WTI (Nov) $78.74 -$4.75, Brent (Nov) $86.15 -$4.31, Diff -$7.41 +44c, USNG (Oct) $6.82 -26c, UKNG (Oct) 255.0p -33.0p, TTF (Oct) €174.030 -€12.97

Oil price

Oil fell again on the back of worldwide recessionary fears which have boosted the dollar. With Italy electing a right wing woman Prime Minister we now have two in Europe. The Shadow Chancellor today said that the windfall tax would rise and that they would ban fraccing, all in all they reckon they could get the country totally on green energy by 2030, some chance I would say…

The rig count showed a rise of 1 overall to 764 and up by 3 in oil to 602.

Angus Energy

On Friday I sat down with George Lucan, CEO of Angus Energy for my regular CEO interview. The chat is copied on the link below but it was a fascinating discussion and shows just how far Angus has come in the last year or two.

The final question that I always ask is ‘where do you see your company in 12-18 months time’? George Lucan simply said ‘debt free, paying a dividend and considerably bigger’. You can’t say fairer than that then…

Core Finance CEO interview: George Lucan of Angus Energy

Longboat Energy

Longboat Energy, the emerging full-cycle E&P company, is pleased to announce its unaudited interim results for the period to 30 June 2022.

Operational Highlights

• Encouraging results from Longboat’s initial eight wells exploration drilling programme with success rates and finding costs better than industry average
• Two discoveries so far this year: Kveikje and Oswig

Kveikje discovery (Longboat 10%):

• Excellent reservoir qualities and attractive location near infrastructure.
• Preliminary estimates of recoverable resources in the excellent quality injectite reservoir were 28 to 48 mmboe gross1
• Focus on near-term monetization opportunities following multiple enquiries

Oswig discovery (Longboat 20%)

• Preliminary analysis of extensive wireline logs and core data indicates strong correlation to nearby Tune field and presence of gas-condensate
• Preliminary in-place volumes (GIIP) estimated above pre-drill expectations
• Key uncertainty over recoverable resource range due to challenges collecting downhole data from existing wellbore
• Joint venture decision to sidetrack well and conduct drill-stem test (DST) to establish reservoir productivity, detailed fluid properties and recoverable resource range

Continued to pursue gas opportunities given its role in energy security and contribution to the energy transition

• Secured further bilateral transaction to acquire interests in two further significant, near-term, low-risk gas exploration wells on the NCS, Oswig and Velocette
• Near-term focus on appraising and monetising existing key discoveries and on building an attractive 3-5 well programme for 2023.
• Continued main focus on North Sea opportunities, but also assessing wider opportunity set to leverage Longboat’s high-quality network, organisation and prior experience set

Financial Summary

• Cash reserves of £22.5 million (30 June 2021 £38.7 million)
• Debt of £15.7 million to be repaid from the Norwegian Government’s tax rebate in November 2023
• Loss for the period £1.7 million

Key uncertainty over recoverable resource range due to challenges collecting downhole data from existing wellbore

• Joint venture decision to sidetrack well and conduct drill-stem test (DST) to establish reservoir productivity, detailed fluid properties and recoverable resource range

Continued to pursue gas opportunities given its role in energy security and contribution to the energy transition

• Secured further bilateral transaction to acquire interests in two further significant, near-term, low-risk gas exploration wells on the NCS, Oswig and Velocette
• Near-term focus on appraising and monetising existing key discoveries and on building an attractive 3-5 well programme for 2023.
• Continued main focus on North Sea opportunities, but also assessing wider opportunity set to leverage Longboat’s high-quality network, organisation and prior experience set

Helge Hammer, Chief Executive Officer of Longboat Energy, commented:
“Last week we announced our fourth discovery from eight wells drilled over the past 15 months.  This drill programme has not only made us one of the most active companies in the Norwegian North Sea but also one of the most successful in that period with discovery rates well-ahead of the industry average. 

“Of those eight wells, five have been drilled this year delivering two of our most exciting discoveries to date in Oswig and Kveikje.  Kveikje has excellent quality reservoir in an attractive location near infrastructure. The initial indications from Oswig are very encouraging and we should have the results of further testing in the next 6-8 weeks. Our discoveries to date, as well as next year’s Velocette exploration well, all have the potential to create substantial value to shareholders.”

This is the third note on Longboat in one week so I shouldn’t really have much to add. Today we see the results to June which financially at least are of limited relevance whereas the results with the drill bit have been very successful not least Oswig, announced last week and now on side-track. 

I am confident that these discoveries will enable developments as well as to be able to use some of them as chips to play with in asset trading to give a rounded and valuable portfolio. 

Petro Matad

Petro Matad announced on Thursday  its unaudited interim results for the six months ended 30 June 2022 and provides an operational update.

Key Company Updates

• The Company has finalised the detailed Heron 1 completion plan with expert engineering input.
• Contract in place with DQE Drilling (DQE) and negotiations underway to substantially expand the size of the programme in order to accelerate development drilling and further reduce costs.
• Heron 1 surface facilities and power generation equipment is either at the border or ready to be shipped from China, subject to Covid-19 related lockdowns.
• Petro Matad continues to push government on the land access issue with the Company urging the Ministry of Mining and Heavy Industry to expedite certification.

Financial Summary 1H 2022

The Group posted a loss of USD 1.62 million for the 6-month period ended 30 June 2022, which compares to a loss of USD 1.02 million for the comparable period in 2021. The Company’s cash balance at 30 June 2022 was USD 6.62 million (USD 3.10 million in cash and USD 3.52 million in Financial Assets), which compares to a cash balance of USD 0.40 million (USD 0.38 million in cash and USD 0.02 million in Financial Assets) on 30 June 2021.

As previously announced, a successful fundraise totalling USD 10.4 million gross proceeds was completed in August 2021 to develop and further appraise the Heron oil field with the goal of commencing production in the second half of 2022. During the first half of 2022, the Company has used part of the proceeds raised to place orders for essential equipment required to put the Heron 1 well into production. The remaining funds received from the fundraise have been invested in relatively safe high yielding term deposits waiting on the ramping up of work programme activities. Throughout, the Company has continued with aggressive cost control measures including maintaining a small but highly active workforce with the necessary operational capability.

Operational Summary 1H 2022

Progress on preparations for operations in 2022 was good through the first half of the year but the Company’s ability to execute was impacted by China’s continuing Covid-19 response and from issues arising from Mongolian land law.

Extremely stringent restrictions imposed by China during the global pandemic to control the spread of Covid-19 were extended into 2022 and have significantly impacted the oil sector in Mongolia where almost all of the oil field service providers are Chinese. Mongolia’s oil export was stopped for most of the first half of 2022 due to the Chinese restrictions. Chinese rigs in Mongolia’s major producing fields were on standby and international border crossings were closed on the Chinese side or severely restricted, complicating and delaying imports and exports. Restrictions began to ease in June and the Chinese contractors in Mongolia were able to gradually restart operations on the country’s main producing fields in the middle of the year.

Petro Matad’s long struggle with local and central government authorities to have its land access rights restored as per the Production Sharing Contract (PSC) and Petroleum Law continued. Contradictions in the Land Law have caused issues for all PSC operators in recent years to varying degrees due to land management regulations introduced in late 2017. The impact of these is particularly prevalent in the province where Mongolia’s major oil fields and Petro Matad’s Heron discovery are located. Multiple requests by the Company and other operators for land access permission have been rejected without explanation by the local authorities. Anticipating this situation at the local level, Petro Matad pushed for central government to take action to certify the Company’s Block XX Exploitation Area as a Special Purpose Area, streamlining the approvals process, and to remedy the contradictions in the land law.

In late April the Cabinet of the Mongolian government gave instruction to the relevant Ministers to expedite matters reflecting the fact that Mongolia has a high-profile project underway to construct a domestic oil refinery that will need Heron production. Additionally, the government’s post-Covid-19 economic recovery plan highlights the importance of the upstream hydrocarbon sector in achieving Mongolia’s goal of greater energy independence. This high-level intervention from the Cabinet was very welcome as progress on the matter has been far too slow. The Company continues to push all governmental bodies involved to generate and maintain the necessary momentum.

During the first half of 2022 and despite the problems impacting the oil sector in-country and in China, Petro Matad pressed ahead with its preparations to be ready to commence field operations as soon as conditions allow. To this end, the company completed geodetic surveying over the Heron development area and prepared detailed construction plans as required by the regulations in place. The Company designed and selected surface production equipment including the Heron 1 beam pump and related equipment plus the necessary power generation package. The equipment orders were successfully tendered and awarded. The Company signed contracts for the downhole completion services for Heron 1 including fracking and the installation of the completion equipment. All environmental permits were approved and in place by mid-year to facilitate the commencement of operations once the land issue is resolved.

Operational Update

Since mid-year there has been further easing of the Covid-19 restrictions in China although some major cities have been put under lockdown when cases are reported. Daqing has been one such city which is home to the PetroChina subsidiary operating in Mongolia and to DQE, Mongolia’s most active oil field drilling contractor. Despite the problems in China, DQE currently has 3 rigs in operation in Mongolia with another scheduled to start soon. Petro Matad has a valid contract with DQE for new wells on Heron with prices reduced compared to 2019. Negotiations are also underway to expand substantially the size of the drilling programme incorporating further price reductions and economies of scale. These discussions have taken much longer than DQE originally proposed due in part to DQE management changes but the negotiations are continuing despite the Daqing lockdown.

Whilst Petro Matad’s field operations remain on hold pending progress on the land issue, the Heron 1 power generation equipment is at the border waiting to cross. The other equipment for Heron 1 that was manufactured in Daqing has been held up by the lockdown but there are indications that the lockdown will shortly be eased or lifted allowing this equipment to be shipped. PetroChina’s Mongolian operating company has offered Petro Matad some storage tanks already in-country at very low cost and discussions are ongoing for other items. Meanwhile, the Company has finalised the detailed Heron 1 completion plan with expert engineering consultant input. Discussions regarding provision of operational services and oil export with PetroChina continue, complicated recently by the Daqing lockdown, but these are planned to resume fully as soon as the relevant PetroChina personal are able to return to Mongolia.

The land issue has yet to reach a resolution. The Company has submitted another application to the local authorities for land access whilst at the same time, in response to pressure from Petro Matad, the legal process for Special Purpose certification is underway at the relevant ministries. Amendments to the Land Law are due to be debated in the next session of the Mongolian parliament and although this represents the best opportunity for an all-encompassing long-term solution, Petro Matad is urging the Ministry of Mining and Heavy Industry, under the newly appointed Minister, to help expedite the special purpose certification for Block XX as a priority in order to allow the Company’s in-field operations to commence as quickly as possible.

Mike Buck, CEO of Petro Matad, said:
“I fully appreciate that the lack of resolution on the land access issue will not be welcomed by shareholders. At this stage we have submitted an additional application to local authorities, are pushing for short and long-term solutions to speed up approval and continue to receive the support of the relevant ministries and the Cabinet of the Mongolian government to expedite the matter. We continue to work, day and night for a resolution.

In the first half of this year, we have made substantial progress on getting our production capability ready in order to ensure we can complete Heron 1 as soon as the land issue is resolved.”

Mike Buck, CEO of Petro Matad was right when he said that the shareholders would not like the lack of resolution on land access issues and how right he was, the shares fell by some 30%. In a stroke the shares gave back all the recent gains, not quite what was wanted. 

For those of us who believed that Mike Buck and his team could deliver the oil from Heron our patience has been tested but I still have faith that now that with eventually Covid retreating in China that progress will be made.

KeyFacts Energy Industry Directory: Malcy's Blog