WTI (Nov) $82.82 -$2.64, Brent (Dec) $90.03 -$1.59, Diff -$7.21 +$1.05, USNG (Nov) $5.74 -25c, UKNG (Nov) 196.47p -22.08p, TTF (Nov) €117.675 -€4.32

Oil price

Oil fell sharply as worries swirled around about the missing GDP stats at the Communist party meeting. Also the EU are busy, they are putting out a gas policy which aims to cap TTF and link it with other gas prices.

The USA are planning to announce another release of SPR stocks, apparently another 15m barrels will be added before the mid term elections…And the EU are adding further sanctions against Iran for providing military drones to Russia for use in Ukraine, as discussed here yesterday.

IOG

IOG has provided a Phase 1 operational update.

Headlines:

• Drilling fluid losses at Southwark A1 well have continued in the Bunter Shale Formation
• A1 has been suspended to enable A2 well stimulation operations to proceed as planned for First Gas in Q4, before resuming A1  
• Saturn Banks to be shut-in for a total of four weeks, including depressurising the line ahead of the Bacton terminal shutdown, to enable the final subsea connection to Southwark
• Average 2H 2022 production to date of 28.6 mmscf/d, constrained by aqueous liquids production at Blythe, at an average realised price of 258 p/therm
• Blythe H1 well ultimate recoverable gas volumes estimated at 29 BCF and Elgood at 7.5 BCF – options to optimise recovery are being evaluated
• 2H 2022 production guidance revised from 30-50 mmscf/d to 22-28 mmscf/d

Southwark Drilling
After extensive drilling fluid losses in the 12-1/4″ section in the Bunter Sandstone Formation, the Southwark A1 well progressed into the Bunter Shale Formation, where further fluid losses have been encountered on drilling out of the 9-5/8″ casing shoe. This has no bearing on the Southwark reservoir itself which lies well below this section.

The losses have not yet been sufficiently cured to drill ahead safely and the resulting delays have reduced the time available before the scheduled arrival of the hydraulic stimulation vessel. After careful consideration of the options with the relevant contractors, IOG has therefore decided to securely suspend the A1 well in order to proceed with hydraulic stimulation and commissioning of A2 to deliver Southwark first gas in Q4 as planned. Based on the current schedule and subject to further operational risks, this would be achievable by mid-December.

In parallel, several options to mitigate fluid losses and drill ahead at A1 are being worked through in preparation for completing and producing the well after bringing on A2.

Southwark Subsea, Hook-up and Commissioning
The Seven Atlantic Diving Support Vessel has been operating offshore to connect the outer section of the Saturn Banks Pipeline System (SBPS) from the 24″ manifold to the Southwark platform, to prepare for the introduction of gas from Southwark. Due to a defective 6″ offshore valve the SBPS will need to be depressurised in order to connect the outer section safely to the manifold. Saturn Banks production will therefore be suspended in late October for approximately four weeks, including the November Bacton terminal annual shutdown.

Blythe Field 
Blythe production has been constrained by liquids handling capacity at the Bacton terminal and the need for offsite storage, processing and disposal of saline aqueous liquids being produced from the H1 well. H1 was drilled into the field’s southeast high, which was considered the optimal route to drain the field. Latest analysis of production and reservoir pressure data from the first six months of H1 production indicates that the well is located in a reservoir compartment which is materially baffled from the central and northwest areas of the field and will ultimately recover an estimated 29 billion cubic feet (BCF), compared to the management estimated reserves of 1P/2P/3P 25.4/42.5/55.8 BCF. The Company is evaluating options to further optimise recovery.

Elgood Field
Production and reservoir pressure data from the six months since First Gas at Elgood has also been technically assessed. The Elgood production rate recently fell below 10 mmscf/d and is expected to decline further by year end. The decline in flow rate has been faster than anticipated given the pre-production estimated reserves range of 1P/2P/3P 9.7/14.1/18.3 BCF. The latest analysis indicates that gas is not flowing across the NW-SE oriented intra-field fault to the wellbore as expected. As a result, the most likely ultimate recovery from the field is now assessed to be 7.5 BCF, of which approximately 4 BCF has been produced to date.

Combined flow rates from Blythe and Elgood over 2H 2022 to date have averaged 28.6 mmscf/d, at a volume weighted average price of 258 p/therm. Based on this, and noting the upcoming four-week outage, the expected average gross production rate over 2H 2022 has therefore been revised from 30-50 mmscf/d to 22-28 mmscf/d. 

Andrew Hockey, CEO of IOG, commented:
“Drilling the Southwark A1 well has continued to be very challenging with further fluid losses at the base of the Bunter Shale. To preserve the opportunity to deliver first gas in this quarter, we have decided to suspend operations on A1 in order to ensure that A2 stimulation work proceeds in the scheduled window. We plan to resume, complete and produce A1 after bringing A2 onstream.

Final connection of the Saturn Banks Pipeline System to Southwark has been affected by a defective 6″ valve at the offshore 24″ manifold. To enable safe connection, the line will be depressurised ahead of the Bacton terminal November shutdown, requiring an expected overall outage of four weeks.

Over 2H 2022 to date, Saturn Banks production rates have been constrained to 28.6 mmscf/d by limits on aqueous liquids storage, processing and disposal routes, which we continue to work up several options to resolve. Latest analysis indicates that the Blythe H1 well will ultimately recover 29 BCF, given limited connectivity to other parts of the field and that Elgood is a smaller structure than previously estimated, with projected ultimate recovery of 7.5 BCF. In this context, we have reforecast 2H 2022 production guidance to 22-28 mmscf/d.”

This is clearly a very important statement which has been taken seriously and with the long term in mind for both production and reserves. With the drilling fluid losses at Southwark the company have decided to suspend it to be ready for the scheduled arrival of the stimulation vessel for the A2 well instead, this means that they should be ready to start that operation at the end of the month and prepare for production. 

This means that Saturn Banks will be shut for 4 weeks which is only 2 weeks more than the already scheduled 2 weeks of Perenco Bacton terminal shutdown and means that the pipeline can be depressurised which is needed for the divers working on the final connection to Southwark. 

With regard to the Blythe H-1 well which will recover up to 29 BCF and Elgood 7.5 BCF and whilst these numbers stand, there are ‘options to  optimise recovery’ being evaluated. It is important to note that there are no changes in reserves here and and that the well is deemed to be capable of doing more than the published 1P number.

Of course it may be wise for the company to consider drilling another well which of course would benefit from shelter for tax under the terms of the EPL bill. This would mean that a second well, highly tax efficient could quite possibly be the answer here. It is worth noting that Elgood has turned out to be somewhat smaller than pre-drill expectations and those numbers have been revised down in line with cautious estimates. 

Finally the company has decided to put all these technical and operational problems out together and does deserve some credit for not pulling any punches on this news. However the reduction in guidance is prudent under the circumstances and whilst it has had a significant effect on the share price it may be that it has been overdone and that the 9p level may prove to be an opportunity to buy the shares.

Trinity Exploration & Production

Trinity has provided an update on operations for the three-month period ended 30 September 2022.

The Company maintained robust production in the Period, leading to a 25% increase in operating cash flow, before corporate taxes and pre-hedging.  The first two wells of the six-well, fully-funded onshore drilling campaign were safely drilled, completed and brought into production during the Period.  These wells commenced production at an initial aggregate rate of approximately 113 bopd.  The third well in the programme has subsequently been drilled successfully and is in the process of being completed, with production anticipated to commence within the next two weeks.

Extended supply chain lead times for specialist drilling tools will result in a delay to the Company’s planned horizontal well, which is now expected to be drilled in Q2 2023.  The Company has taken the decision to delay the fourth conventional well in the programme, which was scheduled to be drilled immediately in advance of the horizontal well, to create operational synergies with the rig operations across these two wells.  The Company is actively looking to drill the planned deep well, or additional conventional wells, in advance of the horizontal well, but any decision will be subject to matters outside of the Company’s control including regulatory approvals and supply chain constraints.

The Company’s production guidance for 2022 remains unchanged at 2,900-3,100 bopd. 

The Company’s successful drilling campaign, along with its programme of workovers and recompletions, is forecast to lead to a material increase in operating cash flow for 2023, for which no hedging instruments are in place and the Company will see the benefit of the recent reforms to Supplemental Petroleum Tax (“SPT”).

As announced on 18 October, the Company’s share buyback programme was successfully completed on 17 October, with 672,000 Ordinary Shares repurchased for a total consideration of approximately US$1m.  The Board will consider a further share buyback programme.

Q3 2022 Operational Highlights

• Safely progressing the fully-funded drilling campaign within the WD-5/6 and Forest Reserve onshore blocks:
• The first two wells (PS 612 and PS 613) successfully encountered target reservoir sections as prognosed, confirming our pre-drill expectations and were brought into production during the Period.  Initial aggregate production from these two wells was approximately 113 bopd, within the expected range.
• The third well has subsequently been drilled successfully and is currently on production test.

Stable production:

• Q3 2022 production sold averaged 2,990 bopd (Q2 2022: 3,019 bopd; Q3 2021: 2,923 bopd).
• Year to date 2022 (Q1-Q3) average production volumes sold of 2,979 bopd, broadly flat year-on-year (Q1-Q3 2021: 2,995 bopd).
• Five recompletions (Q2 2022: 9) and 32 workovers (Q2 2022: 31) were completed during the period, with swabbing continuing across the Onshore and West Coast assets.

Ongoing benefits from onshore automation:

• Production volatility has been reduced and in WD 5/6 production volumes from automated wells have increased marginally rather than exhibiting the usual anticipated decline rates.
• Workovers in the automated wells have been reduced by 10%.
• Net average production guidance for 2022 remains 2,900-3,100 bopd (2021: 3,006 bopd).

Jeremy Bridglalsingh, Chief Executive Officer of Trinity, commented:
“A key element of delivering Trinity’s strategy is maintaining, and now increasing, our base production, with results from the first three wells in our drilling campaign being in line with our expectations. The difficulties with the global supply chain for our horizontal well is frustrating, but notwithstanding these issues, we are pleased that we will begin to see the impact of the current drilling campaign by the end of October 2022, and a meaningful step-change in production is expected in 2023 when the horizontal and deep wells are expected to be on production.

I welcomed the fiscal reforms announced by the Government of Trinidad and Tobago, which will reduce the amount of tax we will pay from next year.  The Company will continue to champion further tax and regulatory reform to make investment in Trinidad competitive in an international context.

Trinity has a strong hopper of exciting opportunities, which include further drilling in our core onshore areas, the East Coast Galeota licence and participation in the ongoing onshore licence round.

I am pleased that we have built a resilient business and we are now targeting significant opportunities in our portfolio that have the potential to deliver material economic returns to the Company and its shareholders.”

Production in the quarter was virtually unchanged even though 2 wells were brought into production and added 113 b/d with one well due to be brought on. Unfortunately the key planned horizontal well is further delayed due to procurement delays in specialist drilling tools supply and will now not happen until Q2 2023.

There has been a knock on effect to the drilling programme due to this shortage of kit as the 4th conventional well was scheduled to be drilled just before the horizontal well, this has now been indefinitely canned for assorted reasons.

Trinity has kept guidance at 2,900-3,100 b/d which means that the new wells are only just outproducing the old stock and therefore although ‘a meaningful step-change in production is expected in 2023 when the horizontal and deep wells are expected to be on production’ is forecast it is still some way away. 

Europa Oil & Gas

Europa has announced that it has repaid in full the £1,000,000 loan facility  provided by Union Jack Oil plc which was announced on 9 September 2022. In accordance with the terms of the Loan, the principal and accrued interest has been repaid without penalty and following repayment the Loan will be cancelled. The Loan was secured against a 10% interest in the Wressle field (PEDL180 and PEDL182), including the associated infrastructure; this security will now be released at which point the Company will be completely unencumbered and debt-free.

As announced on 10 October 2022, following drilling of the Serenity well the Company expects to receive in the coming months, once all of invoices for the SA02 well have been received and a final well cost has been established, a repayment of approximately £2 million from the escrow account.

Simon Oddie, CEO of Europa, said:
“I would like to thank UJO for providing us with this loan, which provided Europa with additional liquidity as part of our prudent cash management philosophy pertaining to our short-term capital requirements. Although the results were disappointing, the Serenity well was drilled significantly under budget and the £2 million, when added to our existing cash balance and ongoing net income from our onshore production, provide us with a strong balance sheet to fund the ongoing assessment of the Serenity development, development activity at Wressle and also to continue with our stated efforts to add additional appraisal assets to the portfolio. I look forward to providing further updates as each of these exciting facets of the Europa business progresses.”

It has not been a brilliant few weeks for Europa, first the Serenity appraisal well was a duster then they had to give back the money that they had borrowed to drill it as thankfully the costs came in below expectations.

Neither a borrower or a lender be my mum said to me and just how the company intend to build the company going forward is hard to see despite the bounty of the windfall from the escrow fund. I’m still on the wait list for a meeting so all is not lost…

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