WTI (Aug) $95.84 -$8.25, Brent (Sept) $99.49 -$7.61, Diff -$3.65 +64c, USNG $6.16 -27c, UKNG (Aug) 280.0p +57.76p, TTF (Aug) €177.250 +€6.25

Oil price

Yesterday it was the downward influences that won over the ol price, a big fall that actually breached the $100 level for Brent. More Covid in China, recessionary fears around the world and the IEA predicting weaker demand all did for the price.

Sleepy Joe is on his way to the Middle East hoping to persuade MbS to increase production, if he actually can, I  believe that  it won’t be until after the hot summer when domestic power demand is sky high.

Serica Energy

Statement re. possible offer

Following the announcement by Kistos on 12 July 2022, the Board of Serica Energy confirms that on 24 May 2022, it received a non-binding proposal from Kistos regarding a possible cash and share offer for the entire issued and to be issued share capital of Serica.

Following careful consideration, the Board of Serica, together with its financial advisers, unanimously rejected the Kistos Possible Offer on 1 June 2022, on the basis that the Board strongly believed it significantly undervalued the Company and its prospects and was not in the best interests of shareholders or other stakeholders.

In response to this initial approach from Kistos and recognising the industrial logic of a combination implemented through an appropriate structure, Serica made a non-binding indicative cash and share offer for the entire issued and to be issued share capital of Kistos on 1 July 2022. On 8 July 2022 the Serica Possible Offer was rejected by the Board of Kistos.

Serica pro-actively seeks opportunities to utilise its strong balance sheet and operating capability to diversify its production portfolio and increase the scope for organic investments. In rejecting the Kistos Possible Offer and formulating the Serica Possible Offer, the Serica Board has taken the following factors into account and strongly believes:

1.   Serica’s management has an outstanding track record of financial and operational delivery
2.   The Kistos Possible Offer materially undervalues Serica and would negatively impact the combined entity’s balance sheet and growth potential
3.   The Serica Possible Offer would secure for both sets of shareholders the advantages of scale and diversity attained from combining the asset portfolios

Serica shareholders are strongly advised not to take any action

1.   Serica’s management has an outstanding track record of financial and operational delivery

Significant value has been created for shareholders

• Serica’s share price has consistently outperformed its UK listed E&P peers
• Serica’s share price has risen 1,120% over the past 5 years, against an average 66% increase for UK listed E&P peers[1]
• No equity has been raised since 2013 with all subsequent growth funded from internal cashflows

Serica’s Board has demonstrated its commitment to shareholder returns

• Rising profile of paid and announced dividends
• Recently secured authority for potential share buy-backs

Very strong operational and financial performance

• Grown net production from 18,900 boepd in H1 2021 to 26,600 boepd in H1 2022

Successful completion of cash generating capital projects

• Rhum R3 well
• Columbus development

LWIV programme on Bruce in 2022 delivering encouraging production results

• North Eigg exploration well spudded in July 2022 targeting over 60 million boe of net P50 unrisked recoverable prospective resources
• Reserve replacement ratio has been approximately 100% over last 2 years

Continuing to build financial strength to support re-investment and returns to shareholders

• No borrowings
• Limited decommissioning liabilities

2.   The Serica Board strongly believes the Kistos Possible Offer materially undervalues Serica and would negatively impact the combined entity’s balance sheet and growth potential

The Kistos Possible Offer materially undervalues Serica

The Serica Board strongly believes that the Kistos Possible Offer:

• Does not reflect the underlying value of the Company’s assets and does not recognise the upside potential in its existing portfolio
• Is an opportunistic reaction to the recent and potentially temporary disconnect between Continental and UK gas prices
• Assumes a highly speculative equity re-rating of the combined entity given the effect of the proposed terms

The Kistos Possible Offer would leave the combined entity with a weakened balance sheet

• The Kistos Possible Offer is dependent on new debt and utilisation of Serica’s own existing cash balances
• The net cash of the combined entity would be reduced by approximately £700 million under the terms proposed
• The combined entity would have significantly diminished financial capacity for organic investment and further acquisitions

Increased exposure to market and fiscal risk

3.   The Serica Possible Offer would secure for both sets of shareholders the advantages of scale and diversity attained from combining the asset portfolios

Serica sees merits in the combination of the two companies on the terms of the Serica Possible Offer:

• Scale and diversity: gas-focused North Sea business with pro-forma 2P reserves of approximately 86 million boe[2] and estimated pro-forma 2022 production of approximately 40,000 boepd
• Financially resilient: resources to execute an ongoing and impactful organic development and exploration investment programme through the upstream cycle
• Strong platform for further acquisitions: significant capacity for future acquisitions and corporate combinations

Accordingly, Serica made its non-binding indicative proposal on 1 July 2022. On 8 July 2022, the Serica Possible Offer was rejected by the Board of Kistos.

The Serica Board continues to pro-actively pursue multiple growth options and will only proceed with any of them on appropriate terms.

The Board will not recommend any deal on terms which it believes are unattractive to its shareholders and wider stakeholders.

Serica shareholders are strongly advised not to take any action.

I am not going to make any comments on this situation until I have spoken to both sides and I can give some thoughts to the benefits that might accrue to either set of shareholders. 

Sound Energy

Sound Energy, the transition energy company, announced on 30 September 2021 that its wholly owned subsidiary Sound Energy Morocco East Ltd (“SEME”) had filed to the Moroccan Court its challenge to the remaining charges against SEME relating to the Moroccan Tax Administration’s assessment of the signing in October 2018 of a brand-new petroleum agreement for exploration at Greater Tendrara (the “New Petroleum Agreement”).

Under the remaining charges against SEME the Moroccan Tax Administration alleged that SEME had disposed of assets to Schlumberger in entering into the New Petroleum Agreement, triggering a claimed total taxation liability for SEME of approximately US$2.55 million. The Company remains of the strong opinion that the Remaining SEME Charges result from an incorrect interpretation by the Moroccan Tax Administration of the entry of the New Petroleum Agreement.

SEME has now been informed that the tribunal pronounced its decision in a public hearing in respect of the Remaining SEME Charges, with the judge rejecting SEME’s demand for the annulment of the prior decision of the commission in respect of the Remaining SEME Charges (the “Notification”).

The Notification does not provide reasons for, or details of, the tribunal’s decision.  

The tribunal’s reasons for the decision will be available in due course. SEME will then consider the tribunal’s reasons and decide what further steps it will take including but not limited to lodging an appeal. 

In addition to the Remaining SEME Charges, the Moroccan tax claims against Sound Energy Morocco SARL AU (“SEMS”) related to the Tendrara Lakbir Exploration Permits and the transfer of Operatorship from SEMS to SEME (the “SEMS Claims”) remain in due process. Under the SEMS Claims the Moroccan Tax Administration purports a so-called disposal for nil consideration of intangible assets by SEMS to SEME.

Further announcements will be made, as appropriate, in due course.

Graham Lyon, Sound Energy’s Executive Chairman, commented:
“We are both surprised and disappointed with this ruling. Clearly, this is not what was expected and reflects poorly on the application and understanding of the applicable legislative code in Morocco. We will both appeal to the Moroccan higher courts and reflect on the ruling with the various Moroccan ministries given its impact for new entrants into Morocco. 

It remains perplexing that the entry of a new petroleum agreement awarded by Government agreement, with its own exploration work commitment negotiated with the State of Morocco and covering different geographic areas/time periods, can be purported to be a ‘sale’ of acreage previously surrendered to the Government.

Confusion has arisen due to a previous notification by the Company on 23 July 2018 whereby an entrant into the Tendrara Lakbir licence was postulated. This transaction never occurred. The Greater Tendrara exploration licence is not the continuation of the Tendrara Lakbir exploration licence.

We believe an error has been made and, whilst the Company, together with its advisors, continues to seek to engage constructively with the authorities, Sound Energy will continue to defend its rights through the Courts in relation to all outstanding claims.”

This seems to be a particularly odd case of misunderstanding and as I read it Sound are waiting for written arguments from the court before lodging an appeal. I find it most difficult to believe that the oil and gas industry friendly Moroccans are doing their best to make Sound wish it had not appeared in the country in the first place. 

The more you look at how much the various ministries that exist within the Moroccan Government in order to encourage international companies to explore and develop oil & gas the more that this case seems at odds with that welcoming stance. 

Although the amount concerned does not in itself look like being the death knell for Sound’s operation in Morocco the exposure is unhelpful and unwelcoming. I should expect them to carry on in-country with the work at Tendrara in the hope that the appeals are successful, if not the tax will be paid and it will just lead to an unpleasant odour for those considering investment in Morocco. 

Wentworth Resources

Wentworth notes today’s announcement from Scirocco in relation to the Company’s proposed acquisition of the 25% non-operated working interest in the Ruvuma Production Sharing Agreement announced on 13 June 2022.

Scirocco announced that it has been informed by its partner ARA Petroleum Tanzania Ltd (“ARA”) of its intention to exercise its pre-emption rights in relation to the Proposed Acquisition under the terms of the Joint Operating Agreement. This Pre-emption would be subject to approval by the Government of Tanzania.

In addition, Scirocco confirmed that Tanzania Petroleum Development Corporation (“TPDC”), the national oil company of Tanzania and wholly owned by the Government of Tanzania, has indicated that it is considering exercising its statutory right of first refusal in relation to the Proposed Acquisition pursuant to Section 86(5) of the Petroleum Act 2015.

Scirocco is now taking advice to understand the implications of these developments and will then enter into discussions with each party to confirm next steps.

In the event that Pre-emption does not proceed, Wentworth remains committed to the Proposed Acquisition.

No payment under the loan facility arrangement has been made to Scirocco and no consideration will be due unless the Proposed Acquisition completes.

Katherine Roe, CEO, Wentworth, said:
“The discussions regarding a potential exercise of pre-emption rights by Scirocco’s partners underline the compelling economics of the transaction we constructed, which was designed to be in the best interests of our shareholders and in-country stakeholders with a focus on driving reinvestment into the Ruvuma Asset and into Tanzania.

“We will await the outcome of the pre-emption discussions and provide a further update in due course.”

This is interesting, ARA have the right to pre-empt Scirocco’s 25% stake in Ruvuma but given they already have 75% I was quite surprised to see it. Now they will hold 100% unless TPDC themselves overruled them which I would have thought unlikely but clearly given the statement they are considering. 

It will be very interesting to see how it plays out, one thing is for sure, I’m not convinced that it’s the end of the story at this point, I will add more when I have delved a little deeper…

Angus Energy

Angus Energy announced yesterday that the Company, together with specialist contractors and commissioning agents are making good progress with the testing and inspection of the totality of the facilities.

Whilst mechanical integrity is now complete, electrical and control circuitry continues to be tested both individually and as a whole to ensure that the SCADA control system functions in all eventualities – most particularly those emergency cases.

Progress is good and we expect to complete these tests and verifications before Monday 18 July 2022 at which time live gas can be introduced to the plant, if not before.  First Gas Export into the grid (commercial sales) will be made under the offtake with Shell shortly thereafter. Anticipated production during Q3 comfortably exceeds the hedge amount as advised on 28 June 2022.

Further to the Company’s announcement of 4 July 2022, Angus Energy Plc is pleased to announce that following receipt of the subscription funds it has now completed the subscription to raise gross proceeds of £1,000,000 through the direct subscription of 91,000,000 Ordinary Shares (the “Subscription Shares”) to a group of family offices and private investors led by Aleph International Holdings (UK) Limited (“Aleph”) at a price of 1.0989 pence per share, conditional only on Admission. This completes the Subscription originally announced on 24 May 2022 for a total of £6million.

In addition, the Company is also issuing 27,300,000 shares (the “Fee Shares”) at a price of 1.0989 pence per share and, as previously advised, 173,1000,000 Warrants exercisable at a price of 1.0989 pence per share. The Warrants have a 3 year term from the date of issue. The Fee Shares and Warrants relate to commission payable on the successful completion of the £6,000,000 Direct Subscription.

All good news from Angus as we get closer to first gas and with a raise of some £1m. 

Getech

Getech, a geoenergy and green hydrogen company, is contracted to deploy its proprietary geospatial software and subsurface expertise to support the UK’s first carbon storage licensing round.

Working with the North Sea Transition Authority (NSTA), the UK’s oil, gas and carbon storage regulator, Getech has used its Exploration Analyst software product to leverage NSTA’s in-house data to create strategic maps that the NSTA is using to define optimal areas for CO2 storage.

The NSTA recently announced the UK’s first carbon storage licensing round, inviting bids on 13 high graded areas that have the potential to make a significant contribution to the UK Government’s aim of storing 20-30 million tonnes of CO2 by 2030.

Getech’s Chief Executive Officer, Dr Jonathan Copus, commented:
“Getech is working to accelerate the energy transition by assisting companies and governments in their delivery of sustainable and secure decarbonisation. We do this by deploying our unique geoscience data and proprietary geospatial software to help locate and manage low carbon developments.

NSTA’s use of Exploration Analyst to map and promote an integrated ‘emissions-to-storage’ value chain in and around the UK North Sea showcases another exciting application of products that we originally developed for petroleum customers, and which we are now establishing as essential tools in geothermal energy, critical minerals, carbon storage and green hydrogen.

Placing the demand for our carbon storage offering in a global context, c.130 new commercial-scale CO2 capture projects were announced in 2021, with the International Energy Agency forecasting that the capital spending could exceed US$40bn by 2024 (from US$1.8bn in 2021). The world however must locate and develop a further 700 carbon storage projects at this scale by 2030 to stay on track for the IEA’s 2050 Net Zero Emission Scenario.

In step with the rapidly expanding energy transition markets, we look forward to scaling the deployment of our products, which we are also using to locate, develop and operate our own project investments.”

Getech continue to bring the market news of ‘exciting applications of products originally developed for petroleum customers for which they  are now establishing as essential tools in geothermal energy, critical minerals, carbon storage and green hydrogen’.

If the run of news continues then I would expect the shares to respond positively, the company is not well known but if they can get the message across I would expect it to be well received.

KeyFacts Energy Industry Directory: Malcy's Blog