WTI (Nov) $92.64 +4.19, Brent (Dec) $97.92 +$3.50, Diff -$5.28 -69c, USNG (Nov) $6.74 -23c, UKNG (Nov) 270.0p -31.16p, TTF (Nov) €150.505 -€14.14

Oil price

A cracking week for oil which made all the energy companies at Africa Oil Week remarkably chipper. My views dont change, supply is pretty short right now and it will only take the merest of touches to knock down the house of cards.

Opec + saw to that last week and now only a couple of Gulf players hold control over the marginal barrel. The price of oil is going to go up and it is only a  matter of when, this is where you get to choose as it is the Chinese economy which will light the blue touch paper and with rumours that they are about to let go of Covid and the Communist Party Conference imminent is Chinese GDP about to take off?

Zephyr Energy

Zephyr has announced the completion of the acquisition of a package of oil and gas assets located on and around the Company’s Paradox project, Utah, U.S. Details of the Acquisition were announced on 14 September 2022.

The Acquisition is comprised of 21 miles of natural gas gathering lines, the Powerline Road gas processing plant, rights of way for additional gathering lines, active permits, five existing wellbores and additional acreage  which is partly contiguous to the Company’s operated White Sands Unit (the “WSU”).

The Acquisition will allow Zephyr to substantially reduce the capital required to build the necessary gas export infrastructure for its forecast gas production from the Paradox project.  The estimated replacement cost value of the acquired pipelines and plant is over US$10.6 million.

The consideration for the Acquisition was US$750,000, which was satisfied by a payment from Zephyr’s existing cash resources, and as the new owner, Zephyr has assumed responsibility for all future decommissioning, plugging and abandonment liabilities associated with the assets (estimated to be approximately US$2.5 million in today’s terms).

Zephyr now operates 45,000 gross acres in the Paradox Basin, the majority of which the Company holds a 75% or greater working interest.

A full summary of the assets purchased as part of the Acquisition was outlined in the Company’s announcement on 14 September 2022.

Colin Harrington, Zephyr’s Chief Executive, said: 
“I am delighted that we have now completed  the Acquisition which is expected to bring multiple commercial benefits to the Company.

“Firstly, it allows us to greatly reduce the capital needed to build out the gas infrastructure required to sell our produced gas volumes from the Paradox project into the market.  Secondly, it completes the acquisition of all key acreage covered by the WSU 3D and thirdly, it provides us with an additional well pad already tied to the pipeline, which in combination with the newly acquired acreage will simplify future development drilling.  Similarly, the gas plant, while currently not in use, has excellent potential for reintroduction to service and can potentially act as a WSU supply base.

“The Acquisition marks the start of an exciting period for Zephyr as we kick-off our extended production test on the State 16-2LN-CC well and as we make final preparations for our forthcoming drilling programme. While supply chain and labour availability issues continue to exist across the sector, Zephyr’s team is working hard to ensure the necessary pieces are in place in order to commence drilling shortly after the final federal permit has been received.  Further updates on this will be announced shortly and will be presented at our Investor Webinar on 25 October 2022, details of which we announced on 28 September 2022.”

As I commented on when this deal was first announced it is of exceptionally high quality in that it opens up at very little cost the infrastructure as well as picking up the acreage within the 3D seismic that the company have. 

Zephyr stands at a crucial point in its development, the extended production test and the drilling programme will, if successful be a game changer for the company and which is nowhere near reflected in the share price.  

i3 Energy/ Europa Oil & Gas

i3 Energy has announced the completion of drilling operations on the Serenity appraisal well on UK Licence P.2358, Block 13/12c.

The 13/23c-12 Serenity appraisal well was drilled to a total vertical depth of 5,630 ft below sea level. The targeted Lower Cretaceous Captain sand, which contained hydrocarbons in the 13/23c-10 well discovered in October 2019, was not present at this location. Over 100 ft of other Captain sands in various sequences were found but were water wet. The well will now be plugged and abandoned.

Data recovered from the well will be integrated into further reservoir modelling to optimise a development plan to exploit the reserves, proven up by the discovery well, in the eastern area of the structure.

The well was drilled significantly below budget and with no health, safety, environmental or lost time incidents. The total gross cost is expected to be circa £10.4mm. i3’s working interest in Serenity is 75% but under the terms of the farmout with Europa Oil and Gas, i3’s paying interest for the 13/23c-12 well is 53.75%, resulting in an estimated net cost to i3 of £5.6mm.

Majid Shafiq, CEO of i3 Energy plc, commented:
“Whilst this result is disappointing, we and Europa (having satisfied the farm-in conditions) will use the data recovered to improve our understanding of the Serenity field and the architecture and geometry of the Captain sand reservoir intervals. The data will also improve our understanding of the extent and geometry of the oil-bearing sand found in the 13/23c-10 discovery well. This will allow us to proceed with the planning and evaluation of a preferred development option, initially focussed on the eastern area of the mapped structure around the discovery well.”

Simon Oddie, CEO of Europa, said:
“Although this is a disappointing result the data gathered during the drilling of SA02 has improved our understanding of the Serenity field and we continue to interpret the well data which will help us establish a suitable development plan to maximise the value of the already discovered resources within the eastern area of the Serenity field. The SA02 well was drilled safely and below budget and has demonstrated how well the i3 Energy and Europa teams work together. We look forward to continuing to build on this strong relationship with i3E as we work on assessing the monetisation routes for the discovered resources at Serenity.

Europa is in a financially strong position with ongoing production generating material monthly net income. We will continue to execute on our stated strategy of pursuing new assets to build a balanced portfolio, focussing on opportunities that need further appraisal to unlock the asset value.

At Wressle we are working with our partners on the continuing development of the Wressle field and the greater area, which includes further drilling, and I look forward to sharing the details in due course.”

This is a very disappointing result indeed for both companies although obviously more so for Europa who recently borrowed money for working capital than i3 who have significant production. As I have an upcoming meeting in the diary with the i3 CEO I will hold any judgement on that until I  see him later this month when I will comment further. 

With regards to Europa whilst I do not have a meeting in the diary I have had communication from the company and am hoping to have a meeting before long. However, it would seem to me that with the Irish and Moroccan parts of the portfolio to be somewhat longer term, the holding in Wressle might have to be doing a good of the heavy lifting for the time being…

Cornerstone Resources Group

Cornerstone has signed a binding farm out of its Abbey development and also the nearby Baker low risk exploration prospect. Cornerstone will receive consideration upfront and at Final Investment Decision, and after the respective Final Investment Decisions, will be fully carried through the Abbey development and Baker exploration well. The farm out is subject to regulatory approval which is anticipated in the next few weeks and we will provide a further update then.

Peter Young, Chief Executive Officer of Cornerstone Resources Group commented:
“We are delighted to be bringing in a very high quality and credible partner on both Abbey and Baker. Our teams are already working very closely together and the deep experience of our team is being enhanced by our new partner’s significant experience to the benefit of both projects. This is truly a win win deal for both parties and we are all excited about developing this partnership further.

Whilst the priority for Cornerstone will remain the development of Abbey our broader ambitions are unchanged. We anticipate growing the portfolio both via new developments and potentially also by acquiring producing assets. All our development work is premised on minimising and reducing our environmental footprint and that is a core attribute of Cornerstone. It is inevitable that as we grow our portfolio we will continue to broaden our understanding of renewable energy sources and look to invest in such sources that are complementary to our core business.

This is very good news for CRG and so congratulations to Peter Young and his team for the Abbey development and the Baker well and associated carries. The only trouble is that the announcement doesnt show who the new partner is or how much has been paid for all this so we must wait until that happens before anything else can be judged.

KeyFacts Energy Industry Directory: Malcy's Blog