WTI (May) $83.26 +$1.73, Brent (June) $87.33 +$1.72, Diff -$4.07 -1c
USNG (May) $2.09 -10c, UKNG (May) 103.18p -0.82p, TTF (May) €42.41 -€0.96

Oil price

Oil rallied still further, the Fed’s stance of a 25bp rise at the May meeting is being challenged by a number of commentators so the dollar is falling somewhat. The EIA was surprisingly suggesting that supply might jack up a bit and the inventory stats were a bit mixed, oil took no notice and is up again.

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter is pleased to announce a financial and operational update for Q1 2023.

Andrew Knott, CEO of Savannah Energy, said:
“This morning’s update clearly demonstrates the strength and potential of our business and the positive impact we are making in our host countries: we are reporting like-for-like1 organic Total Revenues2 growth of 26% year-on-year (with like-for-like1 Total Revenues2 having now doubled since 2017); our oil and renewable energy projects in Niger are now advancing at a rapid pace; and COTCo in Cameroon continues to deliver a strong consistent financial performance. On the new ventures front, we continue to progress our planned acquisition of PETRONAS’ assets in South Sudan and expect to announce a series of new utility-scale renewable power projects over the course of Q2 and Q3 2023.

At this time, I would like to express our gratitude to those who have contributed to these successes – my incredibly dedicated and passionate colleagues, our host governments, communities, local authorities and regulators, our shareholders and lenders, and our customers, suppliers and partners. Thank you all.”

This is a good update from SAVE who are producing some 54.9 Kboepd (21.6 1Q 2022), excluding Chad production it was 25.9 Kboepd up 20% on Q1 2022. Total Revenues were equally impressive with Nigerian operations delivering $71.0m ($55.0m) plus Chad upstream revenues of $76.6m. Along with this the Group had a cash balance of US$217.3m3 and net debt of US$412.2m4.

I particularly like the progress in Niger where the company  has continued progressing plans for the Early Production Scheme on the approximately 35 MMstb of Gross 2C Resources R3 East oil development. With necessary kit now ordered including a work-over rig solution identified, a well test programme is expected to be carried out in Q4 2023. Following that, Savannah expects to issue a comprehensive field development plan with first oil targeted in 2024 and production expected to ramp up to a plateau rate of approximately 5 Kbopd for the initial development. The crude is expected to be evacuated via the new Niger-Benin export pipeline, which is currently under construction, reported to be 75% completed and estimated to be fully operational in Q4 2023.  

Also in Niger, the wind farm project which has the potential to increase Niger’s on-grid electricity supply by over 40%, has made ‘significant progress’ with a number of key studies either completed or underway, and the company expect sanction in 2024. 

Elsewhere, the company is going ahead with all that is needed to complete the RTO with Petronas in South Sudan where it expects to acquire in its entirety.

Finally, Savannah acquired an effective 41.06% indirect equity interest in the Cameroon Oil Transportation Company (“COTCo”) from ExxonMobil on 9 December 2022. COTCo owns and operates the 903km Cameroon oil export pipeline and the Kome Kribi 1 floating storage and offloading (“FSO”) unit, which transport and store oil on behalf of its customers who are in turn charged a transportation tariff.

During Q1 2023 COTCo transported an average of 128.8 Kbopd of crude oil with a total of 11 liftings conducted on behalf of its customers. Each lifting saw the safe and successful transfer of approximately 1 MMbbls of crude oil from the FSO to ocean going vessels by COTCo on behalf of its customers.

With regard to the situation in Chad, the Company notes that, ‘Disputes under the upstream conventions are subject to the jurisdiction of an ICC arbitral tribunal, seated in Paris. The Company has commenced ICC arbitral proceedings against the Government of Chad to seek full recompense for the loss that it has and will suffer as a result of the nationalisation of SCI’s assets’.

As I said this is a highly encouraging update from Savannah and excluding Chad, which will take some time, they are making solid, consistently profitable progress across its portfolio in Africa. On return from suspension in H1 2023 this should be reflected in the share price.

Q1 2023 Unaudited Financial Highlights

• Q1 2023 Total Revenues2 of US$147.6m comprising Q1 2023 Total Revenues2 from Nigerian operations of US$71.0m (up 29% on Nigerian operations Q1 2022 Total Revenues2 of US$55.0m) plus Chad upstream revenues of US$76.6m; and
• Group cash balance of US$217.3m3 and net debt of US$412.2m4.

Q1 2023 Operational Highlights

• Q1 2023 average gross daily production was 54.9 Kboepd, compared to average gross daily production of 21.6 Kboepd in Q1 2022. Excluding Chad production, Q1 2023 average gross daily production on a like-for-like basis was 25.9 Kboepd, a 20% increase compared to Q1 2022; and
• Of the total average gross daily production of 54.9 Kboepd, 43% was gas, including a 22% increase in production from the Uquo gas field compared to the same period last year, from 116.4 MMscfpd (19.4 Kboepd) to 142.2 MMscfpd (23.7 Kboepd).

Q1 2023 vs Q1 2022 Average Gross Daily Production

N.B. – Percentages in this table are calculated from exact numbers, the figures above are rounded.

Cameroon Update
Savannah acquired an effective 41.06% indirect equity interest in the Cameroon Oil Transportation Company (“COTCo”) from ExxonMobil on 9 December 2022. COTCo owns and operates the 903km Cameroon oil export pipeline and the Kome Kribi 1 floating storage and offloading (“FSO”) unit, which transport and store oil on behalf of its customers who are in turn charged a transportation tariff.

During Q1 2023 COTCo transported an average of 128.8 Kbopd of crude oil with a total of 11 liftings conducted on behalf of its customers. Each lifting saw the safe and successful transfer of approximately 1 MMbbls of crude oil from the FSO to ocean going vessels by COTCo on behalf of its customers.

It should be noted that for accounting purposes, Savannah’s ownership interest in COTCo is treated as an investment in an associate and, therefore, income from COTCo will be equity accounted for in Savannah’s Consolidated Statement of Comprehensive Income (i.e. Savannah will reflect a proportionate amount of net income relative to its shareholding in COTCo as opposed to proportionately consolidating the revenues and costs of COTCo). Dividends received from COTCo will be reflected in the Consolidated Statement of Cash Flows.

Niger Update
Savannah has continued progressing plans for the Early Production Scheme on the approximately 35 MMstb of Gross 2C Resources R3 East oil development. Bottomhole pumps and completion equipment were ordered in Q1 2023, and a work-over rig solution has been identified for a well test programme, which the Company expects to carry out in Q4 2023. Following the well test result, Savannah expects to issue a comprehensive field development plan with first oil targeted in 2024 and production expected to ramp up to a plateau rate of approximately 5 Kbopd for the initial development. The crude is expected to be evacuated via the new Niger-Benin export pipeline, which is currently under construction, reported to be 75% completed and estimated to be fully operational in Q4 2023.

Savannah’s up to 250 MW Parc Eolien de la Tarka wind farm project in Niger, which has the potential to increase Niger’s on-grid electricity supply by over 40%, has made significant progress. All key studies required to achieve project sanction (including wind measurement, environmental and social impact, grid integration, security, cartography, road and aviation studies) have either been completed or are in progress. The preliminary on-site wind speed data measurements having proven to be highly encouraging and we expect project sanction in 2024.

Nigeria Update
During Q1 2023 Savannah sold gas to seven customers including Calabar Electricity Generation Company Limited, Lafarge Africa PLC, Ibom Power Company Limited, First Independent Power Limited, the Central Horizon Gas Company Limited, TransAfam Power Limited and Notore Chemical Industries PLC. So as to advance the Company’s ability to maintain and grow our gas production levels over the course of the coming years, Savannah is progressing the US$45 million compression project at the Uquo Central Processing Facility (“CPF”). Following the front-end engineering and the associated order of long lead items, detailed design work commenced in Q1 2023 and is scheduled to be completed in Q4 2023.

Chad Assets Update
As previously announced on 24 March 2023, the President of the Republic of Chad issued a Decree on 23 March 2023 nationalising Savannah Chad Inc’s (“SCI”) (formerly Esso Exploration and Production Chad Inc (“EEPCI”)) upstream production assets in Chad; subsequently on 31 March 2023 the Government of Chad passed a law confirming the nationalisation of SCI’s upstream production assets and also providing for the nationalisation of Savannah’s c. 40% interest in Tchad Oil Transportation Company (“TOTCo”), the owner and operator of the Chad section of the ETS.

Such nationalisation does not affect Savannah’s 41.06% indirect equity interest in COTCo.

The actions of the Republic of Chad are in direct breach of the upstream conventions to which SCI and the Republic of Chad are, amongst others, party, together with a direct breach of the convention between TOTCo and the Government of Chad. These nationalisations were made notwithstanding the fact that under SCI’s operatorship the historic production decline was immediately reversed, with daily production averaging 29,349 barrels per day since Savannah’s ownership on 9 December 2022, an increase of c.9% as against the equivalent period prior to Savannah taking control of SCI. Savannah had also initiated plans to significantly increase production further through an active investment programme.

Disputes under the upstream conventions are subject to the jurisdiction of an ICC arbitral tribunal, seated in Paris. The Company has commenced ICC arbitral proceedings against the Government of Chad to seek full recompense for the loss that it has and will suffer as a result of the nationalisation of SCI’s assets.

South Sudan Acquisition Update
Further to the Company’s 12 December 2022 announcement, the Company continues to advance the various workstreams required to complete the reverse takeover of PETRONAS International Corporation Limited’s (“PETRONAS”) entire oil and gas business in South Sudan, and intends to publish an AIM Admission Document in H1 2023. Further updates will be provided as and when appropriate.

Footnotes:

1.     Excludes revenues from Chad.
2.     Total Revenues are defined as the total amount of invoiced sales during the period. This number is seen by management as more accurately reflecting the underlying cash generation capacity of the business in comparison to Revenue recognised in the Consolidated Statement of Comprehensive Income.
3.     Within cash balance of US$217.3m, are amounts which are held for debt service purposes and US$1.6m is restricted cash which includes cash collateral and stamp duty escrow balances.
4.     Net debt (defined as ‘Total long and short term debt exclusive of lease liabilities less Cash at bank and other escrow monies’).

Serica Energy

Serica has announced its audited financial results for the year ended 31 December 2022.  

Commenting on the results, Mitch Flegg, Serica’s CEO stated:
“2022 was another year of outstanding progress for Serica. There was strong growth in production volumes, a significant upgrade to reserves and increased profitability at all levels.

Serica’s two-pronged strategy is to invest in our high-quality portfolio of UK North Sea assets to unlock value and prolong their life whilst continuing to target future acquisition opportunities. It is to be hoped that the Government will ensure that the fiscal terms applying in the UK North Sea make the UK competitive for future energy investment.

We have now completed the acquisition of Tailwind which has boosted production and reserves and provides a number of short-cycle growth opportunities for the Company.

I’m delighted that we can recommend an increased final dividend of 14p per share. The continued strength of the Company underpins the intention to maintain or increase the dividend in future years.“

As I always say and Mitch Flegg agreed at the conference call, these are historic figures and particularly given how different last year was to this and how 2023 is turning out are immaterial. I will leave the numbers except to say good production, an excellent acquisition and 22p 0f dividends  all tick the boxes in building for the future.

Q1 production of 46,800 boe/d proforma shows significant resilience and with Gannet GE-04 adding some 10,000 boe/d production of 60/- b/d have been seen in March already. Accordingly, combined Group production guidance range for 2023  has been maintained at what must be a highly conservative 40,000 – 47,000 boe/d on a full year pro forma basis.

With both company’s having CPR’s they go into the marriage with 2P reserves of 130m bbls and a decent number of short-cycle projects to invest in. But the Group has a strong balance sheet allowing funding of these projects and more having virtually ending hedging, so closing cash at 31 December 2022 of £432.5 million (2021: £103.0 million) plus a further £24.3 million of cash security lodged with gas price hedge counterparties (2021: £115.4 million) is comforting. 

The Looney tax was discussed and whilst it is an unwanted spectre, c’est la vie and with allowances that can be used and some discussions have taken place to maybe have a floor price to protect companies should prices fall sharply sympathy is in short supply. 

New Serica looks very exciting, I’m happy as can be having it in the Bucket List where I would expect it to be a leader, at this price it is way too cheap.  

Remaining cash hedge security fully released post year end. Closing cash at 31 December 2022 is after:

2022 Summary

• Profits increased at all levels with a 93% increase in operating profit and a 124% increase in profit after tax, boosted by the end of BKR net cash flow sharing, increased production volumes and higher commodity prices.
• Average net production of 26,200 boe per day compared to 22,200 boe per day for 2021, an 18% increase.
• Serica 2P reserves increased to 74.9 million boe effective 1 January 2023 (1 January 2022: 62.2 million boe) with Group 2022 production replaced more than two-fold .
• Acquisition of Tailwind Energy Investments Limited announced on 20 December 2022 and completed post year-end on 23 March 2023.
• Final 2022 dividend of 14p per share recommended, bringing 2022 full year total to 22p per share1 compared to 9p per share for 2021.

Financial

• Average 2022 realised sales price, after hedging, of approx. US$104 per boe (2021: US$77 per boe) and average operating cost of US$15.7 per boe (2021: US$16.5 per boe).
• Operating profit of £476.2 million (2021: £246.1 million) after:
  • realised losses of £45.4 million on 2022 gas price hedging (2021: £56.6 million)
  • unrealised gains of £20.9 million on hedge valuations (2021: losses £74.6 million)
  • E&E asset write-off of £82.7 million related to North Eigg exploration well.
• Profit after tax of £177.8 million (2021: £79.3 million) after current tax charges of £277.7 million (2021: £15.8 million) and non-cash deferred tax provisions of £32.7 million (2021: £40.0 million).
• Net cash inflow from operating activities of £560.1 million (2021: £157.6 million) including:
  • £91.0 million net release of cash security held by gas price hedge counterparties (2021: net payments lodged £113.6 million)
  • £143.5 million cash taxes paid in 2022 (2021: nil). Further £140 million of 2022 tax charges paid in early 2023.
• Closing cash at 31 December 2022 of £432.5 million (2021: £103.0 million) plus a further £24.3 million of cash security lodged with gas price hedge counterparties (2021: £115.4 million). Remaining cash hedge security fully released post year end. Closing cash at 31 December 2022 is after:
  • £97.1 million exploration and development spend (2021: £52.2 million)
  • £93.9 million final BKR cash flow related payments (2021: £81.3 million)
  • £46.3 million dividends paid (2021: £9.4 million).
• Following the 2022 year end the Directors became aware that a filing in respect of certain dividends paid in 2022 had not been made as required under the Companies Act. Accordingly a resolution will be proposed at this year's AGM to resolve this.

Operational

• Updated independent audit of field reserves reported Serica's share of estimated remaining 2P reserves as 74.9 million boe effective 1 January 2023:
  • represents net upward revision of about 250% of 2022 production compared to 62.2 million boe reported as at 1 January 2022
  • result of projected deferral of Bruce hub cessation of production until 2035, ongoing interventions on Bruce wells and plans for further drilling.
• Initial Light Well Vessel Intervention campaign conducted in mid-2022 to boost production from two Bruce wells with further campaigns planned:
  • M1 re-entered and rates increased from 400 boe/d to 1,800 boe/d in July after successful scale removal, water shut-off and perforation/reperforation
  • similar programme then carried out on M4 increasing rates from 450 boe/d to 2,400 boe/d.
• North Eigg HPHT exploration well successfully drilled to 16,728 feet - encountered hydrocarbons in sub-commercial quantities and well has been suspended pending analysis of data and assessment of any further potential in the area.

ESG

• Reduced carbon intensity on Bruce platform by 8% compared to 2021 through closer emissions monitoring, improved performance and greater production efficiency.
• Developed and submitted Bruce Emissions Reduction Action Plan (ERAP), demonstrating a pathway to meeting the North Sea Transition Deal emissions reduction targets.
• Supported new technology projects such as energy from waves, eco-friendly concrete, alternative fuels, arial methane monitoring and flare gas combustion efficiency.

Outlook

• Tailwind acquisition completed in late March 2023 and is already contributing strongly to Serica's combined reserves growth and production rates as well as better diversifying the Group's offtake routes and commodity balance and offering a range of near term investment options:
  • updated Tailwind reserves report shows increase in 2P reserves from 41.8 million boe at 1 January 2022 to 55.5 million boe at 1 January 2023, replacing 2022 production four-fold
  • Gannet GE04 well onstream in February 2023 at initial production rates above 10,000 boe/d and exceeding pre-drill estimates
  • net production for the combined Serica and Tailwind portfolios averaged 46,800 boe/d during Q1 2023
  • preparations during 2023 for a four-well Triton area drilling campaign in 2024 starting with the Gannet GE05 well
  • integration plans on track, including sharing best practices, prioritising work programmes and high grading investment opportunities.
• Combined Group production guidance range for 2023 maintained at 40,000 - 47,000 boe/d on a full year proforma basis:
  • combined operating costs to remain below $20 per boe
  • Price hedging under borrowing facility for oil production acquired from Tailwind
    • 2023 from 23 March, approx. 11,000 bbl/d @ average $58/bbl
    • 2024 approx. 4,000 bbl/d @ average $74/bbl
• A second light Well Intervention Vessel campaign to enhance production on BKR wells planned for the summer with a further campaign expected in 2024.
• Subject to shareholder approval at the AGM, a final 2022 dividend of 14p per share will be payable on 27 July 2023 to shareholders registered on 30 June 2023 with an ex-dividend date of 29 June 2023.
• Completion of the acquisition of Tailwind puts the Company in a strong position to maintain and grow its dividend. Following the introduction of an interim dividend in 2022, future dividends will continue to be paid in two annual instalments determined by the financial performance and cash flow generation of the business. 

Licence Awards in the UK 32nd licensing round

In December 2020 Serica was formally awarded four new blocks in the UK 32nd licensing round. Blocks 3/25b, 3/30, 4/26 and 9/5a are in the vicinity of the Bruce hub and include several leads which, if successful, could be tied back to Serica’s existing infrastructure, or to other facilities in the region. The work programme does not include any commitment wells but is designed to mature these leads to drill-ready status. A decision whether to continue with the licences is due before the end of 2023. A decision about next steps therefore needs to be nominated to NSTA by the end of September 2023.

Investor Presentation
Mitch Flegg will provide a live presentation relating to the full year results via the Investor Meet Company platform on 24 April 2023 at 4.00pm BST.

The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9.00am the day before the meeting or at any time during the live presentation.

Investors can sign up to Investor Meet Company for free and add to meet Serica Energy plc via:

https://www.investormeetcompany.com/serica-energy-plc/register-investor

Investors who already follow Serica on the Investor Meet Company platform will automatically be invited

Note:

1  The interim dividend was paid to shareholders on the register at that time (approx. 273 million shares) and the final dividend will be paid to the shareholders on the register on 30 June 2023 (expected to be approx. 381 million shares).

Jadestone Energy

Jadestone has announced 2023 operational and financial guidance, year-end 2022 reserves and notification of its full-year 2022 results.

Paul Blakeley, President and CEO commented:
“In the first quarter of 2023, production has been impacted by the tank repair and planned maintenance activities at Montara, resulting in an average of just over 10,000 boe/d in the quarter.  Our guidance for the remaining nine months of the year is 13,500 – 17,000 boe/d, reflecting a return to routine operations at Montara and the inclusion of Sinphuhorm.  The midpoint of guidance represents 33% growth over 2022 and 22% over 2021, the latter being the most recent year of full Montara production.

The Malaysia infill well campaign in the second half of 2023, and the addition of Akatara production commencing during the first half of next year, should add a further 5,000 boe/d which, when compared to the 2023 mid-point, represents another 33% increase. We also anticipate adding to this growth profile through our very active pipeline of M&A opportunities.

Jadestone achieved a 45% year-on-year increase in 2P Reserves in 2022, delivering a near six-fold replacement of production during the year, demonstrating the success of our acquisition-led growth strategy and the quality of our asset base, particularly at the Akatara development, which underpins near-term production growth.“

Things are getting back together for JSE after the trauma of Montara but production is slowly recovering, 10/- boe/d in Q1 becomes guidance for the rest of the year of 13,500-17,000 boe/d which includes Sinphuhorm and is  a creditable increase. 

Reserves wise as at 31 December 2022, the Group had 2P reserves of 64.8 mmboe, a 45% increase compared with year-end-2021 and a near six-fold replacement of production in the year, mainly due to Akatara reclassification plus the acquisition of CWLH fields offshore Australia. 

Operating costs are up by 6% but it could have been worse, inflation has taken its toll and Jadestone are good at cost control. Capex is guide for $110-140m apparently the largest in the company’s history, primarily for Akatara and Malaysia but hopefully plenty of M&A into the bargain. 

Happier times for Jadestone who report next week, I won’t be at the results meeting as the company have gone up against Petrofac and refused to cede and I can’t make dinner in North London either! Stays in Bucket List for quality of management right across the board and of course a great portfolio of assets. 

2023 Operational and Financial Guidance

• Production for the first three months of 2023 averaged just over 10,000 boe/d, reflecting tank repair and scheduled maintenance activities at Montara. Production for the nine months ending 31 December 2023 is expected to average 13,500-17,000 boe/d.  The Company expects a c.85/15% split between oil/liquids and natural gas for 2023. 
• Underlying operating costs[1] in 2023 are expected to total US$180-210 million.  When adjusted for a full-year of operating costs associated with the CWLH acquisition, higher tanker costs at Stag and higher logistics costs at Montara in 2023, underlying operating costs are expected to be c.6% higher year-on-year, demonstrating cost control in an inflationary environment.
• Capital expenditure guidance for 2023 is expected to total US$110-140 million, the largest investment programme in the Company’s history. This is allocated primarily to the Akatara gas development project (c.70%), which is progressing well and remains on budget and schedule for first gas in H1 2024. A further 15% will be spent on the PM323 infill drilling campaign offshore Malaysia.  

Year-end 2022 2P Reserves

As at 31 December 2022, the Group had proved plus probable oil reserves (“2P Reserves”) of 64.8 mmboe, a 45% increase compared with year-end-2021 and a near six-fold replacement of production in the year.  The primary drivers of the significant increase in reserves were the reclassification of 2C Contingent Resources from the Akatara gas field development in Indonesia to 2P Reserves following a final investment decision in June 2022, as well as the acquisition of the 16.67% interest in the producing CWLH fields offshore Australia, which completed in November 2022.  Jadestone completed the acquisition of an interest in the Sinphuhorm gas field onshore Thailand, adding a further 4.1 mmboe of 2P Reserves, after the period end and therefore not included in 2022.  

The Group’s best case contingent resources (“2C Contingent Resources”) totalled 104.3 mmboe at year-end 2022. 

ERCE Limited independently evaluated the Group’s 2022 year-end 2P Reserves.

KeyFacts Energy Industry Directory: Malcy's Blog