WTI (Mar) $79.72 +$1.66, Brent (Apr) $86.39 +$1.89, Diff -$6.67 +23c
USNG (Mar) $2.51 +8c, UKNG (Mar) 130.0p -2.75p, TTF (Mar) €52.395 -€1.53

Oil price

Oil was up on Friday and up over 6 dollars on the week, mainly due to my stories on Friday as I was late enough to catch the Russian story of cutting 500,000 b/d which fuelled the flames. The rig count was better from producers, overall only up 2 to 761 but in oil was up 10 units to 609.

Genel Energy

Genel has announced that all payments have now been received from the Kurdistan Regional Government relating to oil sales during August 2022.

Genel’s share of those payments is as follows:

Genel expects to receive a further $13 million in 2023 relating to historic receivables from 2020.

This is normal but it seems that the KRG are, as it says above, indicating that repayment of the balance is expected.

IOG

IOG has provided updated guidance on drilling plans for 2023:

Blythe

–     The IOG-CalEnergy Resources (CER) 50:50 joint venture has sanctioned the Blythe H2 well and prioritised it ahead of Southwark A1 in the drilling programme.
–     H2 will target Blythe’s central high and is a lower risk well, not requiring hydraulic stimulation as Blythe is a more permeable reservoir
–     In a success case, H2 would deliver several key benefits:

o  Higher gas production rates, expected to be initially in the 30-40 mmscf/d range from H2 after a period of displacing liquids in the Saturn Banks Pipeline, driving higher cash flow
o  Lower aqueous liquid arrivals into Bacton, reducing associated costs
o  Increase in ultimate recovery of Blythe gas reserves

–     In the base case, subject to the usual regulatory approvals, H2 is expected to spud in March and take approximately three months to drill, complete and hook up
–     H2 has a budgeted net cost to IOG of £13 million, including associated platform modifications, before any potential tax shelter or investment allowances, giving a potential payback of under 3 months
–     Meanwhile, Blythe continues to produce from the H1 well with over 90% uptime year to date
–     Gross gas rates are in the 15-20 mmscf/d range, fluctuating due to onshore liquids letdown cycles, alongside associated condensate and water production
–     10,000 therms per day was fixed for February 2023 at 141 p/therm

Forward Plan

–     The Southwark A2 well has now been suspended and a full review of operations and results has commenced
–     Southwark A1, which was suspended in October 2022 following fluid losses in the top hole section, is being re-entered to safely suspend the well ahead of the rig moving to Blythe
–     On receipt of the usual regulatory approvals, which are being expedited, the rig will move to the Blythe platform to drill H2
–     The new management team is rigorously evaluating the Company’s subsequent investment options, including drilling plans, to optimise the allocation of capital expenditure. This includes:

o  Re-assessment of Southwark A1 plans and costs in light of A2 results. Under current plans A1 would take an estimated five months to drill, complete and hook up, at a budgeted net cost to IOG of £16 million.  
o  Detailed examination of operating costs, both offshore and onshore, to drive efficiencies and savings
o  Analysis of further remediation options for A2
o  Optimisation of plans for the Kelham North/Central and Goddard appraisal wells, which would each cost an estimated £8 million net to IOG under the existing rig contract

Dougie Scott, COO of IOG, commented:
“In light of the Southwark A2 results, it is prudent for us to pause well activities on Southwark. With this in mind, the JV has elected to drill the Blythe H2 infill well ahead of Southwark A1. As a conventionally completed well, H2 has a lower risk profile, lower cost and can be brought into production quicker than A1. H2 can materially increase our production rate which would underpin our cashflow this year.

As a new management team, we have assembled a multi-disciplinary taskforce to conduct a thorough root and branch review of A2, from planning and design through to execution. While the short-term objective is to inform the optimal solution for A1, the review will also include a detailed evaluation of the risks, mitigations and optimisation plans for other similar assets. As we move forward our investment decisions will be rigorously tested to ensure uncertainties are understood, risks are managed effectively and outcomes are delivered on expectation.“

Rupert Newall, CEO of IOG, commented:
“The joint venture is well aligned on the compelling economic and operational case for prioritising the Blythe H2 well, which can pay back rapidly at current gas prices. This will help boost cash flow from mid-2023 while enabling us in parallel to carefully evaluate forward plans. The new management team is also reviewing the entire portfolio from subsurface, engineering, commercial and financial perspectives to ensure that we deploy our capital appropriately.

Despite recent Southwark challenges, we have stable flow from Blythe into an infrastructure system that we co-own with a high-quality and supportive partner. The purpose of H2 is to significantly enhance that production, reduce water production into the pipeline and minimise associated opex.

In addition, the Southwark platform and 24″ connection to the Saturn Banks Pipeline System has important strategic value for IOG as a conduit for future production. This could include the joint venture’s Central Hub assets and P2589 licence assets, plus potential 33rd Round awards and third-party gas.”

It seems entirely sensible for the JV to decide to go ahead and drill the cheaper, quicker Blythe H2 well now instead of the Southwark A1 well. H2 should be able to deliver a much lower risk, higher immediate production, the company are talking about it being lower risk with no fraccing of the more permeable reservoir and estimating gross production of some 30-40 mmcfd.

The company are setting up this ‘multi-disciplinary’ taskforce to look at the A2 well from start to finish, top to bottom and will ultimately decide what went wrong and what should change. To be frank this was a no-brainer of a decision as it should replace a good deal of the cash flow whist sorting out what to do in the future. 

There are still plenty of options for IOG, even if both Southwark wells are put to the back of the queue for capex and development for future production. As CEO Rupert Newall points out there are opportunities from other assets, the 33rd round and 3rd party gas which the always talked about. At this stage it seems to me that there are still chances for a share price recovery if all or any of these options deliver production again. 

Angus Energy

Angus announced on Friday that the second compressor remains on track for full wet commissioning from 15 February.  The drilling programme at Saltfleetby is likely to be extended by approximately a further 14 days, due to the need to select a more advantageous kick-off position for the sidetrack in order to utilise a more robust geological layer.  This would only involve a further 100 metres of drilling but we have allowed some time for the associated milling and other operations.

An infographic of the programme change will be posted on the Company’s website and social media pages over the next two days.

Further progress from Angus and clearly shows that they are confident enough about the asset to ensure that the extra drilling is not impaired by the current progress. 

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