WTI (Sept) $90.76 +$1.75, Brent (Oct) $96.65 +$1.73, Diff -$5.89 -2c, USNG (Sept) $7.63 -43c, UKNG (Sept) 331.74p -48.26p, TTF (Sept) €189.5 -€7.0

Oil price

A modest rally yesterday which has continued this morning but on pretty thin grounds, it was all about Iran and the talks coming to an end. It appears that the EU and the US have decided on their stance and have effectively put it to Iran with a timescale by which it has to accept it.

If that is the case then the Iranian reply will be crucial to world markets and it cannot be presumed that they will automatically agree, reports recently have shown that the continued build-up of enriched uranium indicates a considerable level of intransigence.

Weekly residential gasoline prices are out and drivers in the UK and the EU will again be wishing that they filled up in the US. A gallon of Valero’s finest will cost only $4.038 and if you bear in mind that as recently as the 14th of June that gallon was $5.008 then the size of the fall can be fully appreciated. So, down 15.4 cents w/w and a fall of a full 60 cents m/m shows how slowing demand is passed on by retailers, a year ago it was 86.6 cents lower…

Sound Energy

Sound has provided an update on the Phase 2 development financing of its Tendrara Production Concession, an update on the Company’s exploration and appraisal activities and the launch of a farm-out process for the Tendrara Production Concession and the surrounding Greater Tendrara and Anoual exploration permits.

Phase 2 Development Financing and Farm-Out Update
As announced on 23 June 2022, the Company mandated Attijariwafa bank, a Moroccan multinational bank and one of the leading banks in Morocco, to arrange a long-term project senior debt facility of up to c.US$250 million for the partial financing (the “Phase 2 Senior Debt”) of the currently estimated approximately US$330 million Phase 2 development costs (gross, 100%) of the Tendrara Production Concession.  Progress continues to be made with a number of external banking advisers and data review and, as previously announced, the parties are seeking to negotiate binding terms for the Phase 2 Senior Debt within 120 days under the 8 month exclusivity.

In addition, the Company is continuing to mature industry and alternative financing solutions for the remaining Phase 2 development costs of approximately US$60 million net to Sound’s 75% working interest in the Tendrara Production Concession. A number of industry counterparties capable of providing the required financing have expressed interest in pursuing discussions in respect of both of the Company’s Tendrara Production Concession and surrounding Greater Tendrara and Anoual exploration permits.

As a result, the Company announces that it has initiated a formal farm-out process for the Tendrara Production Concession and the surrounding Greater Tendrara and Anoual exploration permits and has appointed Gneiss Energy Limited, a leading energy corporate finance advisory firm, to manage the farm-out process.

The objective of the area-wide farm-out is to seek a co-investing partner in each licence to both fund the expected balance of Phase 2 development costs and also to progress an exploration and appraisal drilling programme in the Greater Tendrara and Anoual exploration permit areas.

Exploration Update
Following the Company’s announcement on 14 April 2022, the Company has continued to re-evaluate the extensive exploration portfolio within the Greater Tendrara and Anoual exploration permits surrounding the Tendrara Production Concession.  The Company had high graded several potential near term subsalt drilling opportunities within the Trias Argilo-Gréseux Inférieur (“TAGI”) gas reservoir, the proven reservoir of the TE-5 Horst gas accumulation within the Tendrara Production Concession.

These drilling opportunities include the exploration prospect ‘M5’ located on the  Anoual exploration permit, together with the SBK-1 and TE-4 structures previously drilled on the Greater Tendrara exploration permit.

The Company has published an updated presentation detailing the Company’s planned exploration and appraisal activities which can be accessed on our corporate website, https://www.soundenergyplc.com/.

Both SBK-1 and TE-4, drilled in 2000 and 2006 respectively, encountered gas shows in the TAGI reservoir. SBK-1 flowed gas to surface during testing in 2000 at a peak rate of 4.41 mmscf/d post acidification, but was not tested with mechanical stimulation. TE-4 was tested in 2006 but did not flow gas to the surface. Mechanical stimulation has proven to be a key technology to commercially unlock the potential of the TAGI gas reservoir in the TE-5 Horst gas accumulation and, accordingly, the Company believes this offers potential to unlock commerciality elsewhere in the basin. 

Commercial discoveries in the Greater Tendrara and Anoual exploration permits would have the potential to be commercialised through the proposed development infrastructure centred on the TE-5 Horst, with sufficient capacity in the planned Tendrara Export Pipeline or as standalone projects.

The Company is pleased to announce the exploration potential in these three planned drilling targets. The table below summarises the exploration potential, expressed as Gas Initially-in-Place.

The Company cautions that notwithstanding its internal estimates for the exploration potential of the three planned exploration drilling targets, further exploration activity, including drilling, will be required to substantiate the estimated exploration potential and that general exploration in the oil and gas industry contains an element of risk and there can be no guarantee that the Company’s current estimates of volumes of gas originally in place will be substantiated by exploration drilling or that any volumes encountered would actually be available for extraction.

Graham Lyon, Sound Energy’s Executive Chairman, commented:
“We are making good progress on the senior debt facility for the Tendrara project, which is planned to fund the majority of the Phase 2 development costs.

In parallel, we have now commenced a farm-out process to secure partner participation in both the development of the Tendrara Production Concession and exploration and appraisal in the surrounding exploration permits.

Our re-evaluation of the potential of the Greater Tendrara and Anoual exploration permits has high-graded three drilling targets, two of which have previously encountered gas shows.  We believe mechanical stimulation is the key to unlocking the potential of the TAGI gas reservoir, as we have done at the TE-5 Horst discovery.  Importantly, future discoveries in this area have the potential to be commercialised through the planned infrastructure that will be built at the TE-5 Horst development.

We look forward to updating shareholders on progress as we move forward.”

This is most interesting from Sound where I see signs of a plan coming together and we like the sound of that. This plan appears to be vindicated by the fact that interest is becoming substantial with other companies recognising not only the gas development ability to serve both Moroccan domestic and European markets but also large exploration portfolio which includes plenty of running room. 

The cunning nature of the plan has been in getting the planned infrastructure in place in place first, thus being ready for a potentially prolonged drilling campaign which includes two appraisal wells and one pure wildcat at the very least and will surely attract companies with deeper pockets in this highly attractive market. 

The Sound share price has been predicated very much on the rolling announcements for the gas development, indeed today there is an update on the financing of the Phase 2 Senior debt from the Attijariwafa bank as well as to ‘mature industry and alternative financing solutions for the remaining Phase 2 development costs of approximately US$60 million net to Sound’s 75% working interest in the Tendrara Production Concession’. 

Right now it would seem that the company is starting the process of moving to the next stage of its development and the share price just has not yet reflected this. Indeed I would suggest that it should now start to move upwards, the first point must be a doubling to the 3p level but if this report has any legs at all I would think that 5p or a market cap of £100m would not be unattainable. 

Union Jack Oil

Union Jack has announced a further update on the reduction of capital exercise that is being pursued following the passing of a special resolution of the Company at its Annual General Meeting on 23 June 2022.

An application to the High Court of Justice has been made and an initial hearing has been scheduled for 12 August 2022. A final hearing for the Court to consider the Capital Reduction has been scheduled for 30 August 2022. The timing and approval of the Capital Reduction remains at the discretion of the Court.

The Company will announce any further developments in due course.

Further good news from UJO as it transitions into a potentially dividend paying, properly distributing oil and gas company. 

Delayed

The following stories didn’t make yesterday’s blog for time purposes, my apologies I just ran out of road!

Scirocco Energy

Scirocco notes the update issued by Aminex PLC on operations at the Kiliwani North Development Licence (KNDL), in which Scirocco holds a legacy 8.39% non-operated working interest.

• Orca Energy Group Inc. announced that 3D seismic acquisition programme, covering a total area of 200 km2 to include the adjacent Songo Songo Licence with a ca. 12.5 km2 incursion into the Kiliwani North Development Licence (“KNDL”), has been awarded to African Geophysical Services LLP (“AGS”)
• Orca is targeting completion of the acquisition programme before year end to align with the optimum weather window and assure the highest quality data, subject to receiving final environmental approvals
• The resulting data covering the KNDL will be acquired at zero cost to the Kiliwani North joint venture, and will help in identifying fault trends, improving reservoir definition and improving the understanding of the Kiliwani North and South structures.

Tom Reynolds, Scirocco’s CEO commented:
“We are pleased to note the positive progress reported by Aminex today, which will better characterise and enhance the JV’s understanding of the potential resource. In so doing, this should support the Company in exploring options to divest or otherwise realise value from the asset as it pivots to investments in sustainable energy and the circular economy.”

No need to add anything to the comments above for obvious reasons but it is good news for all concerned.

Prospex Energy

Prospex has announced the successful  installation of a 41.5 kW array of 83 solar panels on the roof of the El Romeral power plant, known as Project Apollo, was completed on 4 August 2022.  The Company holds a 49.9% working interest in El Romeral through its interest in Tarba Energía S.L.

Project Apollo powers part of the ancillary services at the plant, thereby leading to reduced self-consumption and increased sales of electricity.  The cost of installation was less than €50,000 which was financed from existing funds held by Tarba.  Payback from this investment is estimated to be three to four years.  A total of 83 photo-voltaic panels have been installed in three separate zones on the power plant roof giving a total installed peak capacity of 41.5 kWh.  Project Apollo is expected to generate 66 MWh in the first year.

Project Apollo will give valuable experience to Tarba in managing solar plants, which will be useful learning for Project Helios, the renewable co-generation project via a proposed 5 MW solar farm adjacent to El Romeral which is at FEED stage.  Connection to the power grid at El Romeral is pre-existing and the grid network has ample capacity to export increased electricity output from Project Helios, subject to permitting.

Mark Routh, Prospex’s CEO, commented:
“Project Apollo establishes us as an emerging integrated energy company and reduces our carbon footprint by leveraging an existing asset to incorporate photovoltaic capabilities.  Not only will this directly result in increased sales of electricity at the El Romeral power plant, but importantly, it also furthers our ambition to diversify our power assets as we look to enhance our conventional/renewable energy ratio.  This will be a core pillar of Prospex’s strategy in the future as we balance the immediate and critical demand contours of domestic gas markets with our responsibility to provide long-term sustainable power across Europe.

“Today’s news is a significant first step towards achieving this over-arching strategy and I look forward to providing further news in this regard over the coming weeks and months.”

It seems that this move will not only increase electricity sales for Prospex but also contributes to put the data acquired into further power developments elsewhere in the portfolio. Although from a very low and somewhat tentative start the company are pushing ahead with these developments.     

Lamprell

When I took one look at the Lamprell announcement yesterday I couldnt quite believe what I saw. The company is in dire straights and I have decided not to republish the pages of statements made by the Chairman, CEO and even CFO and leave it for investors to wade through it all for themselves. 

What is worth commenting on is that they have declared a net loss with higher debt in a set of accounts that is qualified by the auditors. The company has various bids, funding and assorted debt offers around but without knowing a fair bit more I’m in no position to judge. If and it is a big if, they present in London soon that will be the time to see what the management can say as boy can they write….

Kosmos Energy

 Kosmos yesterday announced  its financial and operating results for the second quarter of 2022. For the quarter, the Company generated a net income of $117 million, or $0.25 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net income(1) of $132 million, or $0.28 per diluted share for the second quarter of 2022.

SECOND QUARTER 2022 HIGHLIGHTS

• Net Production: ~62,200 barrels of oil equivalent per day (boepd) with sales of ~62,400 boepd
• Revenues: $620 million, or $109.28 per boe (excluding the impact of derivative cash settlements)
• Production expense: $90 million, or $15.88 per boe
• Capital expenditures (excluding acquisitions and divestitures): $220 million
• Generated free cash flow of approximately $67 million (~$290 million in 1H 2022)
• Accelerating debt repayment with net leverage falling to ~1.6x
• Phase One of the Greater Tortue Ahmeyim LNG project over 80% complete at quarter end

Commenting on the Company’s second quarter 2022 performance, Chairman and Chief Executive Officer Andrew G. Inglis said:
“Kosmos delivered another quarter of strong operational and financial performance. Production at the upper end of guidance and continued free cash flow delivery helped reduce debt and drive net leverage lower. Following the robust underlying business performance year-to-date, and despite seeing some inflationary cost pressures, we expect full year free cash flow generation and debt reduction to be in line with previous guidance with year-end net leverage expected to be lower than our 1.5x target.

“We continued to make good progress on our three core development projects — Tortue Phase 1, Jubilee Southeast and Winterfell — which we expect will collectively grow production by ~50% by 2024. We are also advancing our other gas projects in Mauritania and Senegal, which are expected to drive the next phase of growth beyond 2024 as we continue to materially increase the gas weighting of the portfolio.

“With low-cost, high margin oil assets that generate material cash to both de-lever and fund our investment in our world-class gas assets, we believe we have the right portfolio at the right time. We are well positioned for the energy transition and expect to play an increasingly important role alongside our host countries in providing energy security to nations looking to diversify current supply sources.”

I have been a big fan of Kosmos for a number of years and this set of figures rewards management for corporate deals as well as incredible organic growth in the portfolio. Despite the Jubilee and TEN deals being no-brainers the smart Alecs who knew best didn’t predict quite how much they would pay back but then Oxy was a different beast. 

To say that they have the right portfolio at the right time is bang-on and will continue to ensure that Kosmos is the right stock for the right oil and gas portfolios right now. 

KeyFacts Energy Industry Directory: Malcy's Blog