlights

• Zephyr’s non-operated portfolio continues to grow, both through drilling on existing Zephyr acreage and through the acquisition of further “bolt-on” WIs in the Williston Basin.
• Over the past two months, Zephyr elected to participate in seven new Sanish Field infill wells to be drilled within drilling and spacing units (“DSUs”) in which Zephyr currently holds WIs.
• Zephyr has also acquired WIs in a further 11 wells (these, together with the seven Sanish Field wells, the “new wells”), a majority of which have already been drilled and are awaiting completion.
  • Total consideration for the 11 acquired wells is circa US$301,000, which has been paid from existing cash resources
• Zephyr’s average WI across the 18 new wells is circa 1.4% per well, or a total aggregate of circa 24.4% of one net well, and are comprised of two and three-mile hydraulically stimulated horizontal wells.
• In addition to the acquisition price paid for the newly acquired 11 wells, Zephyr will fund the discretionary net capital expenditure (“CAPEX”) relating to the drilling and completion for all 18 of the new wells.  Zephyr’s net CAPEX is forecasted to be circa US$1.8 million which will be payable over the course of 2022, and the Board expects to fund this investment from its existing cash resources.
• The Company expects all 18 of the new wells to be on production by the end 2022, resulting in an estimated 80,000 barrels of oil equivalent reserve addition to Zephyr.
• The 18 new wells are expected to generate an incremental 200-250 barrels of oil equivalent per day (“boepd”), although wells will be brought online at varying points over the second half of 2022.  This incremental production will serve to offset typical decline in Zephyr’s existing producing wells.
• Zephyr now has working interests in 219 gross horizontal, hydraulically stimulated wells (circa 15 net wells) with an average WI of circa 6.7% across its portfolio.

Colin Harrington, Zephyr’s Chief Executive, said: 

“Cashflows from Zephyr’s non-operated portfolio continue to exceed earlier expectations, which allows us to fund additional accretive drilling investments and maintain a strong non-operated production profile without diverting resources from our planned Paradox Basin drilling programme.

“The acquisitions announced today are an excellent incremental addition to our non-operated portfolio, are located in prime acreage and fit nicely alongside the continued infill drilling by Whiting on Zephyr’s existing Sanish Field acreage.

“It remains our intention to fortify our non-operated production through continued drilling participation as well the opportunistic acquisition of quality assets. Today’s announcement demonstrates Zephyr’s continuing capacity to grow our underlying asset value, which will in turn provide more resources for the long-term organic development of our Paradox project.

“We look forward to giving a detailed production update and revised forecasts after second quarter sales figures are received.”

This is a no-brainer of a deal and should have led to a decent rise in the share price, after all this is like a reverse profits warning or an effective earnings upgrade of some substance. Imagine the situation at Zephyr with the planned big programme of drilling at the Paradox project already funded and cash flows coming in better than expected from the non-operated programme to use.

These higher than expected returns have been used to ‘fund additional accretive drilling investments’ which can only benefit shareholders. I am fully aware that world markets are hardly inspiring fresh investments but to dip the stock on this excellent news is not just ludicrous but plain nuts. 

The Zephyr share price has come back in recent months on the back of what has been good news across the board even if some commentators and even investors may have misread the runes. I am hoping to speak to Colin Harrington shortly and unravel any misconceptions in the market, at 4.15p Zephyr like a number of high quality plays in the sector, Zephyr is a lay down certainty, not often something you can say…

Rockhopper Exploration

Rockhopper today announces the results of the Placing and Subscription which was announced yesterday.

The Company has raised aggregate gross proceeds of US$7 million (£5.75 million) through the successful Placing of, and Subscription for 82,182,776 Units in each case at the Issue Price of 7 pence per Unit. Each Unit comprises one New Ordinary Share and, for every two New Ordinary Shares subscribed for, one Warrant. This will result in the issue of 82,182,776 New Ordinary Shares, and 41,091,388 Warrants. 

The Issue Price of 7 pence represents a discount of 12.5 per cent. to the closing price on 14 June 2022, the last trading day prior to the announcement of the Capital Raise.

The Placing was oversubscribed and the Company, having taken into account the strong support received from existing and new investors, decided to increase the size of the Placing. The additional funds raised in the Placing will be applied towards extending the Company’s working capital beyond 12 months and supporting the Company through the period of the anticipated Sea Lion licence extension.

Application will be made to the London Stock Exchange for the 82,182,776 New Ordinary Shares to be admitted to trading on AIM. Subject, amongst other things, to the satisfaction or waiver of the conditions of the Placing Agreement, it is expected that First Admission will take place and dealings in the New Ordinary Shares will commence on AIM on or around 8.00 a.m. on 20 June 2022. The New Ordinary Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares at that time.

The Warrants will not be admitted to trading on AIM or on any other stock exchange. The Warrants are capable of being settled in CREST. It is currently intended that settlement of Warrants via CREST will be on the same timetable as settlement of the Placing Shares and Subscription Shares.

The Company considers it important that existing Shareholders who are not able to take part in the Placing or the Subscription are given an opportunity to participate in the Capital Raising. The Company is therefore providing Qualifying Shareholders with the opportunity to subscribe at the Issue Price pursuant to an Open Offer, to raise gross proceeds of up to approximately US$5 million (approximately £4.1 million) if fully taken-up. The Open Offer will include an excess application facility to enable Qualifying Shareholders to apply for additional Units in excess of their entitlements under the Open Offer. Details of the Open Offer and the action to be taken by Qualifying Shareholders to subscribe for Units under the Open Offer will be set out in the Circular, which will be sent to Shareholders shortly.

Directors’ participation

Pursuant to the Subscription, the following Directors have agreed to subscribe for the following Units comprising Subscription Shares and Warrants

Sam Moody, CEO of Rockhopper Exploration, said:
“We are delighted to receive such strong support in this process from both existing and new investors and look forward to using the proceeds to progress Sea Lion as we work closely with Navitas to move the project forward – we believe it is a clear endorsement of the potential value within Sea Lion and the strength of our new partnership with Navitas. We would encourage retail investors to participate in the Open Offer following such strong support from the market for this fundraising.”

This is a good raise if ever there was one in that absent a decision on Ombrina, RKH needed the money now that the Navitas deal is going ahead full speed and license commitments are being made, only possible with a strong balance sheet.

I’m not surprised that institutions piled into this raise, I think it must have been twice subscribed and with some new shareholders now on board finances at the company are set fair, as said by the CEO retail investors should seriously look at investing, after all other potential investors were scaled down. This even after an increase in the size of the deal shows that Rockhopper along with Navitas is going to be an exciting investment in the years ahead and that is not including a potential Ombrina gain in for nothing. 

This offer was clearly not one to duck and I can see a good stream of newsflow on Sea Lion and how the Navitas relationship is going ahead with all the operational issues that will create significant increased value at RKH. 

Longboat Energy

Longboat has provided the following operational update.

Highlights

• Two high-impact exploration wells scheduled for Q3 targeting net, unrisked mean resources of 44 mmboe:

o  Oswig (Company 20%) expected to commence drilling in July

o  Copernicus (Company 10%) expected to commence drilling by the end of September

• A further firm, high-impact exploration well (Velocette, 20%) expected to be drilled in Q2 2023
• Longboat remains fully funded for its committed drilling programme
• Actively reviewing monetisation and commercialisation options of three existing discoveries
• Screening opportunities to participate in recently announced Norwegian APA licensing round
• Advantageous new Norwegian tax regime approved by the Norwegian parliament

Firm Drilling Programme 2022

Oswig (PL1100, PL1100B) – Company 20%
The Oswig prospect is expected to spud at the beginning of July using the Maersk Intrepid jack-up rig. Oswig consists of a high pressure, high temperature Jurassic rotated fault block nearby the producing Tune and Oseberg fields in the Norwegian North Sea. The well is targeting two separate intervals which are estimated by the operator to contain combined gross unrisked mean resources of 93 mmboe1 (19 mmboe1 net to Longboat). The Oswig geological chance of success is estimated to be 36%1 and the key risks are reservoir quality and fault seal.

The Oswig prospect is located close to existing infrastructure with tie back potential to the Oseberg and Tune fields. Several additional fault blocks have been identified on PL1100 and PL1100B and are estimated to contain a further gross unrisked mean resources of 80 mmboe which would be significantly de-risked by an Oswig discovery.

Copernicus (PL 1017) – Company 10%
Copernicus will be drilled using the Deepsea Yantai rig and is expected to spud by the end of September.  The prospect lies in the Vøring Basin region of the Norwegian Sea. Copernicus is estimated to contain gross mean prospective resources of 254 mmboe2 (25 mmboe net to Longboat) with further potential upside to bring the total to 471 mmboe2. The chance of success associated with this prospect is 26%2 with the key risks being reservoir presence/quality and trap.

Monetisation and Commercialisation of discoveries
Since commencement of drilling in Q3 2021, Longboat has made three hydrocarbon discoveries out of six wells at Egyptian Vulture (Company 15%), Rødhette (Company 20%) and Kveikje (Company 10%) representing an estimated 12 mmboe of resources net to the Company. Longboat is actively reviewing multiple options to monetise or commercialise those discoveries in the near term. This work includes both examining development scenarios for each of the assets and/or the potential for asset swaps or outright sales given the current high demand for assets in Norway.

While this process is at an early stage, Longboat remains committed to maximizing shareholder value at the earliest stage possible from its exploration success to date.

APA Licensing Round
The Norwegian Ministry of Petroleum and Energy recently announced the APA Licensing Round for 2022 encompassing blocks across the NCS. Leveraging its in-house technical expertise, the Company has a number of potential applications under review both as follow-on acreage around its existing licences and in new areas.

New Norwegian Tax Regime Approved
The new Norwegian Petroleum Tax System has now been approved by the Norwegian parliament (Storting) with no material changes to the original proposal and is effective from 1 January 2022. Longboat views the new system as positive for the Company, allowing for the expansion of existing financial structures to fund both exploration and development projects with improved economics and reduced working capital. The main elements of the new tax system are:

• Unchanged marginal rate (78%)
• Move to immediate expensing of investments
• 71.8% repayment of all losses in following year
• Corporate Tax (6.2%) carried forward until profitable 

Longboat has reviewed the new tax system and is already in discussion with the banks about a smooth transition from the ‘Exploration Finance Facility’ regime to a new fit-for-purpose financing facility.

Longboat anticipates a significant benefit for these restructured credit facilities to meet the working capital requirement for future development expenditure.

Helge Hammer, Chief Executive of Longboat, commented:
“Longboat has a sequence of significant value catalysts between now and the middle of next year with two material gas-weighted exploration wells in the coming months following our recent success at Kveikje and our earlier discoveries at Egyptian Vulture and Rødhette. The well programme continues into 2023 with Velocette and with further potential licences to be added in the APA round.

“The new tax system gives us an additional option for realising the value of exploration success by carrying discoveries through to development as we look at all available options to progress to a full-cycle E&P company.”

A typically full and detailed report from Longboat that shows that the team are fully committed to a short and medium term drilling programme as well as monetisation of existing discoveries and participation in upcoming license rounds. 

A wise decision by the company to concentrate on Norway comes as no surprise and they will not be hit by the Looney tax, indeed they will be beneficiaries under their new tax system. 

Harbour Energy

Harbour has announced today the commencement of a share buyback programme of the Company’s ordinary shares for up to a maximum aggregate consideration of $200 million.  As set out at the Company’s Capital Markets Day in December 2021, the Company continues to employ a disciplined and prudent approach to capital allocation, balancing its three priorities of safeguarding the balance sheet, ensuring a robust and diverse portfolio and shareholder returns.

Harbour has entered into irrevocable, non-discretionary agreements with its corporate brokers to execute the programme on its behalf.   The purpose of the programme is to reduce the Company’s share capital and all ordinary shares purchased as part of this programme will be cancelled.  The programme will commence today, 16 June 2022, and will end no later than 31 December 2022.

A pleasing piece of news for Harbour shareholders this morning as the policy of prudence continues. Ironically it comes on the day when investors put money into the vehicle that is developing what must be a great investment at $120 oil in Sea Lion… 

Hurricane Energy

Hurricane has provided an update on Lancaster field operations and net free cash balances as of 31 May 2022. 

Lancaster Field Operations Update

The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 (“P6”) well and the 205/21a-7z (“P7z”) well during May 2022.

May 2022 Lancaster Field Data

May 2022 Lancaster Field Data

1.P7z production test carried out 12/05/2022 - 13/05/2022, average rates shown over the 48 hour test period
2.Expressed as total water produced divided by total fluid (oil and water) production
3.Pressure reported is the monthly minimum from well downhole gauges.

As of 14 June 2022, Lancaster was producing c.8,700 bopd from the P6 well alone with an associated water cut of c.45%.

Over a two-day period in May the Company performed a number of tests on the P7z well that involved temporarily reducing the flow rate from the P6 well.  This has therefore reduced the overall average production rate for the month from P6.  The data obtained will be useful in refining production forecasts for P6 and evaluating potential future field development opportunities.

The 29th cargo of Lancaster oil, totalling approximately 547 Mbbls, was lifted on 24 May 2022. This cargo was priced by reference to the average of the first five days of May’s Dated Brent quotes, being $110/bbl, resulting in net revenue of $59.5 million. The next cargo is anticipated to be lifted in late July 2022.

Financial Update

As of 31 May 2022, the Company had net free cash(4) of $139 million compared to the last reported balance of $92 million as of 30 April 2022. $78.5 million of Convertible Bonds remain outstanding and are due to be repaid in July 2022. Following the repayment, assuming oil prices remain at over $90/bbl, at the end of July the Company is forecasting to be holding net free cash in excess of $75 million. If oil prices for the July cargo are above $120/bbl the net free cash forecast increases to be above $90 million.

4.Unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables.

Energy Profits Levy

On 26 May 2022 the UK Government announced the introduction of the Energy Price Levy.  As the full details and related legislation of the EPL have not yet been published it is not yet possible to determine the full impact this will have on the Company.  Included in the forecast July net free cash balance above is a preliminary estimate of the liability up to the end of July 2022, totalling approximately $5 million, based on the information available to date. It should be noted that this estimate could change and be significantly higher or lower depending on the actual details contained within the legislation.

As the EPL includes an investment allowance, should the Company decide to invest in further development on its existing assets or development on assets following an acquisition, such investment would partially offset the EPL charge. The full effect of such an offset will depend on the details of the EPL legislation and the size and nature of any such investment.

The Company will provide further information regarding the impact of the EPL in due course and following the release of the legislation.

Antony Maris, CEO of Hurricane, commented:
“Hurricane’s production continues to generate significant positive cashflow enabling us to look beyond Bond repayment with a strong cash position and balance sheet.  Management and the Board are working hard to assess and evaluate possible organic and inorganic investment opportunities.

Our industry works within the framework of long investment cycles and highly volatile commodity markets. Fiscal stability is key in supporting the investment decision making to meet the UK’s energy transition targets and the introduction of the EPL is unhelpful in that regard. However, as a potential investor in future UK oil and gas assets, we also stand to benefit from investment incentives/relief. 

We believe there are some exciting opportunities ahead and that the Company is well placed to grow its asset base, deliver significant shareholder value and contribute to ensuring security of oil and gas supply for the UK.”

There is nothing more for me to add to my recent comments on Hurricane, this is just more of the same despite the uncertainty of the impact of the Looney tax which could turn out to accelerate a potential takeover opportunity…

President Energy

President has announced a corporate and commercial update

Highlights:

• President Argentina credit rating reaffirmed at Investment Grade A –
• Further Argentine bond issue of US$3.585 million at 3.89% p.a. interest rate
• Success for new well PG 13-1 at Puesto Guardian Concession, Argentina
• Argentina new law allowing oil producers to transfer dollar funds abroad under conditions
• Update on annual report and accounts

New Bond Issue
President Argentina has issued a further tranche of US$3.585 million in bonds to the local market to fund further working capital and capital expenditure. The interest rate is 3.89% with a 25-month repayment period and an initial 16 capital repayment month holiday.

In parallel with the issue, Fix SCR, the Argentina affiliate of Fitch, the worldwide credit agency, has re-affirmed the credit rating of President Argentina’s bonds at Investment Grade A-.

Puesto Guardian Concession, Salta, Argentina, Update
The new well PG13-1 is now successfully in production and currently producing over 200 bopd. The old well PE-8, which has not flowed oil for many years, has been worked over and is also now in production with a much more modest 10 bopd, but every little helps.

Realised prices for domestic sale of President’s Salta crude continue to increase with prices currently US$66 per barrel, an increase of 12% from the start of the year.

New Law
President notes the new decree that has been issued by the Argentine government allowing access for oil and gas companies to the currency markets in order to transfer United States Dollars abroad under certain conditions, including relevant amounts being proportionate to incremental production year on year.

Whilst President welcomes any change of law allowing repatriation monies to the UK, the Company is considering the full terms and conditions relating to this new legislation and will advise the market in due course if, and/or to the extent that, the relaxation covered by this new decree is applicable and can be utilised.

A pretty bare bones announcement with no comment and less ability to judge on what is here. The stock remains very cheap. 

KeyFacts Energy Industry Directory: Malcy's Blog