WTI (Oct) $87.51 +64c, Brent (Nov) $90.65 +73c, Diff -$3.14 -9c
USNG (Oct) $2.60 +3c, UKNG (Oct) 91.0p +5.0p, TTF (Oct) €36.6 +€1.7

Oil price

Oil is steady as although news from China is still indifferent the KSA and Russia have their insurance policy in place.

Union Jack Oil

Union Jack has announced its unaudited results for the Half Year ended 30 June 2023.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

For the six-month period ended 30 June 2023:

• Gross Profit of £1,608,973
• o  Net Profit of £572,263
• Revenue of £3,584,866
• Cash balances, receivables and liquid investments stand in excess of £9,250,000 as at
• 8 September 2023
• Robust Balance Sheet, cash generative and debt free
• All current projects funded for at least the next 12 months without recourse to Capital Markets
• Wressle is amongst the most productive conventional producing UK onshore oilfields with nearly 500,000 barrels of high-quality oil having been produced from the Ashover Grit formation alone
• Wells planned for Keddington, Wressle and West Newton
• Ongoing evaluation of new projects offering short-term cash-flow, rapid payback and accretive value

David Bramhill, Executive Chairman, commented: 
“I am very pleased to be again, able to present to the shareholders of Union Jack, a positive set of Half Yearly results, containing several highlights of note, including a sustained profit, a strong cash position and a robust Balance Sheet free of debt.

“These results reflect the determined effort by the Board of Directors, advisers and technical consultants, all who share the same objective to grow the Company with minimal dilution in the future.

“Union Jack remains in a strong financial position with a combination of consistent cash flows, principally from our flagship asset at Wressle, plus significant future upside potential from our balanced portfolio, giving Union Jack the confidence to support a forward drilling and development programme on our key projects that is being planned for the remainder of 2023 and beyond.

“Union Jack continues to be cash flow positive, covering all current G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months, without recourse to the Capital Markets.

“The future of Union Jack remains bright.”

This is a very good set of results driven by a substantial cash flow from Wressle which is able to fund development of a ‘balanced’ portfolio of assets all of which have exciting prospects. Union Jack’s management are carefully managing to invest in the estate as well as give shareholders a more than reasonable distribution of the proceeds from Wressle.

With these points in mind I’m confident that given that portfolio and current positive onshore economics there is much to look forward to at Union Jack.  

Europa Oil & Gas

Europa has announced that is has completed a preliminary audit of the gross Cloughton gas in place volumes which has resulted in a Pmean GIIP of 192 BCF and a range as detailed in the following table.

Note, it is only statistically correct to sum the Pmean volumes.

The discovery well at PEDL 343 (Cloughton) (in which Europa has a 40% interest) flowed good quality sweet gas at rates of up to 40,000 scf/day on natural flow and the Company believes that that a well could flow at 6 mmscf/day using the correct completion techniques.

Will Holland, Chief Executive Officer of Europa, said:
“Our audit of the subsurface data is progressing well and I am pleased that the in-place volumes are within the range that we were expecting. As previously announced, the technical work continues and we are now looking at a conceptual development plan for the field, which we believe will demonstrate the material potential value of the licence. In parallel with the ongoing subsurface work we are also engaging with the various stakeholders required to obtain the necessary permits and consents needed to drill an appraisal well in order to demonstrate the productivity of the field.

I look forward to further updating shareholders of our progress as we establish a conceptual development plan and progress with the stakeholder engagement.“

Europa shareholders must be delighted that things are moving on apace and that the portfolio is subject to the rigorous attention of the management team. Cloughton is looking most interesting and the discovery has P50 GIIP of 184 Bcf with expected production of some 6,000 mcfd according to the JV partners. 

Management are working hard in the locality and a campaign of planning approvals is expected along with applications and consents to drill the aforementioned appraisal well are part of the local engagement policy. This makes Cloughton an interesting if longer term part of the Europa portfolio which is backing the current attractive valuation of the company.

Arrow Exploration

Arrow has announced the results of its maiden Carrizales Norte reserves evaluation by Boury Global Energy Consultants Ltd. as at August 31, 2023.

All reserves volume figures stated below are solely at the discovery on the  CN field on the Tapir Block in the Llanos Basin of Colombia where Arrow holds a 50% beneficial interest. The Company’s other assets in the Tapir Block, Rio Cravo Este (RCE) and its other license interests, Columbia and Canada, have not formed part of this evaluation. 

All reserves volume figures stated below are on a Working Interest Gross Reserve basis. Currency amounts are in United States dollars, unless otherwise indicated. 

Highlights

CN Proved (“1P”) reserves:

• 1.82 million barrels of oil (“MMbbls“), 
• Net present value before tax, discounted at 10% (“NPV-10”) is $71.2 million for 1P reserves.

CN Proved plus Probable (“2P”) reserves:

• 3.92 MMbbls, 
• NPV-10 is $143.5 million for 2P reserves.

CN Proved plus Probable plus Possible (“3P”) reserves:

• 6.62 MMbbls, 
• NPV-10 is $244.1 million for 3P reserves.

–      Before tax NPV-10 per share of US$0.14/share, US$0.39/share, and US$0.63/share for 1P, 2P, and 3P reserves categories, respectively;

–      BouryGEC post-tax NPVs impacted by changes in Colombian tax regime in the year and exclude the effect of corporate tax shelters (further detail below). 

Marshall Abbott, CEO of Arrow, commented:
“The Carrizales Norte field is a material discovery for Arrow as the reserves report confirms. The Carrizales Norte reserves have doubled the 1P, 2P and 3P total reserves and value of Arrow.  We are pleased with the results of the BouryGEC reserves evaluation, which reinforces the significant value of our Carrizales Norte asset at Tapir.” 

“The 3D program on the west of the Tapir block completed this year has also helped further develop prospects that we feel could show results similar to the Carrizales Norte and Rio Cravo Este fields. The Company plans to explore these prospects in the coming months and years.”

This is a fantastic reserves report by any manner of means and justifies the hard work put in by the Arrow team in the last year or two. The numbers are certainly above what I had been expecting and indeed I would suggest that of the pre-drill estimate given what CEO Marshall Abbott told me today. 

The undoubted star of the show has been the Carrizales Norte which has clocked 3.92 mmbbl on a 2P basis and with a whopping upside 3P of 6.62 mmbbl and the 1p is a. handy 1.82 mmbbl. This gives a valuation of $66.6m post tax NPV rising to $113.7m using the 3P numbers. 

As you can see from the CEO interview with Marshall Abbott which is below, he finishes by comparing that potential value with the market cap, a currency comparable of some $66m, a significant discount in anybody’s book.

Perhaps even more importantly Marshall also explained in some detail about how the drilling programme over the next 18 months is quite mind boggling, especially as in the prolific Ubaque formation where horizontal drilling is going to be prevalent. The format is one and a half times the cost of vertical drilling but gives three times the production, a handy return and gives plenty of upside with some exceptional technical advances. 

Obviously the current programme of wells at RCE, Osso Pardo with two development wells are in the programme and it is worth noting that the seismic data has been processed and the results could not be better. 

It is clear that everything is going according to plan, if not considerably better and it looks like my current Target Price of 50p, which to be fair I have had for a long time is beginning to look somewhat undercooked. I think that in due course it will have to rise and huge increase in the share price is inevitable once the market starts to appreciate the likes of Arrow as it should. 

Core Finance CEO Interview: Marshall Abbott, Arrow Exploration – September 2023

Beacon Energy

Beacon has announced an update on the Schwarzbach-2(2.) (“SCHB-2(2.)”) well.

SUMMARY

• As previously announced, the SCHB-2(2.) well has encountered an excellent 34-metre gross interval containing 28 metres of oil-bearing net reservoirs in the Pechelbronner-Schichten (“PBS”) sandstones within the Stockstadt Mitte segment of the Erfelden field.
• These oil-bearing reservoirs were encountered approximately 25 metres high and 10 metres thicker than prognosis, with porosities averaging 18% in the Lower PBS and 21% in the Upper PBS, with no water-bearing sands in the 42m hydrocarbon column.
• As all these metrics are above or at the top of the range of pre-drill expectations, the likelihood is that this will result in a material upgrade to recoverable reserves  in Stockstadt Mitte and a de-risking of 2.4 million barrels of contingent resources already ascribed to Schwarzbach South.
• Based on these excellent reservoir properties and the light oil recovered, standard oil-industry analysis indicates that an initial production rate in excess of 900 barrels of oil per day (“bopd”) could be achieved. Higher rates of production have been achieved on historic wells in the area.
• Following perforation and acidization, reservoir clean-up operations commenced on Friday 8 September 2023 and since that time the well has produced a mixture of oil, gas and drilling fluids.
• Given delays in the programme the drilling rig must now be released but clean-up of the well will continue on site.
• Commercial production is expected to commence from the well aided by the installation of a rod pump which will have the capacity to deliver up to 250 bopd. This will not require a workover rig. It is expected that once the well is fully cleaned up and this rate has been achieved, the rod pump will be replaced with an Electrical Submersible Pump (“ESP”) which has higher capacity.
• A presentation describing the results of the SCHB-2(2.) is available as an audiocast at https://stream.buchanan.uk.com/broadcast/64fda29b84cbf5eec802cc26 and on the Beacon Energy Website www.beaconenergyplc.com.

FORWARD PLAN

• Installation of the rod pump is expected to be undertaken during October. In the interim period reservoir clean-up will continue into the wellbore.
• Work will commence immediately to quantify expected reserve and resources increases.
• Existing development plans will be updated to reflect learnings from the SCHB-2(2.) well and increased resource base with the aim of accelerating drilling and maximising the value of this highly attractive asset.

Beacon Energy Chief Executive Officer, Larry Bottomley commented:
“The SCHB2(2.) well has been a challenging well from an operational perspective, with hole stability issues encountered in the initial and sidetracked hole sections, however it has encountered an excellent oil-bearing reservoir with thickness and properties that are far in excess of pre-drill prognosis.

The data we have gathered during the drilling of the SCHB2(2.) well indicates the potential for substantial reserve and production upside for the Stockstadt Mitte segment – up to and potentially more than the High Case (5.8 mmbbls) outlined in the Company’s December 2022 CPR which clearly bodes well for the long-term value we believe we can realise from the asset.

We believe this well has the potential to deliver at very high rates and establishing these flowrates through clean-up of the wellbore, and eventual installation of an ESP is now our top priority although we won’t be able to provide definitive guidance on production expectations until we have completed the clean-up and artificial lift solutions. At flow rates of 900 bopd, the Company would expect to deliver operating cash flows in excess of US$1.5 million per month (assuming $80/bbl Brent).

A comprehensive review of the drilling and completion operations and the technical challenges encountered will be undertaken so that lessons learned are incorporated into an updated field development plan.

The data provided from the SCHB-2(2.) well will also be incorporated into a field-wide study to understand the impact on both the risk and quantum of resources in the Schwarzbach South segment, currently assigned 2C contingent resources of 2.4mmbbls which will be targeted during the further development of the Erfelden field.

While the delay to fully understanding the production potential of this well is frustrating, the sub-surface results far exceed our pre-acquisition and pre-drilling expectation and we therefore remain pleased with the overall results of the SCHB2(2.) well and look forward to providing an update in due course.”

Despite the continued operational ‘challenges’ that Beacon has had to overcome and that will delay progress for the time being, the prognosis looks to me to be very good indeed. As CEO Larry Bottomley says above, a 900 bopd rate gives over $1.5m per month and I expect that to be just the start of it.