WTI (Jan) $78.29 +$2.06, Brent (Feb) $82.20 +$2.21, Diff $3.91 +1c, USNG (Jan) $5.33 u/c, UKNG (Jan) 234.91p -4.67p, TTF (Jan) €92.6 -€6.5

Oil price

Another day another rally, the Keystone repairs are delayed, China has reported no new deaths and Russian exports are falling. And there is a mighty winter storm developing in the States.

The EIA stats also supported the rally, at a draw of 5.895m b’s it was way above the whisper of 1.67m and even the product market saw demand remaining strong and refinery runs fell back to 90.9%.

IOG

IOG has  provides an update on current production, plans for a second Blythe production well (“H2”) and progress at Southwark.

Highlights:

• Saturn Banks 2H22 average production expected to be c.22 mmscf/d
• Southwark A2 well test and clean-up planned for next week with first gas expected by mid-January
• Blythe H2 well planned to be drilled directly after Southwark A1 well in 1H 2023
• 30,000 therms/day hedged for December 2022 at 303 p/therm and January 2023 at 319 p/therm 

Saturn Banks Operations

• Since the November restart, platform generator and MEG pump faults, plus an unplanned Bacton terminal shutdown, have limited Blythe field gross production to 17.1 mmscf/d at 81% uptime (current production rate is approximately 22 mmscf/d)
• Saturn Banks production is projected to average approximately 22 mmscf/d over 2H 2022 (with 59% uptime to date including planned shutdowns) and approximately 27 mmscf/d from First Gas in March 2022 to year end
• IOG management is very focused on helping its offshore duty holder to address the causes of unplanned downtime and make the required performance improvements
• Elgood is currently shut-in with further production expected to require lower liquid volumes in the Saturn Banks Pipeline System ("SBPS"), after which it will be produced cyclically
• Produced water from Blythe H1 continues to be managed onshore, with disposal cost reductions being pursued  

Southwark

• A2 well hydraulic stimulation operations are expected to be complete by the end of this week, while all subsea work is now complete
• A2 well test and clean-up is planned for next week, with final hook-up and commissioning and safety reviews then leading to Southwark first gas by mid-January
• The Shelf Perseverance rig is planned to then re-enter the A1 well, complete and stimulate it in Q1 and bring it onstream by early Q2

Blythe H2 well plan

• H2 is planned to be drilled directly after Southwark A1 and targeted onstream by early Q3 2023 (with the two-well appraisal campaign to follow directly after)
• Final extension option in IOG's 2020 Shelf Perseverance rig contract is to be exercised for H2
• Detailed well design is already well advanced, building off earlier successful development work on the Blythe H1 well
• Integrating learnings from H1, the intention is to target the field's central high, which has no observed faults and potentially better reservoir quality  
• H2 has been approved internally and is subject to joint venture partner and regulatory approval processes

Blythe H2 rationale

• Achieve high returns and rapid payback, based on a gross budget of approximately £26 million including hook up and commissioning costs, plus potential for significant tax shelter
• Accelerate and maximise recovery of the management estimated Blythe gross 1P / 2P / 3P reserves of 25.4 / 42.5 / 55.8 billion cubic feet (BCF), at a time of high expected gas prices
• Allow flexibility to reduce water production from Blythe H1 into the SBPS, improving operating efficiency and reducing water disposal costs    
• Existing spare well slot and riser on Blythe platform minimises need for brownfield modifications

Gas pricing

• 30,000 therms/day hedged with offtaker BP Gas Marketing at 303 p/therm for December 2022 and 319 p/therm for January 2023  
• Average realised gas price has been 295.7 p/therm since the November restart, 262.6 p/therm over 2H22 to date and 203.2 p/therm since First Gas in March 2022

Rupert Newall, CEO of IOG, commented:
“Operationally, the new leadership is making progress, but we still see room for improvement over coming months. We are proactively engaged in improving not only our own team’s performance but also that of our duty holders. Bringing new wells onstream, improving platform reliability and managing liquids flows will enable us to maximise production and cash flow.

Importantly, we have made good progress at Southwark, with the A2 well expected onstream by mid-January. The A1 well is then expected to strengthen our production profile from early Q2. With Blythe H2 and the Kelham and Goddard appraisal wells to follow, 2023 is set to be a high-impact year for IOG.

The Blythe H2 well is a compelling investment for us to accelerate reserves recovery, mitigate water production and maximise cash flow. We expect it to pay back very quickly, benefitting from our final rig extension option negotiated in 2020 and the spare well slot designed into the Blythe platform.”

IOG will be looking forward to 2023 as the new leadership team get to grips with the brief of bringing new wells onstream at Southwark and Blythe, increasing production and upscaling the portfolio. 

These recent operational headaches I understand are being addressed but production is lower than had been hoped for at c.22 mmscf/d due to an unexpected shut down at Bacton and also at Elgood where further production expected to require lower liquid volumes in the Saturn Banks Pipeline System, after which it will be produced cyclically. 

IOG shares fell sharply in October after the operational problems were identified and management team changes were made, since then they have more than doubled but are still some way short of where they could be, after all they have gas hedged at over 300p/therm….

As a  matter of interest I am rerunning the interview I did with incoming IOG CEO Rupert Newall which gives interesting signs of how the new team is getting to grips with the portfolio, thie link is here.

Core Finance CEO interview: Rupert Newall of IOG plc

Savannah Energy

The recent flurry of announcements from Savannah has left one somewhat short of breath but taking all into account these are very substantial and internationally meaningful transactions. Taking the recent acquisition of Exxon’s upstream and midstream asset portfolio in Chad and Cameroon first it brings them operatorship and a 40% interest in the Doba oil project and the same indirectly in the pipeline and infrastructure.

The changes made since the original announcement include the use of Exxon Vendor Financing instead of the previously announced debt and of course since then liftings have changed the balance of product and cash. 

One change in the pre-announced deals was that the acquisition of the Petronas portion of the Chad and Cameroon package has been terminated as certain conditions precedent had not been met. 

The next deal to be announced was that the South Sudan SPA with Petronas has been completed for $1.25bn which is to be financed through cash and debt subject to the usual Conditions Precedent and which will be a Reverse Takeover under AIM rules. 

The very size of this transaction makes it so but it is of such a proportion that with its existing assets it fits extremely well with those of Savannah which itself is growing tremendously fast.

Finally, the company has announced a financial and operating update which notes that year on year revenues at the end of November were up 27% to $257m ($201.4m) with cash balances of $193.1m and net debt of $301.1m. 

As a result of this the company has increased guidance, primarily due to growing production volumes in Nigeria. Guidance for 2022 of $270m, up from $215m and with capex indicated at $35m down from a previously indicated $85m makes the economics look better again.  

With the shares being suspended while these deals are assimilated it will give analysts a chance to revise forecasts and also add it the confirmation of GSA’s with three new customers and also the contract extension with FIPL to supply three of its power plants. This means that Savannah now supplies gas to some 24% of Nigeria’s thermal power generating capacity. 

Sound Energy

Sound Energy, the transition energy company, provides an update regarding its exploration permits at Grand Tendrara, Anoual and Sidi Moktar.

Grand Tendrara exploration permits (Sound Energy holds 75% interest and operatorship)

• Morocco’s L’Office National des Hydrocarbures et des Mines (“ONHYM”) has approved the Company’s application to enter the optional First Complimentary Period under the Grand Tendrara Exploration Permits consisting of 2 years to 1 October 2024 (the “Grand Tendrara First Complimentary Period”)
• Work commitment for the First Complimentary Period comprises the drilling of one exploration well with a Triassic objective
• The entry of the First Complimentary Period remains subject to Moroccan Energy and Finance Ministerial approval

Anoual exploration permits (Sound Energy holds 75% interest and operatorship)

• ONHYM has approved the Company’s application for a 12-month extension to the Anoual Exploration Permits initial period to 8 January 2024 (the “Anoual Initial Period”)
• Remaining work commitment in the Anoual Initial Period is the drilling of one exploration well with a Triassic objective.
• Extension of the Anoual Initial Period is subject to Moroccan Energy and Finance Ministerial approval

Sidi Moktar exploration permits (Sound Energy holds 75% interest and operatorship)

• ONHYM has agreed a 12-month extension to the Sidi Moktar Exploration Permits Initial Period, which ended on 9 October 2022 (the “Sidi Moktar Initial Period”), to 9 October 2023 and has accordingly reduced the optional First Complimentary Period of 3 years by 12 months to 2 years. This is in order that the Company completes the committed work programme and progresses  this highly prospective basin.
• Extension of the Sidi Moktar Initial Period is subject to Moroccan Energy and Finance Ministerial approval 

Grand Tendrara Exploration Permits

Further to the Company’s announcement of 20 October 2022, and subject to Ministerial approval, the Company is pleased to confirm that ONHYM has approved the Company’s application to enter the optional Grand Tendrara First Complimentary Period consisting of 2 years to 1 October 2024.

The Grand Tendrara Permits cover approximately 14,411 square kilometres in Eastern Morocco and the Company has historically completed the full work commitment for the initial Grand Tendrara exploration period of 4 years, within the total duration of 8 years commencing on or about 1 October 2018, by previously drilling the TE-9 and TE-10 exploration wells with Triassic objectives.

The work commitment for the Grand Tendrara First Complimentary Period, which will run until or about 1 October 2024, will, subject to ministerial approval, comprise the drilling of one exploration well with a Triassic objective. The Company expects to fulfil this commitment from the planned subsalt drilling opportunities within the Trias Argilo-Gréseux Inférieur (“TAGI”) gas reservoir detailed in the Company’s announcement of 9 August 2022.  The TAGI is the proven reservoir of the TE-5 Horst gas accumulation within the Tendrara Production Concession currently under development by the Company and its joint venture partner ONHYM.

The Company has high-graded the SBK-1 and TE-4 Horst structures, both of which were previously drilled, in 2000 and 2006 respectively,

The gross exploration potential, expressed as Gas Initially-in-Place (“GIIP”), of the high-graded structures currently considered by Sound Energy to be the structures to be considered for the meeting of the Grand Tendrara First Complimentary Period work commitment are as follows:

The Company also announces that ONHYM has approved an amendment to the governing Petroleum Agreement to the Grand Tendrara Exploration Permits. This amendment, subject again to Moroccan Energy and Finance Ministry approval, will comprise an amendment to the Bank Guarantee and Parent Company Guarantees required to be placed by Sound Energy Morocco East.

On entry to the Grand Tendrara First Complimentary Period, the Company will be required to relinquish a portion of the permitted Grand Tendrara acreage. The currently proposed retained area (60% of the current permit area) includes all Company recognised prospectivity.

Anoual Exploration Permits

The Company is also pleased to report that ONHYM has approved a 12-month extension to the Anoual Initial Period to 8 January 2024.

The Anoual Permits cover 8,873 square kilometres in Eastern Morocco and the Company, as operator, holds 75% interest in the Anoual Permits, with the remaining 25% interest held by joint venture partner, ONHYM.

Subject to Moroccan Energy and Finance Ministry approval, the length of the Anoual Initial Period defined under the Petroleum Agreement will now be 6 years and 4 months, commencing on or about 8 September 2017. The work programme commitments for the Anoual Initial Period, details of which are provided below, remain unchanged.

In providing its approval, subject to Ministerial approval, for the extension to the Anoual Initial Period, the length of the first Anoual complimentary period, which would commence upon the successful completion of the now extended Anoual Initial Period, will be reduced to 1 year and 2 months and the second complimentary period will remain unchanged at 2 years and 6 months. The work programmes for each of the complimentary periods will remain unchanged.

As a result, the Anoual Permits now have a total duration of 10 years (in place of 9 years previously announced by the Company on 1 September 2021) and, following the Company having historically fulfilled the requirements under the Anoual Initial Period to acquire FTG-aerogradiometry and 600 kilometres of 2D seismic, the unchanged remaining work commitments under the Anoual Permits are as follows:

Anoual Initial Period of 6 years and 4 months from 8 September 2017:

• 1 exploration well with Triassic objective to be scheduled in 2023
• The Company’s estimation of the gross exploration potential of the M5 exploration prospect, a possible candidate for the exploration well, expressed in GIIP is as follows. 

Optional First Anoual Complimentary Period of a further 1 years and 2 months:

• Should the results of the drilling of the exploration well drilled during the Anoual Initial Period be likely to constitute a commercially exploitable discovery, the Company will be required to acquire 150 square kilometres of 3D seismic or its equivalent in 2D seismic data. If the results of the exploration well drilled in the Anoual Initial Period are not likely to constitute a commercially exploitable discovery, the Company will undertake further geological and geophysical studies but will not be required to acquire this additional seismic.

Optional Second Anoual Complimentary Period of a final 2 years and 6 months:

• A further single exploration well with Triassic objective.

Sidi Moktar exploration permits
The Company is also pleased to report that ONHYM has agreed a 12-month extension to the Sidi Moktar Initial Period to 9 October 2023.

The Sidi Moktar exploration permits cover approximately 4,712 square kilometres in Southern Morocco with an initial period of 4 years and 6 months (the “Initial Period”) within the total duration of 10 years commencing on or about 9 April 2018.  The Initial Period was to end by 9 October 2022. ONHYM has agreed to a 12-month extension to the Sidi Moktar Initial Period to 9 October 2023 and has accordingly reduced the optional First Complimentary Period of 3 years by 12 months to 2 years. The Company will now seek to complete the committed work programme within the Initial Period and progress the exploration of this highly prospective basin. The work commitments for the Initial Period of the Sidi Moktar permits remain to acquire and process 500 kilometres of 2D seismic, a short well test of the Koba-1 well and abandonment of Koba-1 and Kamar-1, if required.

Cautionary statement

The Company cautions that notwithstanding its internal estimates for the exploration potential of the high-graded work programme prospects across the Grand Tendrara, Anoual and Sidi Moktar exploration permits set out above, 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:
“Whilst we continue to manage the legacy fallout of COVID 19 on business environment and our supply chains to undertake exploration activities the situation is improving. We are now making good progress with our farm-out process to secure partner participation for our next exploration drilling campaign which will target near-field opportunities within the TAGI play in Eastern Morocco assets of Grand Tendrara and Anoual but also progress our seismic campaign in Essaouira Basin covered by Sidi Moktar. We thank ONHYM and the Ministry of Energy for their strong and continuing support.”

It is good to see that all acreage is retained and that ONHYM are supporting Sound, indeed ONHYM’s support to  the ongoing  licence ownership taxation clarification issues will be essential.

So I guess we can see what side ONHYM are on. The extension of all licences should help in removing one area of concern for the bidders to join Sound in Exploration and  Tendrara development. 

Below 1p Sound is genuinely cheap, bit by bit, building block by building block the management team are delivering the goods and in Morocco it’s worth the while. 

i3 Energy

i3 Energy has announced the following operational update along with the Company’s 2023 guidance and increased dividend for 2023. i3 will hold an investor presentation on 9 January at 4:00pm GMT via Investor Meet Company; to register for the call, details are below.

Record Corporate Production in 2022
Record corporate peak production achieved in December exceeding 24,000 barrels of oil equivalent per day (“boepd”) on strong operational results across the Company’s extensive asset portfolio, in line with previously forecasted peak 2022 production estimates

2023 Capital Budget
2023 Capital Budget of USD 64.05 million, forecasted to deliver 23 gross wells (15.2 net, 70% net i3-operated) to be drilled across the Company’s diversified portfolio in Central Alberta, Simonette, Wapiti and its northern Clearwater acreage

Production Growth
Forecast 2023 annual average production of 22,250 – 23,000 boepd, representing a year-over-year increase of approximately 10% – 13%, with an expected 2023 peak production rate of approximately 26,000 boepd

Cash Flow
USD 159.6 – 166.7 million of 2023 Net Operating Income (“NOI”) and USD 144.0 – 150.5 million of EBITDA, based on our budget price assumption of USD 80/barrel (“bbl”) for WTI and CAD 4.50/Gigajoules (“GJ”) for AECO natural gas

Shareholder Returns
As part of the i3’s commitment to its total return model, the Company is increasing its 2023 minimum dividend by 59.4% above the total dividends paid during 2022 to £24.475 million (USD 30.095 million), through an increased monthly dividend of 0.171 p/share – equating to an annual dividend of 2.052 p/share or a 9.7% yield (1)

Majid Shafiq, CEO of i3 Energy plc, commented:
“2022 was a year of exceptional performance for i3 Energy. We entered the year with corporate production of circa 18,000 boepd and will exit having achieved our target of 24,000 boepd having successfully implemented a USD 97 million capital program on time and on budget in Canada and the UK. The success of our 2022 drilling program in Canada has continued to de-risk our growth strategy in certain key development assets within our portfolio and we are confident that our 2023 capital program will be equally successful and should result in production growth of up to 13% in 2023. We are also pleased to offer year-on-year dividend growth from £3.4 million in 2021, to £15.4 million this year and a minimum pay-out of £24.5 million in 2023.”

Having spent some quality time recently with Majid I was able to comprehend the story in Canada and can see that it has bulk and plenty of punch. It pays out as you can see above highly creditable dividends which are rapidly growing thanks to the Canadian asset base.

The shares, like others in the sub sector have fallen recently, but whilst I have less confidence than the management about the contribution from Serenity the rest looks like good quality to me.

KeyFacts Energy Industry Directory: Malcy's Blog