WTI (Mar) $73.79 -$2.49, Brent (Apr) $79.94 -$2.23, Diff -$6.55 +26c, USNG (Mar) $2.41 -4c, UKNG (Mar) 147.0p +2.0p, TTF (Mar) €57.285 +€0.79

Oil price

Oil was having a  good day on Friday until the jobs numbers blew the market away. +517/- beat the whisper which was just 187/- and the Fed jungle drums started banging. The ‘robust’ labour market leads to inflation pressure and a slow down in the services sector so Jerome Powell will now be expected to be more hawkish on rates and a stronger greenback.

The Baker Hughes rig count  continued to show a lack of investment in onshore drilling, overall rigs were down by 12 to 759 and in oil they fell 10 to 599.

Union Jack Oil

Union Jack Oil has announced that material landmark net revenues of US$13,000,000 have been achieved from the Wressle hydrocarbon development, located within licences PEDL180 and PEDL182 in North Lincolnshire on the western margin of the Humber Basin.

Union Jack holds a 40% economic interest in this development.

Highlights

• Landmark US$13,000,000 revenues generated to Union Jack since re-commencement of production at Wressle on 19 August 2021
• Well producing at historically record rates, under natural flow with zero water cut
• Site upgrades including installation of microturbines and associated equipment ongoing
• Union Jack continues to be cash flow positive covering all G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months
• As of 3 February 2023, cash balances, short- term receivables and liquid investments stood at over £10,000,000
• Debt free

Executive Chairman of Union Jack, David Bramhill, commented:
“Revenues from Wressle continue to bolster the Company’s Balance Sheet.

“Since the last production update, another impressive production performance from the Wressle-1 well has been recorded and the trend as seen throughout 2022 and the start of 2023 remains positive.

“Cash balances are expanding significantly on a monthly basis, and we are funded for G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months.”

These numbers continually deliver exceptional results from Wressle and in some cases have even foxed the finest of market analysts who havent yet ‘got’ what is going on at UJO. With funding of everything sorted for at least 12 months shareholders must be happy that dividends and buy-backs are also on the menu at this 5* establishment.  

IOG

IOG has provided an update on the Southwark field development:

A2 remediation  

• The planned isolation of three of the six stimulated zones and perforation of two other zones within the Southwark A2 well has been completed
• The well has then been flow tested both on a sustained basis to establish stable rates and on a cycled basis
• The remediation successfully reduced water production from 1500 bbls/d to an average rate of 380 bbl/d. However, stabilised gas rates have been limited to 2.5 mmscf/d, at a flowing wellhead pressure of 1186 psi.
• Well test data continues to be reviewed with relevant technical advisors, however these rates do not currently justify hooking up the well for production

Forward plan

• The Company will now suspend the A2 well and evaluate the feasibility of cycled production and alternative longer-term remediation strategies
• A joint venture decision is expected shortly on whether to directly resume the Southwark A1 well as planned or prioritise the Blythe H2 well (subject to regulatory approvals), which would allow valuable time to incorporate A2 learnings into the A1 completion plan   
• As previously stated, Blythe H2 is intended to increase production rates, increase reserves recovery and limit water production, which would alleviate onshore water handling requirements
• Under the existing rig contract, including priced extension options, the drilling programme includes the two appraisal wells at Goddard and Kelham North/Central
• The Company is reviewing its capital expenditure programme in light of the above and will provide further updates in due course

Dougie Scott, COO of IOG, commented:
“The objectives of the A2 remediation were to increase the gas rate via additional perforations and reduce water production by isolating certain zones. Although water rates were significantly reduced, the perforations have not delivered the expected improvement in gas rate. The data acquired from A2 will be pivotal to our re-evaluation of the A1 completion plan. Moving forward, a key focus area will be assessing the viability of hydraulic stimulation in reservoirs with low column height above free water.“

Rupert Newall, CEO of IOG, commented:
“We are clearly very disappointed with the Southwark A2 outcome, which is a very significant departure from our plans and expectations. We are already working hard to incorporate the data and learnings from A2 into the A1 well plan and will assess the implications for other similar assets in our portfolio.

As we demobilise well test equipment, we are evaluating next steps with our joint venture partner. Recent engineering and procurement work gives us the option to accelerate Blythe H2, which is an important well for IOG. If successful, it would increase near term production and cashflow as well as significantly reducing water production and associated costs.”

More operational problems at Southwark A” which has proved that whilst taking the water out of the process hasn’t solved the problem and there is no associated increase in gas production. A genuinely back to the drawing board situation and at the moment the technical department is working on a number of solutions.  

Enter stage right is either the Southwark A1 well which was already scheduled to be next off the production line or to promote the Blythe H2, which gives the board the breathing space to try and find out what’s been going wrong. 

And this all means that ‘there will be a review of the capital expenditure programme’ and accordingly shareholders whilst aware that the company is in a revenue producing situation thanks to ongoing Blythe output will want to add to it. 

All is not lost at IOG, no one would have expected such operational problems but worse things happen at sea and this is a portfolio which still exhibits opportunities in a number of areas. Not exactly option money but, put it this way, it is an unexpected second chance to partake in the SNS and after all, at this price bidders must have been spotted in the undergrowth…

Touchstone Exploration

Touchstone reports that it has commenced operations at the Royston-1X sidetrack well located on the onshore Ortoire block in the Republic of Trinidad and Tobago. Touchstone has an 80 percent operating working interest in the well, with Heritage Petroleum Company Limited holding the remaining 20 percent working interest.

Touchstone has completed the mobilization of Star Valley Drilling Rig #25 to the Royston surface location, and the drilling rig has passed all required pre-drilling inspections. Royston-1X is a sidetrack well reentering the previously drilled Royston-1 well and is expected to be drilled to a measured depth of 11,300 feet, targeting hydrocarbon accumulations in the Middle Miocene Herrera overthrust, intermediate, and subthrust sheets.

The Royston-1 exploration well was drilled in 2021 to a total depth of 10,700 feet and identified over 1,000 feet of Herrera section in the overthrust and intermediate sheets, encountering light, sweet crude oil in both sheets.

Touchstone is targeting to drill the Royston-1X well through the previously tested Herrera sands to penetrate new sands at the base of the intermediate sheet and into the untested subthrust sheet. The well is anticipated to be drilled and logged within 45 days, and the Company will provide further updates when drilling operations are completed.

Paul Baay, President and Chief Executive Officer, commented:
“The Royston-1 well drilled in 2021 showed tremendous potential, flowing significant volumes of 33-degree API oil from both the overthrust and intermediate sheets; however, mechanical challenges prevented meaningful production from the well. The challenges encountered at Royston-1 and the lessons learnt have helped us to design a drilling plan to optimally evaluate the Herrera Formation. As we target the deeper level, our enhanced understanding of the structure will allow us to assess the full potential of the intermediate sheet, which was not fully penetrated or completed in Royston-1, as well as the subthrust sheet which is a prolific target in offsetting oil pools.

Following our recent capital raise, we are excited for 2023 as we commence our latest drilling program and continue construction of our Cascadura facility with a goal of bringing on production as soon as practicable.”

Exciting times for Touchstone shareholders as it says above and for what I have already labelled what might be a contender for share of the year Touchstone has dropped the flag at the Royston sidetrack well which after Cascadura signals significant potential for the company. 

At 74p the shares have started the year well but with my TP of 200p a realistic target I am still totally confident that the challenge is fully achievable. 

Egdon Resources

Egdon has advised that it has entered into a Farmout Option Agreement with York Energy (UK) Holdings Limited relating to onshore Production Licence PL081 in North Yorkshire.

The Licence contains the Weaverthorpe Prospect. Weaverthorpe is a relatively shallow Bunter Sandstone (Triassic) prospect located immediately up-dip of interpreted gas pay in the Fordon-2 well (drilled by BP in 1974). Egdon’s initial evaluation indicates an estimated Mean prospective gas resource of 58 billion cubic feet.

Under the terms of the Agreement Egdon has a period of six months from 3 February 2023 to elect to farm into the Licence. During the Option period, Egdon will undertake additional technical and operational work to de-risk the opportunity, including reprocessing of the vintage 2D seismic data and integration of this with the existing 3D seismic data which defines the western part of the prospect.

As consideration for the grant of the Option, Egdon will pay 100% of the 2023 licence fees.

Should Egdon exercise the Option, it will earn a 70% interest in the Licence and assume operatorship. As consideration Egdon will pay 100% of the costs associated with the planning, drilling, logging, and either short term testing and completion or plugging and abandonment of a well to test the Weaverthorpe Prospect.

In addition, on exercise of the Option, Egdon will pay York a cash sum of £100,000, less any licence fees that were paid by Egdon for 2023.

York has an agreement with the current operator, Third Energy UK Gas Limited (“Third”), entitling it to be assigned the entire legal and beneficial interest in PL081. Egdon will pay 100% of the costs associated with the transfer of the Licence from Third to York and to Egdon (Such transfer being subject to NSTA approval.)

Commenting on the Agreement Mark Abbott, Managing Director of Egdon, said:
“This farmout option for the Weaverthorpe Prospect represents a significant opportunity for Egdon to increase its exposure to a potentially material gas resource at a time when the UK’s reliance on imported energy has come into sharp focus. 

The deal structure secures the opportunity at low cost whilst we undertake additional technical due diligence through the application of modern seismic processing technology. 

We look forward to updating shareholders on this exciting opportunity over the coming period.”

With the cost being genuinely option money Egdon shareholders will be delighted that for once they are in the news potentially as being in the market as a buyer not a seller of assets. Should it come good one would imagine that the undeclared upside might actually add to the portfolio in a decent manner. 

KeyFacts Energy Industry Directory: Malcy's Blog