WTI (Feb) $74.63 +49c, Brent (Feb) $80.10 +45c, Diff -$5.47 +45c, USNG (Feb) $3.63 -2.7c, UKNG (Feb) 171.27p -11.55p, TTF (Feb) €68.005 -€5.0

Oil price

Oil rallied a little after the World Bank cut its GDP forecast probably proving what most people think of its forecasting ability and today’s big rises in stocks…

Gulfsands Petroleum

ILLEGAL OIL PRODUCTION IN NORTH-EAST SYRIA

This weekend marked six years since Gulfsands was informed that its Block 26 fields in North-East Syria, under force majeure in order to comply with UK sanctions, had been returned to significant and regular production – illegally.  We now know that the perpetrators of this illicit production were, and continue to be, entities affiliated with the self-proclaimed Autonomous Administration of North and East Syria (the “AANES”), Syrian Democratic Forces (“SDF”) and Syrian Democratic Council (“SDC”).

Since then, over 41 million barrels of oil have been stolen with a value of almost US$2.9 billion(*).  These ongoing losses continue to be monitored and measured at www.gulfsands.com.

Gulfsands’ Block 26 assets have been illegally produced at a rate of around 20,000 barrels of oil per day during this period, but this is just a small portion of the total theft in the region.  It is widely reported that production in North-East Syria is currently estimated to be four times this amount, at around 80,000 barrels of oil per day (worth around US$7 million per day at today’s prices).

The biggest travesty of all is that only a minimal amount of this value finds its way to benefit the Syrian people. OCHA reports that 14.6 million Syrians are in need of aid, 90% live below the poverty line and 80% are assessed to be food insecure. It is also estimated that there are more around 5.4 million people internally displaced within Syria and around 5.6 million Syrian refugees in neighbouring countries.

This illegal oil trade takes place on the black market, away from regulation and oversight, meaning prices are depressed and the potential for corruption is high.  The majority of this oil therefore benefits illicit actors, not the Syrian people. This also leads to unsafe, unregulated, and hugely environmentally damaging oil field practices which also have a catastrophic effect on the health of local communities.

It is immensely frustrating and disappointing that several influential countries appear to turn a blind eye to this illicit production which contravenes international law, sovereignty, international sanctions and the principles of UNSCR 2254.

This is not just an issue in Syria, but illicit oil trade is a global issue – the United Nations University World Institute for Development Economics Research (WIDER) estimates illicit oil theft accounts for 5-7% of the global market for crude oil and petroleum fuel, valued at approximately US$133 billion each year.  In some countries, including Syria, oil and gas is the main source of indigenous natural wealth.  Illicit oil trade negatively impacts oil producing economies’ energy security, valuable income (for its people), inward and outward investment, security and stability, and damages both the local environment and global environment (due to oil being produced using poor health, safety, security and environmental standards).

Project Hope
Gulfsands is pioneering a Humanitarian and Economic Stimulus initiative which would pave the way for international energy companies (which have all declared force majeure as result of international sanctions) to return to operations in North-East Syria, with allocated revenues from oil sales deposited in an internationally administered fund and disbursed to finance early recovery, humanitarian and economic stimulus projects across the country – in line with UNSCR’s and for the benefit of all Syrian people who can, and should, benefit from their country’s national resource endowment to build self-sustainability and resilience for the future. We call this initiative Project Hope.

With investment and expertise, we estimate that production in North-East Syria could be increased from 80,000 boepd to around 500,000 boepd and generate around US$20 billion per annum. This could fund hundreds of medical and educational facilities and economic initiatives as well as create thousands of jobs. To put this into context, the US Government’s total funding available for the Syria humanitarian response in FY2021-22 was US$895 million (Source: USAID, “Complex Emergency Fact Sheet #7 FY22”- 6/10/2022), and the UK’s FCDO total funding in Syria during the crisis from Feb 2012 to March 2022 was £1.6 billion (Source: UKAid Syria Crisis response Summary – July 2022).

Gulfsands continues to work with partners in the international community to raise the profile of this issue and generate support for this important Project Hope initiative.

If you are interested to hear more follow Gulfsands on in Linkedin and the Company’s website at  www.gulfsands.com.

Gulfsands continue to ask people to hear their case and act on it. This is posted on the anniversary of the sanctions complicity and it remains their intention to ensure that the Project Hope initiative is fully supported.

Longboat Energy

Longboat has announced the award of new licences under the Norwegian 2022 APA Licensing Round (Awards in Predefined Areas).

Licence 1182 S Block 35/10 – Lotus
Licence 1182 S (Company 30%) lies in the prolific Norwegian North Sea, 4kms southeast of the Company’s recent significant Kveikje discovery where Longboat is a 10% equity partner.

The Lotus prospect comprises Paleocene injectite sandstones, characterised by excellent reservoir properties, with seismic amplitude support. The Lotus award allows Longboat to continue to build its presence in this prolific exploration and development area and exploit its deep knowledge of injectite reservoirs gained through the Kveikje discovery, which has porosities of 30%. Lotus is directly analogous to Kveikje.

Based on the Company’s estimates, Lotus contains gross mean prospective resources of 27 mmboe* with further potential upside estimated at 44 mmboe*. The chance of success associated with the Lotus prospect is 56%* with the key risk being hydrocarbon retention.

If successful, Lotus is very likely to form part of an area cluster development together with Kveikje, and potentially several other recent discoveries in the area, through infrastructure associated with the nearby giant Troll field. The licence award will increase the attractiveness of Longboat’s existing position in Kveikje.

The work programme consists of a firm exploration well within the initial two-year period. The license will be operated by DNO Norge AS (40%) and the other partner is Aker BP ASA (30%).

PL1100C Oswig South Extension
The PL1100 group has been successfully granted licence PL1100C (Company 20%) containing Oswig South, a potential southerly extension of the recent Oswig gas-condensate discovery. The Oswig South prospect is located at a shallower depth than Oswig, and is therefore  expected to have better reservoir quality.

The Oswig South prospect has been significantly de-risked by the Oswig discovery and has the potential to double the size of the existing discovery.

The work programme is one year and consists of technical studies. The other partners in PL1100C are OMV (Norge) AS (40%, operator), WintershallDEA Norge AS (20%) and Source Energy AS (20%).

PL293 CS Kveikje Discovery Extensions
The Kveikje discovery partner group (Company 10%) has successfully been granted two additional extension areas to the original licence covering the upside potential of the high-quality oil discovery announced in April 2022.

Partners in licence PL293 CS are Equinor Energy AS (51%, operator), DNO Norge AS (29%), INPEX Idemitsu Norge AS (10%) and Longboat Energy Norge (10%).

Exploration Finance Facility (“EFF”)
Longboat is also pleased to confirm it has now executed the amended facility documentation 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.

Helge Hammer, Chief Executive of Longboat, commented: 
“We are pleased to have successfully been offered these additional, low-risk licences, which could add substantial value to two of our core areas where Longboat has already discovered significant volumes during 2022. We look forward to working with our partners to build on this success and add incremental volumes in these emerging development areas.”

For Longboat these awards are important as they not only potentially add to the size and scale of existing discoveries but they also give the company the flexibility to restructure the portfolio and trade to its advantage. This means that they will be able trade up before the exploration comes in later in the year.

Orcadian Energy

Orcadian has entered into a non-binding Heads of Agreement with Rapid Oil Production Ltd to dispose of its interests in the Company’s non-core Crinan and Dandy discoveries.

• Rapid is progressing the development of the nearby Fyne field, with the intention of achieving FDP Approval in 2023, and could bring Crinan into production as part of the Fyne cluster in phase two or three of the field development. This could potentially be followed by a Dandy tie-back via Fyne.
• If this progresses to completion, Orcadian would receive a cash consideration of US$500,000 (US$100,000 on signature of a binding Sale and Purchase Agreement, and US$400,000 on Crinan FDP Approval) plus a royalty on oil and gas produced from the fields.

Steve Brown, Orcadian’s CEO, commented:
“We are delighted to have reached an initial agreement with Rapid Oil, on the proposed disposal of these non-core assets. Rapid Oil are focussed on achieving a development plan approval for Fyne and Crinan and we believe they will be best placed to develop the Dandy fields through the same infrastructure. We look forward to converting these heads of terms into a binding agreement and will provide further updates as negotiations progress; and we look forward to potentially sharing in the cash flow from these discoveries  if these fields are developed.”

Hallvard Hasselknippe, Rapid Oil Production’s CEO commented:
“We are pleased to add the potential of the Crinan and Dandy resources to our field development plan for the Fyne field, this adds approximately 7 MMbbl to our contingent resources. In particular Crinan will be a very cost efficient add-on as it can be drilled from the Fyne Central location.”

 This comes on the back of this announcement yesterday.

 Management has completed an update of their estimate of technically recoverable resources for the Pilot field

• Technically recoverable resources have increased 18% to 97 MMbbl for a P50 case based upon a polymer flood development scheme
• Comprehensive geophysical interpretation and geological and dynamic reservoir modelling work completed with support from Axis and TRACS
• Upside resource estimate for Pilot alone is now 131 MMbbl.

Summary

Orcadian’s estimate of Pilot field resources was audited in a CPR by Sproule in  2021 and was included in the Company’s  Admission Document. Sproule assigned 78.8 MMbbl of 2P reserves to the project, 1P reserves were 58.5 MMbbl and 3P reserves were 110.5 MMbbl.

Since listing Orcadian has licensed and, with support from Axis, interpreted newly reprocessed seismic data over Pilot, which resulted in an uplift to the developed area oil-in-place. TRACS  then constructed a range of geological realisations and the Orcadian team ran multiple dynamic reservoir simulations to establish a new range of technically recoverable resources. 

The multiple geological models were designed to incorporate the full range of heterogeneity that we see as possible across the Pilot field, and the new full-field reservoir models were then calibrated to the results of our polymer core flood experimental results. These models have been tested with a range of possibilities for multiple parameters and from that work the team have derived a statistical range of developed area recovery factors which is highly consistent with the range of recovery factors adopted by Sproule in the CPR. This convergence provides great confidence in the latest range of resource estimates as the estimates of recovery factor have been arrived at from two entirely different routes: a stochastic reservoir simulation approach (Orcadian management) and by comparison with analogue fields (Sproule).

Steve Brown, Orcadian’s CEO, commented:
“We are very pleased with the results of this updated resource estimate. This is the culmination of eighteen months of work, which started with the interpretation of the newly reprocessed seismic from TGS. Since then, working with TRACS, we have constructed multiple geological realisations and tested our development plan taking into account both downside scenarios as well as the exciting upside possibilities.

“A thorough understanding of the reservoir and how it will perform is the foundation of any sound development plan. We are confident that this work has not only given us that understanding, but will also provide an excellent basis for potential farm-in partners to evaluate the Pilot development in the coming months.”

These two announcements are positive for Orcadian as the key pilot development has had a decent upgrade in the resource estimate and they have disposed of a non-core asset albeit for a very modest amount.   

Hurricane Energy

Hurricane has provided a trading and operational update ahead of its results for the year ended 31 December 2022. This information is unaudited, and subject to further review and adjustments.  Also provided is an update on the ongoing formal sales process.

Trading Update

Production and oil sales for the year ended 31 December 2022:

• Production: 3.1 MMbbls (average of 8,464 bopd)
• Oil sales: 3.2 MMbbls across 6 cargoes

Operations

• Aoka Mizu FPSO uptime of 99% during 2022

Key financials for the year ended 31 December 2022

• Revenue: $311 million (2021: $241 million)
• Average realised oil price: $97/bbl (2021: $67/bbl)
• Year-end net free cash(1): $122 million

(1) Unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables.

Lancaster Field Operations Update

The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 ("P6") well during December 2022.

December 2022 Lancaster Field Data

(2) The 205/21a-7z ("P7z") well was not on production during December 2022
(3) Expressed as total water produced divided by total fluid (oil and water) production
(4) Pressure reported is the monthly minimum from well downhole gauge

As of 9 January 2023, Lancaster was producing c.7,800 bopd from the P6 well alone with an associated water cut of c.51%.

The 32nd cargo of Lancaster oil, totalling approximately 544Mbbls, was lifted on 10 December 2022. This cargo was priced by reference to the average of the last five days of December 2022's Dated Brent quotes, being $81.0/bbl. The next cargo is anticipated to be lifted in mid-February 2023.

Financial Update

As of 31 December 2022, the Company had net free cash(1) of $122 million, including the revenue from the December 2022 lifting.

2023 Production Guidance 

Management's production guidance for the full calendar year 2023 is 5,900 - 7,100 bopd. This assumes FPSO production planned uptime of 96.5% and production from the P6 well alone on artificial lift via ESP.  Guidance also includes the impact of an annual maintenance shutdown, anticipated to occur during Q3 2023. 

Formal Sales Process Update

Hurricane has conducted a thorough process to identify interest in the Company's assets. Hurricane invited participants in the formal sales process (the "FSP") to submit indicative proposals by 7 January 2023. Hurricane has received multiple proposals from credible counterparties, which were fully compliant with the requirements of the FSP, as well as a number of less defined expressions of further interest. It should be noted that all of the proposals received were highly conditional and subject to further due diligence. In addition, each proposal contains a structured element requiring further clarification and assessment by Hurricane and its advisers.

There can be no certainty as to the level of any offers resulting from the FSP, if any. Hurricane will provide further updates in due course.

Hurricane will provide an update on the proposed requisition of a general meeting of shareholders by Crystal Amber Fund Limited by close of business on 12 January 2023.

Antony Maris, Chief Executive Officer of Hurricane, commented:
"2022 has been highly eventful and highly successful. Working closely alongside our FPSO operator we have delivered superb uptime performance and produced towards the upper end of our annual production target. The field has now produced more than 15 million barrels and, with our deep understanding of the depletion dynamics of the field, we expect to continue this excellent performance in 2023.

This strong performance coupled with oil prices has allowed us to finish the year with a robust balance sheet, no debt and fully funded decommissioning liabilities. This, together with our experienced, committed and capable team and profitable ongoing production, provides an excellent platform to create future value for shareholders.

It was disappointing that despite the enormous efforts of our team, and extensive interactions over many months, we could not get the required comfort from the regulatory authorities to invest in additional production from Lancaster. However, alongside our operational activity, we have been active in the M&A market both through our own formal sales process and in seeking new assets for our own portfolio.

We continue our work on the FSP which we are focused on bringing to a successful conclusion, albeit there can be no certainty as to its outcome. We are pleased by the strong interest we have seen thus far.

This coming year brings its own challenges and we look to deliver both near term shareholder returns through either the successful outcome of the formal sale process or with a substantial capital return programme, as well as creating additional value for our shareholders."

As usual in recent Hurricane announcements the market is none the wiser after the event. 

Deltic Energy

Deltic has announced that Shell, the Operator of exploration well 41/05a-2 on Licence P2252 (Shell 65%, Deltic 30%, ONE-Dyas 5% Working Interests), in the Southern North Sea has reported that gas has been encountered in the reservoir and has recommended to the Joint Venture that a full well testing programme be undertaken.

The JV has endorsed the Operator’s recommendation to undertake a full well test to evaluate the commerciality of the Pensacola prospect and update the geological model.

Deltic will provide a drilling update announcement in respect of Pensacola on completion of well testing which is expected to take approximately 30 days.

Graham Swindells, Chief Executive of Deltic Energy, commented:
“We are very pleased to have encountered hydrocarbons in the Pensacola exploration well at this intermediate stage of well operations. We now look forward to working with the Operator on the well testing programme, and will update the market once that programme is completed.”  

Should this pan out as it looks like it might this is very good news for Deltic and its patient shareholders. If this is the case and the testing is successful the 40% gain today will be just the start of the rally…

Europa Oil & Gas

Europa has provided an operational update on its current activities and the outlook for 2023.

Onshore UK
Europa continues to benefit from the excellent performance of the Company’s onshore UK producing assets, particularly the Wressle oilfield in the East Midlands (Europa working interest: 30%). The Company’s total UK net production in December 2022 averaged over 300 bopd, and Europa anticipates an active year for Wressle, with a firm development well planned to be drilled for the Penistone horizon in H2 2023 (subject to necessary permits and consents) and preparation for a second Penistone well and Broughton North exploration well to be drilled in 2024. When the Penistone horizon comes online, expected in Q4 2023, the Board forecasts group production net to Europa of over 500 boepd. The production is complemented by the gas monetisation solutions planned for Wressle via a “Gas to Wire” system, forecast to be completed in Q2 2023, and a gas export pipeline, developed in parallel with the Penistone well, expected to be operational by Q4 2023. Both gas monetisation solutions will not only enhance production from the field and substantially increase revenues but will also eliminate routine flaring from the Wressle field.

The Company is also looking at optimising production operations at its Crosby Warren and West Firsby sites (Europa working interest: 100%), which continue to provide stable production of over 40 bopd.

Offshore UK
In conjunction with the Company’s partner i3 Energy, in 2023 Europa will continue to explore options for the development of the Serenity oil field in the Outer Moray Firth area of the North Sea (Europa working interest: 25%). The discovered reserve would likely be developed as a subsea tie-back to Repsol Sinopec’s Tain Field. The field could be a unitised development which would be highly material to Europa, with net production to Europa anticipated to be circa 1,000 bopd. Further updates will be provided as development discussions between the Serenity and Tain partners progress.

Ireland
Europa has a 100% interest in licence FEL 4-19, which contains the significant Inishkea gas prospect. The Company has engaged Llamas and Bannister Energy Advisors Ltd to assist with a farm out process which will commence shortly (https://labenergyadvisors.com/). In the event of a successful discovery at Inishkea, Europa believes that the field alone has the potential to supply at least two thirds of the gas required for the 2 Gigawatts of new gas-fired power generation committed to in the Irish Government’s updated Climate Action Plan. The adjacent producing Corrib gas field is one of the lowest carbon-intensity gases in Europe, much lower than UK imported gas, with a carbon emission intensity of 4.5 kilograms per boe, compared to 22 kilograms per boe for UK imported gas. The Board considers it to be probable that gas from Inishkea would be of similarly low carbon intensity.

New Business
The Company continues to assess new opportunities focussing on appraisal and development projects which provide significant value-accretion whilst minimising risk. This includes participating in the North Sea Transition Authority’s 33rd licensing round, where the application period closes this week.

ESG
Europa is working to contribute to local energy security and the global transition to a low carbon economy whilst delivering value to stakeholders. The Company recognises that a wide range of Environmental, Social and Governance topics form the basis of how it conducts its business and operations. The Company will be building on the ESG foundations that have already been laid and during 2023 will set meaningful goals to help contribute towards the 2050 Net Zero target.

2023 Budget
The Europa Board has approved a 2023 budget which includes net committed capex of £5.1 million across the asset base. The Company has a forecast net cash position of £4.6 million at 31 January 2023. In addition, it forecasts that it will generate £4.2 million in free cash flow during 2023 (pre-capex). 

Simon Oddie, CEO of Europa, commented:
“We are very excited about the outlook for Europa as we enter 2023. The Wressle oilfield continues to outperform expectations and complements production from our operated assets at Crosby Warren and West Firsby and our interest in Whisby, to provide valuable cashflow to fund the ongoing development of our asset base. In addition, our existing cash balance and ongoing cashflow allows us to seek other opportunities, both onshore and offshore.

The Europa Board adopts a prudent approach, balancing the inherent risks associated with exploration, appraisal and development against the value creation of these upstream activities. The 2023 budget reflects this risk assessed value-driven approach and I look forward to updating the market on our progress throughout the year.”

I have not yet caught up with EOG, my fault not theirs but it seems to me that it is leaning heavily on Wressle for its valuation although we don’t share such positive views on Serenity…and that FEL- 19 is some way away. 

KeyFacts Energy Industry Directory: Malcy's Blog