WTI (Sept)  $94.98 -$1.72, Brent (Sept) $104.40 -75c, Diff -$9.42 +97c, USNG (Sept) $8.97 +25c,UKNG (Aug) 389.99p +62.23p, TTF (Aug) €222.035 +€40.03

Oil price

The big news today is all about The Fed who announce the widely expected 75bp increase in interest rates later. In oil which fell yesterday it is worth noting as I commented the other day that the differential is rising as Brent remains a tighter market than WTI.

The US announced another 20m barrels of crude to be released from the SPR shortly, it had better be soon otherwise they will have to buy it back themselves…

The IMF reduced its World growth prospects again, a trailing measure if ever there was one and after the close the API reported a draw of 4m barrels of crude, 1.1m of gasoline and some 554/- of distillates and today oil is up a dollar.

Diversified Energy Company

Diversified has announced that is has acquired the well services and plugging assets and operations of Contractor Services Inc. of West Virginia (“ConServ” or the “Acquisition”), representing the Company’s third acquisition of an Appalachian asset retirement operator during 2022. Located in Spencer, West Virginia, ConServ is a privately held business led by David and Scott Freshwater that was formed in 1970 and has become an established Appalachian plugging and well services provider.

The Acquisition enhances Diversified’s ability to retire more wells, scales the business to drive further efficiencies in the Company’s internal well plugging program, and provides additional third-party revenues from other operators and state agencies to offset Diversified’s own well retirement costs.  As part of the Acquisition, Diversified will add the ConServ well services and plugging division to the existing Next LVL Energy asset retirement platform.

Diversified’s plugging programme now includes 15 well plugging rigs (+70% vs 1Q22) and an expanded portfolio of services that enhance the Company’s ability to retire wells and perform related site preparation and reclamation activities. The Acquisition adds 3 derrick rigs that supplement the servicing and retiring of both deep vertical and unconventional wells, and also includes a number of service rigs and auxiliary equipment. Diversified’s expanded suite of offerings now includes cementing, wireline, trucking and construction services, which reduce the need to incur related contractor expenses and provide incremental revenue streams.

The Acquisition significantly enhances the visibility by which Diversified will meet its stated commitment to retire at least 200 wells per year across the Company’s Appalachian footprint, well in excess of state minimum plugging requirements and with locally based internal equipment and crews.

Commenting on the acquisition, Brad Gray, Executive Vice President & Chief Operating Officer said:
“We are very excited to welcome the ConServ employees to our asset retirement team at Next LVL Energy and honored to carry forward the great work of the Freshwater family in the Appalachian energy industry. Our investments to vertically integrate asset retirement expertise and equipment have positioned us as one of the largest full-service plugging providers in the region, and benefit both our existing operations and the plugging needs of others in the Appalachian basin.”

“This acquisition serves to not only highlight our long-standing commitment as responsible assets stewards and operators from acquisition to retirement, but also our dedication to doing so in a manner that is beneficial to all of our stakeholders and the environment. With our expanded asset retirement capacity, we are efficiently delivering on our plugging comments as well as servicing the needs of other companies and state governments as the premier Appalachian plugging service provider.”

DEC is showing by its actions that it is making a strong commitment to expanding its ability to retire more wells and even though this acquisition has no cost attached we can tell by the number of rigs added plus the portfolio of services and auxiliary equipment now in-house. 

Indeed, it ‘significantly enhances the visibility by which Diversified will meet its stated commitment to retire at least 200 wells per year across the Company’s Appalachian footprint, well in excess of state minimum plugging requirements and with locally based internal equipment and crews’.

Most importantly it scales the business to drive further efficiencies in the Company’s highly important internal well plugging program, and provides additional third-party revenues from other operators and state agencies to offset Diversified’s own well retirement costs.

I would expect more of this across the DEC acreage as it continues to build the company across the board and within this the promise and commitment to environmental excellence. 

United Oil & Gas

United Oil & Gas has issued the following trading and operational update in respect of the half-year to 30 June 2022. This is in advance of the Group’s half-year results which are expected to be released in  September 2022. The information contained herein has not been audited and may be subject to further review and amendment.  A shareholder call will take place this morning, details are below.

1H 2022 Operational summary

• 1H 2022 Group working interest production averaged 1,552 boepd in line with full-year guidance of 1,500-1,650 boepd with oil constituting circa 85% of average production

Active Egypt work programme including a five-well 2022 drilling campaign which commenced in January 2022:

- ASD-2 development well encountered over 25 metres of net pay and started production end-March
- ASV-1X exploration well; although no hydrocarbons flowed on test, evidence for the migration of hydrocarbons into the area of the licence has de-risked this element of the petroleum system at this location
- Third well of the 2022 programme, AJ-14, commenced drilling on the Al Jahraa field end-June
- Significant increase in the interpreted in-place volumes on the ASH field following improvement to the subsurface imaging from seismic reprocessing

• Zero – Lost Time Incident Frequency rate and Fatal Accident Frequency rate. No environmental spills, Restricted Work Incidents or Medical Treatment Incidents
• Jamaica licence extension granted; Initial Exploration Period will run to 31 January 2024

1H 2022 Financial summary 

• Group revenue for the first half of 2022 is expected to be approx. $10m(1) (1H 2021:$10.2m)
• The average realised oil price per barrel from Egypt achieved was approx. $105.5/bbl (1H 2021:$63.1/bbl), representing a discount to Brent of circa $2.37/bbl (1H 2021:$1.95)
• Cash balances as at 30 June 2022 were approx. $3.8m (1H 2021:$2m)
• Cash collections in the six-month period were approx. $9m (1H 2021:$8.2m)
• Cash capital expenditure was approx.$2.9m

(1) 22% working interest net of Government Take

1H 2022 Corporate summary

• Appointment of Peter Dunne, as Chief Financial Officer , effective from 5 May 2022
• United terminated the sale and purchase agreement with Quattro Energy Limited to sell its UK Central North Sea Licences; P2480 and P2519 (Maria & Zeta)
• Agreement signed with Anasuria Hibiscus UK Ltd for $2.5m in relation to the Crown milestone payment, with $1.5 million received in 1H 2022 and the remainder due prior to year-end.
• Completion and receipt of proceeds in relation to the sale of UOG Italia Srl to Prospex Energy for €2.2m plus €0.1m working capital adjustment
• Directors’ purchases increase total directors’ shareholding to 5.32% of issued share capital (post-period)

Outlook

• Full year 2022 production guidance remains unchanged at 1,500-1,650 boepd
• Full year 2022 capital expenditure guidance remains unchanged at $7.2m
• Strong balance sheet, cashflows and disciplined approach to capital allocation:

- Production leveraged to high oil price with 1H average realised oil price per barrel of c.$105.5/bbl
- Continued focus on G&A and operating costs
- Portfolio positioned to continue to deliver material cash flow into the future

• A resilient portfolio of upside opportunities including near term production increases and near field exploration targets, development opportunities in addition to potentially high impact exploration:

Egypt: Cash generative production and active work programme

• Fully funded active Egypt work programme continues, with the AJ-14 development well currently drilling
• Two further wells scheduled to be drilled in 2H:
• ASH-4 development well, targeting 2.2 mmbbls gross recoverable resources from the prolific AEB reservoir
• §  Exploration well ASF-1X with pre-drill target of c. 8 mmbbls gross recoverable resources

UK: Commercialisation options

• Low-cost work programme on the Maria licence with reservoir evaluation and rock physics analysis
• Independent contingent resources report expected Q3/Q4 2022 ahead of assessing commercialisation options

Jamaica: Long term upside

• Farmout campaign continues to be supported by the higher oil price environment and improved industry sentiment towards exploration opportunities  
• Number of companies currently conducting detailed technical evaluations of the opportunity
• Continued evaluation of M&A opportunities with strengthened balance sheet to support growth strategy

Brian Larkin, CEO commented:
“United has delivered a solid financial and operational performance in the first half of 2022 supported by the high realised oil price and good cash collections including the receipt of  portfolio management  proceeds following strategic divestments. Production in Egypt has been in-line with expectations, and the fully funded work programme continues with the AJ-14 development well currently drilling. We look forward to building on the progress made in the first-half through the completion of the 2022 drilling programme in Egypt, which includes the ASH-4 development well and an exciting exploration well targeting c.8 mmbbls gross mean recoverable resources.  In the UK, we  look forward to the completion of the independent contingent resources report on the Maria discovery and in Jamaica the farmout campaign continues supported by the higher oil price environment and improved industry sentiment towards quality exploration opportunities.”

This is a very extensive report from UOG and the full RNS is even longer than that which I have quoted above. The good news is that the company is indeed in a solid, robust state with guidance renewed and the Egyptian portfolio doing the heavy lifting. 

 Elsewhere the focus will be on the remaining assets after some disposals have left them with the exciting Maria discovery in the North Sea and of course the perennial Jamaica high risk high reward exploration having been renewed and now in the Farm-out process. 

UOG is strongly financed and has a very solid balance sheet and an appetite to add to the portfolio, CEO Brian Larkin in a recent meeting with me said that there are plenty of deals being worked over by his team right now and he is keen as Colmans to do something but only if it adds proper value. 

The shares are down 9% as I write which seems a little harsh but given that they rose some 50% in July when I last wrote them up there must be a few profit takers around, for the long term I think that UOG is an interesting play especially if it adds another leg!

Coro Energy

Coro has announced that its Italian portfolio has produced and sold gas during the first and second quarter of 2022 as detailed in the table below.  

The increase in production in the second quarter of 2022 largely reflects Sillaro recommencing production mid-March and, as previously announced, various production enhancement initiatives are under review to further increase production of the Italian portfolio, of which the likely first initiative will be reservoir interval reperforation at Rapagnano later in the year.  

The Company notes the continued momentum in domestic Italian natural gas prices into July 2022, which would, at current levels, result in further increases in monthly revenues over Q2 2022 exit monthly revenues.  

Nothing for me to add if the company management aren’t saying anything… 

VOG

VOG announced on Monday that the Arbitral Tribunal of the International Chamber of Commerce  has issued an Addendum to its Partial Final Award in relation to the case number 23991/MK.

Following a detailed review of the Partial Award, GDC had requested that the Tribunal correct a computational error in the calculation of monies due as a result of the Tribunal’s decision to move the Payout date from 1 June 2016 to 1 February 2016 (see announcement of 4 April 2022). The Tribunal agreed with GDC’s calculations and has now corrected the Partial Final Award by way of an Addendum in favour of GDC, meaning that the earlier Payout date entitles RSM to a payment of US$6.6 million plus interest, rather than the US$10.6 million plus interest as was initially announced prior to the correction of the error.

RSM also made claims and counterclaims, some of which were successful such that the total amount of the award is now approximately $8.1 million, plus interest.  Commensurate with the reduction in the award, interest will also be reduced (although it is accruing until a settlement is agreed).  To conclude the arbitration, the parties and the Tribunal will next address what costs and fees, if any, should be awarded to either side.  While the amended Award requires GDC to pay RSM some additional monies, the Tribunal decided the majority of claims and counterclaims from the arbitral proceedings in GDC’s favour.

As previously disclosed, settlement discussions with RSM continue with a view to achieving resolution of these matters and a commercially realistic settlement in a timely manner.

Again nothing much to add, its better but its not good Captain. The team are working flat out trying to cut a deal that makes everyone happy and I wish them well. 

Block Energy

Block announced yesterday the commencement of Project II of its three-project strategy, the re-development of the Patardzeuli Middle Eocene reservoir, with the drilling of well JSR-01DEEP by September. The well will be self-funded using the cash generated from operations.

Well JSR-01DEEP involves the deepening of the existing well JSR-01, which was drilled by a previous operator in 2013, in the Patardzeuli oil field in Block XIB. The original JSR-01 well penetrated only the upper 55 metres of the Middle Eocene reservoir, which is over 600 metres thick in Patardzeuli and has produced over 100 MMbbls oil. JSR-01DEEP will target an undrained part of the Middle Eocene reservoir, with placement of the well-path guided by 3D-seismic data attributes that indicate a zone of fracture corridors. This strategy was employed successfully at JKT-01Z in the West Rustavi-Krtsanisi field. Well JSR-01DEEP is the first of a series of wells that will deepen or side-track the existing 50 legacy wells in order to develop areas of undrained oil. 

Materials and equipment required for the drilling of JSR-01DEEP are in Georgia and preparatory operations have commenced.

Block Energy plc’s Chief Executive Officer, Paul Haywood, said:
“Commencing Project II with the drilling of well JSR-01DEEP, located within what has been the most prolific licence area in Georgia, represents the beginning of an exciting period for Block. The roll-out of the Company’s strategy, as outlined through recent announcements, is a programme that we hope will deliver material production growth and further cash. Project II is being funded using the cash generated from current operations and will run concurrently with Project I, which includes a programme of five wells ready for development finance.”

Block’s shares have rallied somewhat lately but are still some 50% off the September high. This well which kicks off Project 2 of 3 will to a great degree whether the rise or the fall was the correct call but it is paid for and gives holders a chance of a good return.

Deltic

Deltic Energy Plc has confirmed that it and Shell U.K. Limited, its Joint Venture Partner on Licence P2437, have made a positive well investment decision to drill the high impact Selene Gas Prospect on Licence P2347 situated in the UK Southern North Sea off the North East coast of England. 

The UK industry’s regulator (North Sea Transition Authority) has been informed of the well investment decision which will facilitate the Licence entering its next phase. While the timing of a well slot has yet to be confirmed and will be subject to drilling schedules, this is expected to be firmed up as the Joint Venture progresses its well planning.

Under the terms of the original farm-out with Shell, Deltic holds a 50% working interest in the Licence but will be carried for 75% of the costs of drilling and testing the well on the Selene prospect, up to $25 million and, as a result of the well investment decision, Shell will be appointed Operator of the Licence.

The Selene Prospect is one of the largest unappraised structures in the Leman Sandstone fairway of the Southern Gas Basin and Deltic estimates Selene to contain gross P50 Prospective Resources of 318 BCF of gas (with a P90 to P10 range of 132 to 581 BCF) with a geological chance of success of 70%.   

With technical and commercial evaluation complete, the Deltic team looks forward to progressing into this next phase as the Joint Venture now moves on to detailed well design, planning, rig procurement and other key preparations to support drilling operations.

Graham Swindells, Chief Executive of Deltic Energy, commented:
“This is a very exciting time for Deltic as we move into the next phase of our strategy, building on the strong platform created by farm outs to both Shell and Capricorn. The commitment to drill this material, high impact, low risk gas prospect is another highly significant milestone for Deltic and our team. Adding another committed well to our programme, following recent confirmation that Pensacola will be drilled in September, represents further endorsement of the quality of Deltic’s assets as well as demonstrating the success of our strategy to create a conveyor belt of exploration opportunities moving from licensing to drilling with world-class partners in place.”

It is an interesting form of PR when you put out a release that says that you have decided to drill a well, especially if everyone always thought that you always would, imagine if it was the other way around…The shares have been gently rising ahead of this news although a date for it is yet to be announced. 

KeyFacts Energy Industry Directory: Malcy's Blog