WTI (Sept) $89.01 +47c, Brent (Oct) $94.92 +80c, Diff -$5.91 +33c, USNG (Sept) $8.06 +35c, UKNG (Sept) 380.0p -5.19p, TTF (Sept) €196.505 -€6.99

Oil price

A bad week for oil as the recessionary fears worsened and China restarted mass testing in Hainan as lockdowns get worse. Production has also increased in Libya as they aim for 1.6m b/d.

The tightness in the market should not be forgotten in this recessionary panic, there is not much oil around, maybe Iran and bits here and there but should the recession not be huge and if China were to come back at some stage, and it will the market would be begging for these price levels. There is no scope for any disruption and that should be borne in mind.

Diversified Energy Company

• Diversified Energy has announced its Interim Results for the six months ended 30 June 2022 and other recent highlights.
• Period Highlights
• Declared 2Q22 interim dividend of $0.0425 per share (2Q20: $0.0400 per share, +6%)
• Paid $72 million of dividends to shareholders
• Record average net daily production: 136 MBoepd (+29% vs 1H21: 106 MBoepd), exit rate of 139 MBoepd
• Maintained industry-leading consolidated corporate decline rate of ~8.5%(a)
• Achieved 1H22 Adjusted EBITDA(b) of $224 million (+48% vs 1H21: $151 million) with Cash Margin(c) of 48%
• Net Loss of $935 million which includes $1.2 billion (pre-tax) of non-cash hedge valuation losses
• Free Cash Flow Yield(d) of 22%
• Leverage ratio of 2.2x(e) (Adjusted Net Debt of $1.1 billion(e))
• Completed $970 million in Asset Backed Securitisations (“ABS”) at a blended fixed rate of 5.3%(f)
• Liquidity of ~$469 million
• Closed ~$60 million in complementary Central Region upstream and midstream acquisitions(g)
• Recently announced $240 million (gross) upstream acquisition from ConocoPhillips in Central Region

Environmental, Social and Governance (“ESG”) Highlights

• Completed ~90% of the upstream surveys reporting no detectable emissions (~49,000 unique inspections)
• Completed ~40 % of midstream emissions aerial surveys (~6,000 miles)
• Expanded asset retirement programme includes 15x more rigs (FY21: 1) through three recent acquisitions
• Permanently retired 90 wells in Appalachia at an average cost of ~$21 thousand per well
• Established Gold Standard pathway after joining Oil & Gas Methane Partnership 2.0 (“OGMP”) in 1H22

Commenting on the results, CEO Rusty Hutson, Jr. said:
“During first half of 2022, we continued to expand our successes by delivering on a number of key strategic initiatives in line with our long-term growth strategy. Our recent accretive acquisition of low decline, high margin upstream assets complements our existing Central Region operations, allowing us to build scale, improve margins and harvest synergies. In Appalachia, our acquisition and vertical integration of multiple plugging companies expands our asset retirement programme to 15 plugging rigs and enables us to achieve our target of plugging 200 wells per year, while also reducing our effective retirement costs as we earn revenue by retiring wells for others.”

“We remain committed to tangible shareholder returns, and are delighted to once again declare an additional $0.0425 dividend of the second quarter, which will add ~$36 million to the  more than $72 million we already have paid so far this year. Our balance sheet remains healthy as we continue into the second half of 2022 with ample Liquidity, cash generation and financing capacity to fund further complementary growth opportunities.”

“Importantly, in addition to the expansion of our asset retirement teams, we continue to make significant progress on a number of focused ESG initiatives, having surveyed over ~49,000 unique wells and flown over 6,000 miles of our midstream assets. This progress is consistent with our 2022 target of ~5-10% methane emissions reduction and with our longer term 2026, 2030 and 2040 targets. Our OGMP partnership further affirms our commitment to these initiatives with a pathway to Gold Standard reporting by 2023.”

DEC has done it again, producing excellent results at a time of high and rising natural gas prices and ideal conditions for its model which prioritises shareholder returns through a ‘disciplined approach to accretive acquisitions’ and of course an increasingly market leading position in ESG. 

So, the numbers show revenue of $933.5m on higher gas prices and production up some 29% at 136/- boed (105.7), EBITDA of $224m is up 48% (151) and a cash margin of 48% which meant that the board approved a 2Q dividend up 6% at 4.25c.The free cash flow was 22% and the company grew fast its position in the ABS market completing a huge $970m at a blended rate of 5.3%. 

The balance sheet liquidity of 469m shows that production is good and perhaps more importantly PDP reserves are up by 36% and give an increase of 116% to the PV10 value of $4.28bn pro forma for 2021 which the company point out will create ‘substantial opportunity for future cash flow’. 

The most obvious thing that can be drawn from all these metrics is that, as the company points out that the company share price is not accurately representing what is a growing disconnect to very strong long term natural gas prices particularly in the areas in which it works such as the Central region in which it has placed significant investment in recent acquisition activity. 

DEC shares are up a very respectable 20% in the last month, these impressive results that show that the model is a highly rewarding one and yet another increased dividend testifies to this. On this basis the shares are as the company says, not fully representative of the value being delivered, or in their words, ‘the disconnect between DEC’s share price and long-term natural gas prices creates an opportunity’ with which I concur, there is a great deal of value still in DEC shares. 

San Leon Energy

Transaction update

The EGM was convened to approve, inter alia:

i) a series of agreements with Midwestern Oil & Gas Company Limited to consolidate Midwestern’s holdings in San Leon, Midwestern Leon Petroleum Limited and Energy Link Infrastructure (Malta) Limited into a single holding in San Leon; and
ii) further conditional investments in ELI (together the “Further ELI Investments”).

Further details of the Proposed Midwestern Reorganisation and Further ELI Investments were set out in the Company’s announcement of 8 July 2022 and are contained in the AIM admission document published by the Company on the same day. Unless otherwise defined herein, the capitalised defined terms used in this announcement have the same meaning as those used in the Admission Document.

This vote at the EGM announced on Friday confirms the restructuring in which SLE will now increase its stake in OML 18 and ELI and therefore the pipeline link.  This will in time virtually eradicate ullage problems and be incredibly profitable for San Leon and given its policy of distribution, its shareholders as well. 

Touchstone Exploration

Touchstone has announced that the Trinidad and Tobago Environmental Management Authority  has confirmed that no further information is required regarding the Cascadura Environmental Impact Assessment. The Cascadura EIA supports the Company’s application for a Certificate of Environmental Clearance  to conduct development operations within the Cascadura area of the Ortoire block.

The EMA confirmed that the following designated activities of the CEC have been deemed applicable to the proposed Cascadura project: exploration for crude oil and natural gas; establishment of a facility for primary or secondary production of crude oil, condensate or associated gas; establishment of a facility for natural gas or condensate production; establishment of infrastructure for pipeline systems; and establishment of infrastructure for storage of petroleum or liquid petroleum gas or their derivatives. These represent all of the necessary activities for commercial production at Cascadura pursuant to Touchstone’s application.

Touchstone submitted the remaining EIA documentation on August 3, 2022, and the EMA responded on August 5, 2022 stating that the submitted information was reviewed and was deemed to be adequate to determine the outcome of the Company’s CEC application. Pursuant to statutory CEC rules, the EMA confirmed that a final CEC determination will be made by September 15, 2022.

Touchstone has an 80 percent operating working interest in the Ortoire block, with Heritage Petroleum Company Limited holding the remaining 20 percent working interest.

Paul Baay, President and Chief Executive Officer, commented:
“We are excited that the EMA has accepted our EIA documentation and will process our CEC application in the near future. I would like to thank our team for their perseverance and diligence in submitting a complete response thereby ensuring no further delays. We look forward to updating our stakeholders in due course.”

Within the space of two weeks Touchstone has moved to another level in Trinidad as they announce today that they have received the final green light for the Cascadura project and now they move to the CEC final application which will happen within the next couple of weeks. 

Touchstone is moving ahead at ‘full speed’ and will hopefully be producing first gas maybe even by the end of this year. Make no mistake this extremely welcome news is a very big deal for the company and its shareholders. As I write the shares are up 23% which is good for shareholders but I would expect that these two announcements should put TXP up by a factor, in this case at least three times the current price would not be out of order as the numbers will be substantial. 

Union Jack Oil/Egdon Resources

Egdon has advised the submission of an appeal against the refusal by Lincolnshire County Council in March 2022 of an extension of time to the existing planning permission for the drilling and testing of a conventional exploration well at the North Kelsey site in PEDL241.

Egdon holds a 50% interest and is operator of PEDL241, Union Jack holds a 50% economic interest in PEDL241.

The appeal documentation has been submitted to the Planning Inspectorate (“PINS”) and the appeal will now be validated by PINS before an inspector is appointed and a timetable defined.  The expectation is that the appeal will be decided under the Written Representation Procedure, a process where PINS will consider written evidence from the appellant, the local planning authority and other interested parties.

North Kelsey Prospect

North Kelsey is a conventional oil exploration prospect on trend with, and analogous to, the Wressle development which lies approximately 15 kilometres to the northwest. The prospect has been mapped from 3-D seismic data and has the potential for oil in four stacked Upper Carboniferous reservoir targets.

The Operator estimates that gross Prospective Resources range from 4.66 to 8.47 million barrels of oil (“mmbo”), with a Mean Resource of 6.47 mmbo.

Common sense would dictate that any, even very modest opportunity to develop this ‘conventional’ oil exploration prospect which will be subject to the usual rigorous safety regulations. 

Which means nothing when a County Council is making the decision…. 

KeyFacts Energy Industry Directory: Malcy's Blog