WTI (June) $73.71 +55c, Brent (July) $77.44 +43c, Diff -$3.73 -12c
USNG ( May) $2.26 +3c, UKNG (June) 82.50p -2.50p, TTF (June) €35.865 -€0.68

Oil price

Oil was off yesterday morning but rallied late after the EIA upped its global consumption number, also the UAE Oil Minister said that Opec was ‘not worried’ about the very, very short term. He said that the cartel still see a future shortage if ‘weak levels of investment continue over the coming years’.

There was no outcome of the meeting of top lawmakers and Sleepy Joe at the White House save for the agreement to withdraw the current sell mandate for the SPR now that the holding is at a 40 year low. They are meeting again on Friday to try and make an agreement. Meanwhile Chinese economic data was a bit weak in the trade area with low crude imports to blame.

The API had a mixed set of inventory stats, crude added 3.6m barrels, gasoline only 0.4m with 2 weeks until the Memorial Day Holiday which kick starts the driving season. Distillates drew 3.94m as stocks at Cushing fell by 1.3m.

Union Jack Oil

Union Jack has announced that material landmark net revenues, in excess of US$15,000,000 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$15,000,000 revenues generated to Union Jack since re-commencement of production at Wressle during August 2021
• Well producing under natural flow with zero water cut
• 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 9 May 2023, cash balances, short- term receivables and liquid investments stood at over £10,500,000
• 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 consistent and impressive performance from the Wressle-1 well has been recorded and the trend during 2023 remains positive with materially higher production rates than those seen on a like-for-like basis during the same time period in 2022.”

Another excellent update from UJO who with their 40% of Wressle are reaping the reward of the good operational performance it has offered lately, financially it also has delivered some $15m of revenues which have strengthened the balance sheet, enabled all opex to be covered for at least a year ahead and of course provided the funds for dividends and buybacks. 

At 24p, and a market cap of only £26m it is surely an absurd valuation given the revenues shown above and the earning potential from the substantial portfolio of assets and even more valuable to the domestic hydrocarbon market and the exchequer.  

Afentra

Completion of INA Acquisition
Afentra is pleased to announce completion of the acquisition from INA-Industrija d.d. ('INA') of a 4% interest in Block 3/05 and 4% interest(1) in Block 3/05A offshore Angola (the 'INA Acquisition') pursuant to a sale and purchase agreement between INA and Afentra's wholly owned subsidiary, Afentra (Angola) Ltd, dated 18 July 2022 ('SPA'). This acquisition marks Afentra's entry into Angola where it is well positioned to build a material production business and contribute to a responsible energy transition for the country.

• The transaction effective date of 30 September 2021 results in a net upfront consideration at completion of $17.0m, which is offset by the Company inheriting crude oil stock with an approximate value of $16.6m at $80/bbl (207,868 bbls(2))
• The Company has also set aside $10.0m into an escrow deposit at completion, which will be paid to INA after the Block 3/05 licence extension is formally completed
• The net upfront consideration and escrow deposit will be funded by $18.9m from the agreed Reserve Based Lending ('RBL') and working capital facilities and $8.1m from cash resources
• The Company expects to sell its first cargo of crude oil in Q3 2023, thereby monetising the inherited crude oil stock and subsequent production
• Block 3/05 current gross production in April averaged ~19,000 bbl/d (net 760 bbl/d)

The upfront consideration of $17.0m comprises a $12.0m initial consideration, $4.8m in working capital and interest(3) and $2.0m in payments of crystallised contingent consideration,(4) adjusted downwards by $1.8m due to positive net asset cashflows.(5)

The Company is pleased to announce that Mauritius Commercial Bank ('MCB') has entered both the RBL and working capital facilities as the lender to the Company. Trafigura retains an interest in the RBL facility and will continue as offtake provider for the Block 3/05 crude. The principal terms and conditions for both the RBL and working capital facility remain unchanged. The combination of MCB and Trafigura is a further positive step as the Company strengthens its credit relationships with two lenders who are supportive of the energy sector.

Sonangol Acquisition Update
The Block 3/05 JV partners and ANPG, the Angolan Oil & Gas regulator, have now agreed the terms of the Block 3/05 licence extension, extending the production sharing agreement ('PSA') from 1 July 2025 to 31 December 2040 with improved fiscal terms that strengthen the economics of the permit. ANPG will now begin the process of obtaining the requisite governmental approvals for the licence extension.

The agreement between ANPG and the JV partners of the terms for the licence extension, which is a Condition Precedent to the Sonangol acquisition, now allows Sonangol, as seller, to start the process of obtaining the requisite government approvals for the Sonangol transaction where we remain on track to complete by 30 June 2023.

Operations Update
Production from Block 3/05 averaged 17,206 bbl/d in Q1 2023 as a result of downtime experienced through planned restoration works on power generation and the distribution network. Recent production levels have improved with April volumes averaging ~19,000 bbl/d. Furthermore, long-term testing commenced in Block 3/05A, at the Gazela field, of an additional ~1,100 bbl/d, enabling framing of potential development options.

Updated Competent Persons Report
ERCE has completed its annual update of the Competent Persons Report ('CPR') on the Block 3/05 assets with an effective date of 1 January 2023. The updated 2P gross reserves, at the new effective date, are 108 mmbbls (net 4.3 mmbbls) and the updated 2C gross resources are 43 mmbbls (net 1.7 mmbbls). The outcome is in-line with previous CPR expectations taking into account 2022 production.

Commenting on the update, CEO Paul McDade said:
“We are very pleased to complete the INA Acquisition and we would like to thank all involved, especially our shareholders, for their continued patience and support. The indicative transaction metrics upon sale of crude inventories speak to the competitiveness with which we have been able to structure this deal and we are pleased to mark the inception of our partnership with Sonangol in Blocks 3/05 and 3/05A. It is also highly encouraging that the terms for the Block 3/05 licence extension award have been agreed; this represents a major step towards completion of the Sonangol transaction within our previously guided timeline. We now look forward to working with the partnership to enhance production and reserves to a level that reflects the potential of this very material asset.”

Although it has taken a considerable, but not unexpected time for this deal to complete, it has now gone through and is a significant milestone for the company and its entry into Angola. The deal is only the start of what is an entry into proven and high-quality assets and delivers proven reserves, solid cash flow and significant and material upside potential. 

It is worth noting that the final settlement has come with an inventory of crude stock worth over $16m and an accrued cashflow contribution of $1.8m, which provides a significant offset to the final completion payment. It is easy to see the evident qualities demonstrated by the value accretive nature of this transaction which will be obvious to see later this year as the company’s balance sheet strengthens. 

Elsewhere, the completion of the Sonangol transaction moves closer after terms were agreed on the Block 3/05 licence extension between the regulator and JV partners (including improved fiscal terms that would strengthen the economics of the permit). Government approval is now being sought on both the licence extension and Sonangol transaction for expected completion on the transaction (increasing Afentra’s WI in 3/05 from 4% today to 24%) by end June.

Block 3/05  is performing strongly, with gross production increasing to around 19,000 bbl/d following maintenance activity through Q1’23 and bilateral work is continuing in optimising production and environmental impact. 

I thought that this deal/s was something that investors should have got behind since the entry and original deal announcement and the executive management have followed in with their own money through market purchases. I believe that they and all other shareholders will benefit substantially as the shares at 27p offer massive value that will come out as the high quality team get to work on the deal. I expect further deals both in Angola and in West Africa.

Harbour Energy

Harbour Energy plc today provides the following unaudited Trading and Operations Update for the first quarter of 2023. This is issued ahead of the Company’s Annual General Meeting (AGM) which is being held today at 10.00 BST.

Operational highlights

• Production averaged 202 kboepd (Q1 2022: 215 kboepd), split broadly 50 per cent liquids, 50 per cent gas. This reflects new wells on-stream, including at Tolmount, J-Area and Clair, partially offsetting natural decline.  On track to meet full year guidance of 185-200 kboepd.
• Estimated operating costs of c.$15/boe (Q1 2022: $14/boe). Full year forecast is unchanged at c.$16/boe1
• Strong safety record with total recordable injury rate of 0.82 per million hours worked.
• High return, infrastructure-led UK development opportunities progressed, including start of drilling at Talbot.
• Growing portfolio of international development opportunities with the potential for material reserve replacement and diversification:
  • Mexico: Submission of Zama Unit Development Plan for approval to the regulator; oil discovery at Kan-1.
  • Indonesia: Following the 2022 Timpan gas discovery, high impact three well Andaman exploration drilling campaign to start in the second half of the year; partner and government discussions underway at Tuna to enable the project to progress.
• Significant progress on our UK CCS projects with the Harbour-operated Viking and non-operated Acorn projects recognised as best placed to meet the UK Government’s objectives for the Track 2 regulatory approval process. Confirmation of Track 2 status would allow negotiation with the Government over the terms of the economic licences to commence and the projects to move to FEED ahead of a potential final investment decision.

Financial highlights

• Estimated revenue of $1.1 billion with realised, post-hedging, oil and UK gas prices of $76/bbl and 71 pence/therm. This compares to average Brent and NBP prices of $81/bbl and 133 pence/therm for the period.
• Total capital expenditure (including decommissioning spend) of c.$0.2 billion. Full year guidance of c.$1.1 billion1 reiterated, reflecting:
  • Increased activity post first quarter including drilling in the UK, and exploration campaigns in Indonesia and Norway.
  • Reduced UK activity in certain areas due to the EPL, including partner cancelled programmes at Elgin Franklin and Beryl and rephasing of certain decommissioning activities.
• Review of UK organisation on track to complete in the second half of 2023 and expected to result in a reduction of c.350 onshore positions. This is forecast to deliver annual savings of c.$50 million from 2024, following an estimated c.$15 million one off charge to be taken in Harbour’s 2023 interim financial statements.
• Free cash flow for the period was $0.7 billion. Forecast full year free cash flow (after c.$450 million of tax payments and pre-distributions) is unchanged at c.$1.0 billion2 and is first quarter weighted due to summer maintenance campaigns and phasing of capital expenditure and tax payments.
• Net debt reduced from $0.8 billion at year end to c.$0.2 billion at the end of March. The potential to be net debt free in 20242 is unchanged.
• Significant liquidity of $3.1 billion, as at quarter end, although our debt capacity is expected to be impacted by the EPL at the upcoming annual re-determination of our borrowing base.

Capital allocation

• Proposed final dividend of $100 million (12 cents per share) for 2022 to be paid on 24 May, subject to shareholder approval and in line with $200 million annual dividend policy. This represents dividend per share growth of nine per cent, driven by the significant share repurchases made over the last 12 months.
• New $200 million buyback programme initiated in March 2023. As at 9 May 2023, c.$50 million of the programme had been completed with over 10 per cent of our issued share capital repurchased since Harbour’s 2022 AGM.
• Ongoing evaluation of M&A opportunities to grow and diversify internationally, in line with Harbour’s stated strategy.

Linda Z Cook, Chief Executive Officer, commented:
“We delivered a strong first quarter. Continuing to invest in our portfolio while actively managing our cost base has enabled us to further deleverage our balance sheet and return additional capital to shareholders. At the same time, we’ve built good momentum in our international development opportunities in Mexico and Indonesia which have the potential to add materially to our reserves and future production, and in our CCS projects, all of which will lead to future diversification of our business.”

After the rather severe nature of the last statement, today’s comments are a good deal lighter and with the UK CCS prospects showing some excitement things are looking up for Harbour.

KeyFacts Energy Industry Directory: Malcy's Blog