WTI (Jan) $73.17 +$2.15, Brent (Feb) $77.99 +$1.89, Diff -$4.82 -26c, USNG (Jan) $6.59 +35c, UKNG (Jan) 336.0p +5.0p, TTF (Jan) €137.84 +€8.84

Oil price

The oil market is in better nick, partly as the Keystone pipeline leak that I mentioned before may be shut for longer than expected, it would keep 600,000 b/d off the market at the worst case. The US CPI came out at 6.0% just below the whisper about ok for the Strasa.

Retail gasoline continues to fall, as it should, a gallon of Shell’s finest will rip you $3.239 down 15.1 cents w/w, a fall of a huge 52c m/m and up just the 1.105c y/y.

Genel Energy

Genel has announced the following update on the Sarta PSC (30% working interest and operator).

Testing of the Sarta-6 appraisal well has been completed. The well was a six kilometre step out from, and was c.300 metres downdip from, the Phase 1A pilot production area.

12 intervals were completed for individual, isolated, zonal testing of the Lower Jurassic primary objectives (Mus, Adaiyah, and Butmah) and Middle Jurassic secondary objectives (Garagau, Najmah and Sargelu). The primary Lower Jurassic objectives all flowed formation water only while the Middle Jurassic intervals flowed heavy oil (9-11 API from field measurements) at rates ranging from 500 to 900 bopd, and 1,800 bopd when commingled (surface equipment constrained rate).

The potential for longer term development and monetisation of these heavy oil resources will be assessed as part of the joint venture’s view of future Sarta field development.

Further capital investment on the licence is contingent on the extent to which there can be confidence that such investment can add cash generative production. Following the results of the two appraisal wells and ongoing pilot production, with field production averaging 4,000 bopd for Q4 to date, it is clear that initial field expectations are unlikely to be met, and hence Genel will be required to undertake an impairment review of the carrying value of the asset.

This is no great surprise, as the modest move in the share price indicates and one that recent work at Sarta had to a great extent forewarned. That doesn’t make it any less disappointing, no one likes this sort of result, but it does show the value of Genel’s produce and appraise philosophy – minimising spend upfront and reducing risk.

But the company still has plenty to work on, continued investment in its substantial portfolio and of course the challenge of M&A, a policy that has been under way for a while and which they have a significant war chest to work with. The shares still have a significant amount of appeal in terms of both capital and income growth from this very modest share price. 

Predator Oil & Gas

Predator has provided an update on progress towards the commencement of drilling of the high impact/high reward MOU-2 well in Guercif onshore northern Morocco.

Initial mobilisation of the Star Valley Rig 101 equipment to the MOU-2 drilling location has commenced and long lead items, including wellheads and other well equipment and materials, have been successfully imported and delivered to the Group’s secure warehouse facilities in Guercif. Remaining materials and inventory are in transit and will arrive on location in the coming days.

Pre-drilling procurement and delivery is now almost complete. Upon the conclusion of this process a firm spud date will be announced. This will be later than the previous guidance of mid-December as some remaining well inventory was delayed as a result of having to be trucked by road when previously negotiated transport by sea was withdrawn at short notice due to the competition for vessel capacity created by market conditions generated by the ongoing Ukraine-Russia war.

The well will be drilled to 1,500 metres TVD below ground level and is expected to take between 12 to 15 Days to complete. The primary gas target is anticipated to be reached within 10 days of the commencement of drilling, subject to no unexpected operational delays. The possible presence of high pressure gas in the primary target has been prudently allowed for in the well design and for the operational procedures.to be adopted whilst drilling into this potential gas reservoir.

The Company is also pleased to announce an update on activities relating to Ireland and Trinidad.

Ireland
Mag Mell Energy Ireland Ltd. presented its Mag Mell Floating Storage and Regasification Project to the Security of Supply, Markets and Retail Energy Division at a meeting that took place at the Department of the Environment, Climate and Communications offices at Adelaide Road, Dublin on 2 December 2022. The meeting was extremely constructive and allowed each respective party to be better informed ahead of a decision on various options that may or may not be adopted following the conclusion of the public consultation process on Ireland’s security of supply review. The Company believes that these options may be clarified by the end of January 2023.

The Company wishes to sincerely thank the DECC for giving their time to review what the Mag Mell project potentially has to offer Ireland.

The Company expects to be able to update the market in the next few weeks on whether the party that has expressed an interest in the Predator Oil and Gas Ventures Ltd.’s application for a successor authorisation for Corrib South will proceed to the next stage or not following the completion of preliminary due diligence.

Trinidad 
The Company will shortly update the market on its plans for re-establishing CO2 EOR operations in Trinidad in 2023.

Paul Griffiths, Executive Chairman of Predator Oil & Gas Holdings Plc commented:
“Preparations for drilling MOU-2 are now almost complete following a protracted logistical exercise dictated by the disruption of supply chains and transport resulting from changing priorities created by the Ukraine-Russia war. These have been overcome and we are confident that drilling will commence as planned in accordance with our drilling and geological programmes for MOU-2.

Whilst Moroccan gas remains our focus unexpected progress in Ireland and Trinidad has opened up the potential to create additional shareholder value in 2023. We do not apologise for pursuing these growth opportunities as they are potentially capable of being funded by other parties in order to preserve cash resources for our primary business focus, which is creating value out of successful drilling for Moroccan gas.” 

An operational update today but one can forgive markets for concentrating on Morocco where after many delays for all sorts of reasons it seems that MOU-2 is imminent. I have spent plenty of time with CEO Paul Griffiths and his knowledge and optimism around this acreage knows no bounds and if even a small amount of the potential prize is found then he will have been proved right. 

Ireland and Trinidad are for the longer game, in the former there is still significant anti oil and gas policy but should they lose the support from the UK they might find it a policy that is too much of a luxury. As for the latter the company are ploughing ahead with the CO2 EOR operations. 

Longboat Energy

Following completion of its 2022 drilling operations, Longboat Energy, the emerging full-cycle E&P company, is pleased to provide the following update.

During 2022, Longboat delivered a five well Norwegian exploration programme in-line with forecast expenditure and estimates its unaudited, year-end 2022 cash position will be approximately £9 million. Current drawings under the Company’s Exploration Finance Facility (“EFF”) are NOK 536 million (~£44million) and will be repaid fully from its Norwegian tax rebate due in November 2023. 

Longboat is also pleased to announce it has agreed terms with its lending banks to increase its EFF to NOK 800 million (~£65 million) from NOK 600 million and extend the availability period to the end of 2024 to finance the Company’s drilling programme in 2023 and beyond.

Longboat’s next exploration well is currently the high-impact, OMV-operated Velocette prospect (Longboat 20%) due to spud in Q3 2023. Velocette is estimated to contain gross, unrisked mean resources of 177 mmboe (35 mmboe net) with a geological chance of success of 30%*.

The Company is focussed on demonstrating and delivering value from its three key Norwegian discoveries to date (Egyptian Vulture, Kveikje and Oswig) and expects this will be achieved through a combination of appraisal and monetisation projects and intends to provide a further update on its forward activity programme in the new year.

Longboat is also actively pursuing a range of growth opportunities both inside Norway and internationally, seeking to leverage the Company’s high-quality organisation into value-accretive opportunities with the continued goal of creating a full-cycle E&P company with a balanced portfolio of production and multiple exploration & appraisal wells per year.

Helge Hammer, Chief Executive of Longboat, commented: 
“Longboat is pleased to have completed its 2022 well programme on schedule and on budget having made two discoveries at Kveikje and Oswig.

“Kveikje is one of the largest commercial oil discoveries in Norway during 2022 with excellent reservoir quality, close proximity to infrastructure and multiple development options and we are currently reviewing options which include early monetisation.

“The Oswig gas-condensate discovery has substantial volume potential including a possible large extension towards the south. The discovery is located close to the Oseberg field, which is a major hub in the area and planned for electrification. The partnership is working to evaluate the discovery and to identify the optimal future potential development wells.”

Longboat is in a curious situation, it has made just two discoveries this year but they are both capable of being meaningful to the company in different ways. They have always said that with discoveries comes the ability to trade production for acreage or merely the finance to drill some more live prospects.

This is clearly the plan for Kveikje, it must be otherwise the news that the upcoming well at Velocette is the next planned well and in Q3 2023 would have mullered the share price. As it is expect some use of the new asset plus proceeds of the increase in the debt to turn into more and nearer drilling next year. 

As for Oswig it looks like the fact that it has ‘substantial volume potential’ means that it will be going forward as a development and will add value to Longboat in the future. Overall the word of the day is monetisation and that is what to expect from the company next year. 

Chariot 

Yesterday’s news from Chariot of a GSA that it has agreed key principles for long term gas sales from Anchois to ONEE of up to 0.6 BCM per year on a take or pay basis for a minimum of 10 years with gas to be delivered via the Maghreb-Europe Gas Pipeline is exceptionally good for the company. 

It secures direct, domestic supply for Morocco’s existing and potential longer term gas power plant infrastructure whilst making the project ‘bankable’ for Chariot. Key parts of the deal are either too sensitive or confidential to be published but I’m confident that the price will be high and the 0.6 BCM is a great number for domestic use. 

Timetable wise this accelerates the project, lawyers are hired and FID looks on for 1H 2023, maybe even Q1. It also means that gas sales can go ahead for the remaining ~.45 BCM and I get the impression that Chariot are already in negotiations with potential buyers who will be European.

Thinking Spain and the pipeline, which has infinite demand into Europe, makes the upside from Anchois and further exploration on the licence undeniably hugely prospective and icing on the cake.

 All this is incredibly positive for Chariot, I spent the call yesterday ticking off many boxes, the deal makes arranging the debt more than possible, the FEED is well underway and the schedules are ready to sign. One GSA is good news, two will be fantastic and more than anything else this deal gives Chariot immense flexibility to move on with Anchois, bring gas to market and kick on with making plenty of revenue. 

I am  aware that my TP of 100p is way above the market but do the math, as they say and it is not unfeasible by any matter of means…

Sound Energy

I also just copied the Sound announcement yesterday, as a reminder here is the Chairman’s comments.

Commenting, Graham Lyon (Executive Chairman) said:
“The receipt of credible interest from a number of industry participants in joining the Tendrara Production Concession development and surrounding exploration acreage is encouraging and the Company will now spend time to fully evaluate each and the structure of any potential future transaction.  Identifying the Consortium for the Phase 2 development Engineering work is also key as is the structure by which the Company engages all parties.

“Understandably Attijariwafa bank require more time for their external experts to get familiar with the project as this would be the first Moroccan bank led gas development financing. We look forward to providing further positive updates as the various project milestones are delivered.”

It is highly encouraging that Sound are in a position to announce the detail and significance of these ‘expressions of interest’, they seem pretty much like offers to me and I would guess that the company is at present optimising the deal now between bidders. 

As for selecting the EPC contractor consortium, possibly Sound maybe looking at using the vendor financing route they chose for mLNG – so it looks like Sound is well on way to getting the pipeline project well and truly funded. Couple that with the Bank debt and the outlook is getting more exciting all the time and Chairman Graham Lyon deserves lauding for his perseverance,  determination and diligent handling of the project.

KeyFacts Energy Industry Directory: Malcy's Blog