WTI ( Aug) $70.64 +78c, Brent (Sept)* $75.41 -13c, Diff -$4.77 +29c
USNG (Aug) $2.79 +9c, UKNG (Aug) 97.25p +12.75p, TTF (Aug) €38.85 +€4.99
*Brent August contract expiry

Oil price

A half day for the US as they prepare for Independence Day celebrations tomorrow, I wish you all a very happy 4th.

Oil is a touch better, last week was modestly up as the week, month, quarter and interim finished mixed but 2023 has been slightly down, the second half was always going to be the better as world economies remain mired in recessionary woes so far this year. 2H call on OPEC oil will be over 30m b/d of oil and if the Saudis in particular remain tight then prices should rise.

But oil has picked up slightly this morning as rumours abound that Russia have said that they are planning to cut production by 500/- starting next month but we have heard that one before somewhere…

Challenger Energy Group

Challenger has announced that the award of the AREA OFF-3 licence, offshore Uruguay, has been formally approved by the Administración Nacional de Combustibles Alcohol y Pórtland (“ANCAP”), the Uruguayan national regulatory agency.

This follows the Company’s announcement on 5 June 2023 that its bid had been received and that the Company expected formal approval of the award of the licence to take 3-4 weeks. The Company expects that the remaining process for all remaining approvals, finalisation and formal signing of the licence documentation will take approximately 3-4 months, at which point the initial 4-year exploration period of the licence will commence. Further updates will be provided as appropriate.

Additional details on the AREA OFF-3 block and the key terms of the licence were included in the Company’s RNS of 5 June 2023.

Further good news today for CEG shareholders as confirmation is received that they have approval for the AREA OFF-3 licence offshore Uruguay.With the hydrocarbon world looking on with interest, some of the biggest companies are either in the data room or have expressed an interest as this post code has come alight in recent months. 

With Challenger examining all of its options with regard to its acreage in Uruguay the outlook for the company is very exciting indeed. 

Longboat Energy

Longboat  announce the acquisition of a 4.80% unitised interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Sygna Unit  located on the Norwegian Continental Shelf, through its subsidiary Longboat Energy Norge AS, from INPEX Idemitsu Norge AS. Longboat Norge will shortly become a joint venture between Longboat Energy and Japan Petroleum Exploration Co., Ltd  on completion of the investment into Longboat Norge by JAPEX announced on 2 May 2023. 

The acquisition represents Longboat’s first producing assets.

Transaction highlights:  

• Acquisition of long-term cash flow, fields expected to produce until late 2030s
• Production of ~300 boepd net to Longboat Norge (based on NPD figures to 30 April 2023)
• Production anticipated to approximately double in 2024 following a five well in-fill drilling programme, which is currently underway, and gas-lift installation which is complete
• Acquisition price equivalent of US$8.2/2P boe, in-line with recent NCS transactions
• Audited 2P reserves of 1.55 mmboe net to Longboat Norge, of which approximately 77% is oil and NGLs
• Cash consideration of $12.75 million
• Anticipated payback on the transaction in under two years
• Consideration to be fully funded by JAPEX’s investment in Longboat Norge

The Company will make a short presentation on this acquisition via the Investor Meet Company platform. The online presentation will take place at 11:00 am on Wednesday, 5 July 2023 and is open to all existing and potential shareholders. Those who wish to attend the online presentation should register in advance via this link: https://www.investormeetcompany.com/longboat-energy-plc/register-investor

A copy of the presentation is available on the Company’s website (www.longboatenergy.com).

Helge Hammer, Chief Executive of Longboat, commented:
“We are pleased to announce our first production acquisition in Norway, the next step in realising our growth ambitions on the Norwegian Continental Shelf. The Statfjord Satellites are two high-quality, long-life assets undergoing an exciting and transformative redevelopment led by Equinor.

Longboat’s ability to secure this acquisition through a bilateral negotiation continues to demonstrate the Company’s deep relationships in Norway and is an important next step in creating a full cycle E&P company.

We would also like to thank our new joint venture partner, JAPEX, with whom we have worked in close cooperation to execute this important transaction. The Statfjord Satellites help position the enlarged business for future success and proves the benefits of joint venture concept.”

Readers will know that I am delighted that Longboat has finally done a production deal which adds value and flexibility, not to mention financial muscle and fiscal prudence. This is a good deal with what seems like lots of operational upside as they drill more wells over what will be a. very long time. 

Boosted by the fact that the deal triggers an extra payment from JAPEX which pays for the deal and it is also encouraging to know that both parties agree that the deal is in their best interests not to mention the realisation of $4-5m of locked-in tax.  

Transaction detail
Longboat Norge has signed a sale and purchase agreement (“SPA”) with INPEX Idemitsu to acquire a 9.60% interest in PL 089, equating to a 4.80% unitised interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Sygna Unit, for cash consideration of US$12.75 million (the “Transaction”). In addition, Longboat Norge has entered into a decommissioning security agreement with INPEX Idemitsu and will pay a further deferred, post-tax consideration of US$1.75 million in equal stages over the next 18 months, which will be returned to Longboat Norge after the successful decommissioning of the Statfjord Satellites, currently anticipated in the late 2030s. The Transaction effective date is 1 January 2023.

In addition to the customary regulatory, lender and partner approvals, the Transaction is subject to the successful carve-out of Statfjord Øst and Sygna from PL 089 and the completion of the investment by JAPEX in Longboat Norge, announced on 2 May 2023. Completion of the acquisition of the Statfjord Satellites is anticipated prior to the end of 2023.

Assets overview
Statfjord Øst is located seven kilometres to the northeast of the Statfjord field in a maximum water depth of 190 metres. Statfjord Øst produces oil and gas from good quality, Middle Jurassic sandstone in the Brent Group.

Statfjord Øst began production in 1994 from two subsea production templates and one water injection template tied-back to the Statfjord C platform. The Ministry of Petroleum and Energy approved a redevelopment plan in 2021 to drill five new production wells into potentially undrained areas of the field while also adding gas-lift to increase production levels. This in-fill drilling programme is currently underway and anticipated to last until the end of 2023 and result in a material uplift to production in 2024. The field is currently anticipated to produce until the late 2030s.

In the period to 30 April 2023, Statfjord Øst had gross production of ~5,200 boepd from one well, equivalent to ~250 boepd net to the acquired INPEX Idemitsu working interest.

The Statfjord Øst Unit partners are Equinor Energy AS (43.25%, op), Petoro AS (30.00%), Vår Energi ASA (20.55%), INPEX Idemitsu Norge AS (4.80%) and Wintershall Dea Norge AS (1.40%).

The Sygna field is located just northeast of the Statfjord Nord field in 300 metres water depth. Sygna produces oil and gas from good quality, Middle Jurassic sandstone in the Brent Group. Originally discovered in 1996, the field began production in 2000 from three production wells tied-back via a subsea template to the Statfjord C facility. A long-reach water injection well was also drilled from the Statfjord Nord template. The field is currently anticipated to produce until the early 2030s.

In the period to 30 April 2023, Sygna had gross production of ~1,300 boepd from one well, equivalent to ~60 boepd net to the acquired INPEX Idemitsu working interest.

The Sygna Unit partners are Equinor Energy AS (43.425%, op), Petoro AS (30.00%), Vår Energi ASA (20.995%), INPEX Idemitsu Norge AS (4.32%) and Wintershall Dea Norge AS (1.26%).

Reserves and production
In conjunction with the Transaction, Longboat commissioned ERCE (“ERCE”) to produce an independent, competent persons report (“CPR”) in relation to the Statfjord Satellites, a summary is provided below:

The ERCE CPR values Longboat Norge’s net entitlement 2P reserves in the Statfjord Satellites at NPV10 of US$15.3 million, based on a long-term Brent oil price assumption of US$75.7/bbl (real 2023) and an NBP gas price of 108.4 p/therm. A full copy of the CPR can be found on Longboat’s website (www.longboatenergy.com).

Longboat anticipates the full year 2023 production to be in-line with the levels during the first four months of the year. Production is anticipated to approximately double in 2024 following the completion of the in-fill drilling programme, subject to ultimate well deliverability and success of the gas-lift project. It is Longboat’s intention to provide a more detailed update on 2024 production outlook towards the end of 2023 once the drilling programme is substantially complete.

Profits
For the year ended 31 December 2022, Longboat has estimated the profits to the Company associated with the Transaction to be £5.6 million. Going forward, the Transaction is expected to unlock material tax synergies within Longboat Norge associated with historic corporation tax losses which ceased to be refunded by the Norwegian government following tax changes implemented in 2022. Based on Longboat Norge’s internal estimates, at current commodity price levels the Transaction is anticipated to reach payback in under two years.

Financing
The Transaction and subsequent capital expenditures on the Statfjord Satellites will be funded by a combination of existing cash on hand in Longboat Norge and the pending investment by JAPEX, made up of the initial US$16 million base investment (less repayment of the intercompany loan to Longboat of approximately US$4.75 million) and the additional US$4 million contingent payment previously agreed with JAPEX which will be triggered by the Transaction. A portion of the US$100 million Acquisition Bridge Facility, provided by JAPEX in relation to its investment into Longboat Norge, is also available should it be needed.

Angus Energy

Gas volumes produced and sold from the Saltfleetby Field equalled 6.8 mm therms in aggregate for the months of April, May and June 2023 combined, or an average of 2.3 mm therms per month as against hedged volumes of 1.75 mm therms per month for the quarter.

The new B07T well came online for export on 10 May which resulted in a higher figure of 2.6 mm therms exported during that month.  June saw a full plant shutdown from 19th to 21st which identified issues with the 2nd Compressor engine driver resulting in production with only one compressor for the remainder of the month and yielding export of 2.5 mm therms for June.

We expect the remedial engine maintenance on the 2nd compressor to be completed during the course of this week, returning the field to full flow with all three wells and both compressors.

Peak daily production rates of 9.3 mmscfd were achieved during the quarter, together with a new record hourly flow rate of 10.6 mmscfd.  The average daily production rates for the overall period was 6.8 mmscfd due to the new well only coming into production half way through the quarter.

The new B07T well continues to clean up through the temporary flowline connecting it to the field facilities.  It is still returning small amounts of drilling debris but the quantity continues to diminish with time.  Flow rates from the new well have been in excess of 4.25 mmscfd for extended periods. Construction of the permanent flowline from the well is underway, with a target of end August for commissioning.

Gas condensate (liquid) production averaged 160 bbl/day.

Whilst these historic volume numbers shouldn’t faze the market, the shares have fallen somewhat today which seems totally wrong to me. I recently met with the company and met its new CEO, Richard Herbert and was extremely impressed. 

The operational numbers are in line with expectations which makes the low share price a surprise but right now it”s a symptom of the whole sector which looks amazingly cheap and in some cases carries a proper yield. The patient investors will reap the reward.

Petrofac

Petrofac has been selected by the Abu Dhabi National Oil Company (ADNOC) subsidiary, ADNOC Gas Processing, to undertake a significant new Engineering, Procurement and Construction project at its Habshan Complex.

The contract, awarded to Petrofac Emirates, is valued at approximately US$700 million and involves the Engineering, Procurement and Construction of a new gas compressor plant. Comprising three gas compressor trains, associated utilities and power systems, the new plant will support ADNOC to substantially increase gas output from the Habshan Complex, West of Abu Dhabi.

Tareq Kawash, Petrofac’s Group Chief Executive, said:
“We are thrilled to have been selected by ADNOC, one of Petrofac’s longest-standing customers, to undertake this significant new EPC project in our home market of the UAE. We very much look forward to working together with ADNOC to safely and sustainably develop this critical energy resource.”

Elie Lahoud, Chief Operating Officer, Petrofac Engineering & Construction commented:
“Petrofac has a long and strong track record supporting ADNOC in the UAE, rooted in our steadfast commitment to maximising local delivery, investing in the local supply chain, and developing local teams. This focus on In-Country Value will once again underpin our approach to delivery for ADNOC on the strategically significant Habshan Complex.”

Petrofac first established a presence in the UAE in 1991 and has developed a large workforce to support both regional and international projects. With a commitment to deliver In-Country Value, Emiratisation is a key business priority and Petrofac is actively promoting current career opportunities.

As I wrote the other day I am delighted that PFC is reeling in the contracts and another $700m will do no harm at all. The fact that it is yet another new management at the company means that trust in them from the market will have to be earned and that means winning big orders fair and square and at a proper price with proper margins.  

KeyFacts Energy Industry Directory: Malcy's Blog