WTI $108.43 (Aug) n/c*, Brent (Sept) $113.50 +$1.87, Diff n/calc *USNG $5.66 (Aug) n/c*, UKNG (Aug) 302.0p +57p, TTF (Aug) €171.50 +€23.50

Oil price

With the US shut for July 4th celebrations oil markets were open elsewhere and rallied on better economic news from the Far East as well as the imminent Norwegian oil workers strike which starts today and builds over the next few days. Note the continued rise in the gas price, that ain’t going to change either…

PetroTal Corp

PetroTal has provided the following updates:

Key Highlights

• Q2 2022 production averaged approximately 14,500 barrels of oil per day, a new quarterly record, representing 7% above/. revised guidance provided on May 26, 2022, the seventh straight quarter of production growth;
• Well 11H was put on production June 30, 2022, and has averaged approximately 9,550 bopd over its first four producing days with an estimated payout in early August 2022;
• Well 11H was drilled and completed for an estimated $13.8 million, on budget, with total depth reaching approximately 4,300 meters inclusive of the horizontal section of 1,125 meters, and was completed with Autonomous Inflow Control Device (“AICD”) valves;
• Q2 2022 oil deliveries for export via Brazil were a record estimated 1.15 million barrels (12,600 bopd) and are expected to further increase in July 2022;
• The latest four-day average production ending on July 3, 2022, was a record 22,376 bopd, with a peak production of 26,000 bopd.  To accommodate sales availability, the Company expects to maintain production between 18,000 and 19,000 bopd with Brazilian exports increasing until the ongoing Northern Peruvian Pipeline (“ONP”) repairs are completed, which is expected by September 2022;
• The final Brent oil price for the 719,961 barrel lifting from Bayovar, announced on June 16, 2022, was $114/bbl using the average ICE Brent oil price for the final ten days of June 2022, inclusive of usual pricing adjustments, thereby finalizing true up revenue of approximately $53.9 million, which is expected to be received in August 2022;
• Total cash at June 30, 2022 was $77.0 million, including $16.2 million of restricted cash.  Estimated accounts receivable and accounts payable at the quarter end were approximately $88 and $50 million, respectively; and,
• Perupetro has recently announced that it will formally include an addendum in the Block 95 License Contract including the proposed 2.5% social trust, completing a major administrative step for this social initiative.

Strong operational execution
Q2 2022 was a strong operational period for the Company, having unconstrained production for the majority of the quarter.  Production was supported with strong oil rates from wells 8H, 9H, and 10H, each flowing between 3,000 and 4,000 bopd with well 11H commencing production on June 30, 2022 at an initial four-day average of 9,550 bopd.  Well 11H was drilled and completed for an estimated $13.8 million, which was on budget, and with total depth of approximately 4,300 meters, inclusive of the 1,125 meter horizontal section.

The ONP is still undergoing maintenance, which Petroperu expects to have completed by September 2022.  During this time, the Company anticipates restraining approximately 20% of field production which will be restored as 11H’s flush production diminishes and as Brazilian exports are increased during this quarter.  As a result, the Company is targeting an overall production range of 18,000 to 19,000 bopd for the third quarter. 

Enhanced liquidity expected in Q3 2022

The robust forward free cash flow profile, combined with the strong June 2022 exit liquidity and the recently executed Bayovar oil lifting, should minimize the impact of having to temporarily constrain production to manage sales capacity.  The Company remains on target to execute its debt repayment strategy in Q4 2022 or Q1 2023, which will allow an accretive shareholder return policy to be examined and approved in Q4 2022, if it is, as expected, economically viable.   

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“PetroTal has now achieved its seventh straight quarter of production growth and has delivered another production record, growing 21% in the quarter.  11H’s early technical assessment estimates it will achieve an investment payout by early August 2022 at current Brent oil prices and, like our other wells, help deliver a robust free cash flow profile thereafter.  Given our strong liquidity profile we are actively assessing the Company’s ability to put in place an accretive shareholder return policy upon payout of the bonds, which we look forward to communicating about later in 2022. We are also very excited about the agreement to include our social trust initiative into the Block 95 petroleum license, thereby accepting the concept into rule of law.” 

PetroTal just continues to deliver quarter after quarter and this is no exception. Average 2Q production was 14,500 b/d, itself some 7% above guidance and the 7th straight quarter of growth and with unconstrained production for the majority of the quarter.

This was with the 8H, 9H and 10H wells and on June 30th the 11H well came onstream at 9,550 b/d admittedly over a 4 day period although it did mean production over the last 4 days has been some 22,376 b/d, the company expect payout from this well by August 2022, exceptional economics. Overall production planning for this quarter is expected to be around 18-19/- b/d which is now guidance, but with plenty of upside. 

The Brazil route for oil exports continues to rise until the ONP repairs are complete, expected around September of this year. The last lifting from Bayovar was priced at $114/bbl finalising true up revenue of approximately $53.9 million contributing to the cash total which was $77m at June 30th and as they continue to pay down debt shareholders can look forward to being treated to distributions as early as later this year.

With so many pluses in this announcement, increased production, excellent receivables making strong free cash flow leading to debt paydown and subsequent distributions PetroTal has yet again stamped its quality on the sector. I said a little while ago that an increase in TP was on the cards, well I’m raising that to 125p today but have a feeling that it won’t be long before I do it again…

United Oil & Gas

I was fortunate enough to be able to sit down last week with UOG CEO Brian Larkin, I have always had a feeling that the company is underrated by the marketplace but also wanted to find out about the portfolio structure and his plans. 

The three legs of the business do have symmetry about them, after all Egypt is a high quality, low risk producing asset that will supply more than enough cash flow to cover G&A and more, in the North Sea the Maria discovery is a 100% asset that looks better and better on each assessment and of course Jamaica is a potential monster, also 100% owned but with 2.4bn barrels of unrisked mean prospective resources. 

We spoke about Maria in the North Sea which was ironically almost sold at $60 oil but wisely UOG were happy to take it back and the team of in-house technical experts is happily working it up. Add to that a CPR in Q3/4 which might add to the c.6m boe of mid-case recoverable resources should give UOG the green light to open up the data room. 

In Jamaica they received a two year extension last Christmas and they have a data room here too, that will be shut by the year end, it is worth remembering that it is drill ready with Tullow having already spent $35m on it of which UOG contributed $2m. Starting with the Colibri prospect with well costs of $25m this prospect looks to be eminently attractive to drill up. 

UOG have ambitious plans, will use their cash on ‘the right thing’ should any exciting M&A deal come up and believe me they are actively looking. Brian has a very strong management team behind him and it would be a brave person who bet against this team pulling off something good. 

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