WTI (Jan) $77.49 -80c, Brent (Feb) $80.98 -$1.22, Diff -$3.49 -42c, USNG (Jan) $4.99 -34c, UKNG (Jan) 218.0p -16.91p, TTF (Jan) €86.145 -€6.45

Oil price

As we close in on Christmas, books are being evened out maybe even for year end valuations. The rig count showed a rise of 3 overall to 779 units and was up by 2 to 622 in oil. The winter storm I mentioned yesterday has caused havoc with holiday flights from airports across the North East.

Worth taking a look at the interview with Pioneer CEO in which he states that there is no incentive to increase production which would lower returns to shareholders. ‘Why put the best performance of this year at risk just because the White House, which is notoriously anti-oil, ask us to?’

San Leon Energy

San Leon has noted the announcement made on 22 December 2022 by Decklar Resources Inc. in Canada.  San Leon has a 11% shareholding in Decklar Petroleum Limited, the local subsidiary of Decklar operating in Nigeria, and has also made a US$5.5 million loan to DPL, via 10% per annum unsecured subordinated loan notes.  As announced by San Leon on 20 December 2022, San Leon is currently in advanced negotiations in respect of the proposed sale of  San Leon’s non-core investments in DPL.

Part of the text of Decklar’s announcement is set out below:

Decklar Resources Inc. is pleased to announce that Decklar and its co-venturer Millenium Oil & Gas Company Limited  have completed delivery of 10,000 barrels of crude oil to a small crude oil refinery in Edo State, Nigeria.

Delivery of Crude Oil
Decklar and its co-venturer Millenium announce that the delivery of 10,000 bbls of crude oil have now been delivered to a small crude oil refinery in Edo State, Nigeria, and under the terms of the sales agreement an invoice has been issued and payment is to be received within 21 days. The initial agreement provided for deliveries totalling 10,000 bbls, and a new agreement is being negotiated for delivery of an additional 30,000 bbls. The parties are also in discussions to potentially agree upon a monthly minimum quantity of barrels of Oza Oil Field crude to be sold to the refinery going forward.”

This is a regular update on a meaningful investment by San Leon, further updates will follow.

Arrow Exploration

Arrow has provided an operations update and report on the granting and exercise of options by certain Directors and PDMRs. 

Drilling Rig Mobilized to Rio Cravo Este Multiwell Pad
Arrow has initiated the drilling rig move to Rio Cravo Este (RCE) to further exploit the Carbonera Sandstone reservoir. Three additional infill wells will be drilled in Q1 2023 with RCE-3 expected to spud in January 2023. RCE-4 and RCE-5 will be drilled in sequence. The drilling rig was initially delayed due to a different operator experiencing operational issues. The infill wells have similar productivity potential to RCE-2 and RCS-1 which are currently producing 850 BOPD net, well above forecasted rates. RCE-2 was paid out in 37 days with an onstream net cost of $4.2MM.

Upon completion of the RCE-3, RCE-4 and RCE-5 wells, the Company is contemplating drilling two to three additional wells into the Gacheta Sandstone reservoir in the fault bounded RCE structure. RCE-2 tested rates exceeding 700 BOPD gross from the Gacheta Sandstone. Dedicated Gacheta wells would likely spud in Q3 2023.

Arrow has also completed preparation of an additional field to be used for production water dispersion.  In combination, the two fields are expected to meet the Company’s water disposal requirements until a water disposal well is drilled which is expected mid-2023.

Carrizales Norte Operations
Earlier this month Arrow began construction of the road, pad and cellars for the three planned Carrizales Norte (CN) wells which are expected to be drilled sometime between March and June 2023.  The road and pad being constructed are being built to meet all weather conditions. This will allow the Company to continue capital activities as well as move production in the summer and winter seasons. 

The Company is in discussions with a separate drilling company to bring in a second drilling rig to drill CN-1, CN-2 and CN-3. This would advance the drilling of Carrizales Norte by approximately six weeks.

3D Seismic Project, Tapir Block
Arrow has commenced the 134 square kilometer 3D seismic project on the Tapir block. Hiring in the local communities and the required surface land work began on schedule. The 3D seismic project is scheduled to be completed in Q1 2023. This 3D survey will define multiple fault-bounded structures which are the prevailing trapping mechanisms in the Llanos Basin. Existing 2D seismic data has indicated multiple leads on the Tapir Block and the 3D will resolve existing and additional leads and prospects. Initial drilling on defined low risk prospects could occur as early as Q4 2023.

Workover Program
Arrow is continuing to recomplete existing wells that display additional production upside in unperforated zones. This program has been successful in both the RCE field and the Oso Pardo Field. The Company is also considering additional perforations on RCS-1 once RCE-3 RCE-4 and RCE-5 are completed.

Balance Sheet
Arrow has a healthy balance sheet with all operations being supported by cash on hand and operational cash flow. Cash balance as of 1 December 2022 was $14MM.

This is further good news for Arrow who have updated on a number of areas where progress is being made and 2023 looks to be shaping up very nicely indeed. A rig to RCE for three infill wells in the Carbonera Sandstone in Q1 2023 should be like RCE-2 and RCS-1 and produce c.850 b/d net which was well above expectations. It should be noted that RCE-2 paid out in 37 days at a net cost of$4.2m. RCE-3 in January will be followed by the 4 and 5 wells and then on to the Gacheta Sandstone in Q3. 

Arrow are also working on Carrizales Norte where work is continuing to prepare for drilling in mid 2023, possibly with a second rig and spread cost and eventually production through the seasons. Finally the company has commenced 3D seismic at the Tapir Block where drilling could start before the end of next year.

With a workover programme and cash of $14m Arrow are in a very strong position, they can fund all the work that they have announced so far and I would expect a significant increase in production from these operations. 

My TP of 50p looks even more attractive now the shares are back at 17p having fallen in line with the sector in line with the drop in the oil price. Given that I have positive views on oil next year I think that Arrow should be a top performer and will of course be in the Bucket List. 

Wentworth Resources

Wentworth is providing an operational update for the Mnazi Bay gas field and on other corporate initiatives.

Full Year Guidance
With sustained strong demand during the year, the Company expects to achieve an average gross daily production rate of approximately 90 MMscf/day for 2022 (previous guidance 75-85MMscf/d). Current production levels are steady at a supply-constrained 90MMscf/d (as at 19 December 2022), below current demand nominations of 95MMscf/d from the key offtaker, Tanzania Petroleum Development Corporation (“TPDC”).

The Mnazi Bay Joint Venture (the “Joint Venture”) is undertaking an infield workover and perforation programme with a view to being able to meet gas demand nominations during 2023. In addition, pre-front end engineering design (“FEED”) to add compression is being progressed. Once sanctioned, the compression project is designed to support production levels at a plateau of 90 MMscf/d from late 2024 until at least 2027.

Financial
Wentworth has cash (zero debt) of $30.0 million as at 1 December 2022. In addition, TPDC receivables of $5 million are outstanding (representing two months of gas sales for October and November) as well as Tanzania Electric Supply Company (“TANESCO”) receivables of approximately $0.9 million, representing six months of gas sales.

The Joint Venture has agreed a firm capital expenditure budget for 2023 of $13.5 million, the primary firm operational cost being associated with the compression project. The Joint Venture has also identified a further contingent capital expenditure programme indicatively costed at $42 million. Of this, $35 million relates to exploration drilling on the Mnazi Bay licence, the programme and extent of which remains contingent upon further commercial viability studies. The remaining $7 million relates to additional compression configuration installation work which may be required subject to completion of the FEED study. Discussions on finalising the scope and timing of contingent expenditures are ongoing, and remain subject to JV partner approval prior to committing them to a firm budget.

Historic Cost Pool Audit
Following a dispute between the Operator and TPDC and the regulator, Petroleum Upstream Regulatory Authority (“PURA”) as to the validity of certain costs contained in the historical cost pool, on 23 December 2022, the Mnazi Bay JV Partners (“JV Partners”) received formal notice from TPDC that it proposes to re-open a historic cost pool audit for the years 2013 – 2015 relating to seismic, field infrastructure and drilling of MB-4 well expenditure. The audit will re-examine Joint Venture costs of $45 million (approximately $15 million net to Wentworth). The JV Partners will work together with TPDC and PURA, to resolve this issue in a timely and satisfactory manner.

To date, the Joint Venture has recovered over $300 million of historic costs through the cost recovery mechanism within the Mnazi Bay Production Sharing Agreement (the “PSA”). This has translated into strong cashflows for Wentworth, allowing it to deleverage, strengthen its balance sheet and establish a progressive dividend policy because the economics of the PSA are significantly more favourable during cost recovery when entitlement to production is double whilst those costs are being recovered.

The Company anticipates, given the absence of recent investment in the Mnazi Bay field, that 2023 production will include significant periods where costs have been fully recovered, leading to substantially lower revenues. Any reduction in the current expected cost pool balance as a result of the audit is likely to further impact revenue next year.

Corporate
On 5 December 2022, the Company announced a Recommended Cash Offer (the “Offer”) by Maurel et Prom of 32.5 pence per share, representing a 30% premium to the closing price of 25.0 pence per Wentworth Share on 2 December 2022 (being the last Business Day prior to announcement of the Offer) and a 62.2% premium adjusting for existing cash of $30.2 million.

The Company expects to publish the Scheme document in mid-January 2023. The Scheme Document will contain full details of the Offer, an updated independent valuation of the Company’s assets and voting instructions for the shareholder meetings to be held in early February 2023.

Sustainability
As a responsible business an effective ESG strategy remains a priority. During 2022, Wentworth has made considerable progress to support ongoing improvements in sustainability-related performance and disclosure.

The Company has started its journey to align and report against the framework recommended by the Task Force on Climate-Related Financial Disclosure (“TCFD”). Initial TCFD disclosure will be included in Wentworth’s 2022 Sustainability Report along with expanded reporting against some of its most material ESG topics.

Katherine Roe, Chief Executive of Wentworth, commented:
“2022 has been a year of exceptional performance and we are delighted to be able to guide towards a full year production average of 90 MMscf/day, an increase of 20% from the lower end of our original guidance. Given the increasing demand, evidenced by ambitious nominations from our key offtaker, TPDC, it is clear that material investment into Mnazi Bay is now required to maintain existing production levels.

“We will issue 2023 guidance in January. Whilst historically the Joint Venture has successfully recovered the substantial majority of cost subject to audit, it highlights our expectation that 2023 production entitlement will in any event be materially less than previously, due to many years of historic cost recovery without replenishing the cost pools.

“This represents an opportune moment for Wentworth shareholders to monetise their investment in Wentworth given the Offer made by the Operator of our Mnazi Bay asset.”

The CEO explains in some detail where shareholders stand right now, the bid is an opportunity to monetise investments and it justifies the deal done with Maurel & Prom.

Canadian Overseas Petroleum

Canadian Overseas Petroleum Limited has announced a costless restructuring of its West Texas Intermediate and Butane hedges effective 1 January 2023, as the Company prepares for senior debt refinancing in the first quarter of 2023.  

Highlights of Costless Hedge Restructuring:

• The Company’s current WTI swaps from January 2023 to June 2023 at a price of $52.87/bbl for approximately 1,000 bbls/d have been cancelled.
• The Company’s Butane swaps from January 2023 to June 2023 have been reduced to a volume of 350,000 gallons/month at $0.67/gal to align the volume subject to swaps to the Company’s planned injection forecast at the Barron Flats Shannon Miscible Flood.
• The net liability to unwind the above positions has been exchanged for new WTI swaps at an improved price of $52.88/bbl from March 2024 to December 2024 on 1,000 bbls/d and for WTI puts to provide downside protection for the first half of 2023 on 750 bbls/d at $60.00/bbl.

Arthur Millholland, President and Chief Executive Officer, commented:
“Recent WTI weakness has provided the opportunity for COPL to execute this hedge restructuring without a cash cost to unwind the positions and in a manner that will minimize near term hedge losses that have constrained our pace of development. We are pleased with the result as it is expected to provide COPL with increased exposure to WTI upside and stabilised operating cash flow in early 2023.  It also provides for a level of revenue protection and maintains cost protection for butane injections at our Shannon Miscible Flood.”

Nice work here from COPL and makes this stock worth looking at for 2023 investment. 

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