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Oil price

Oil is pretty much unchanged today after a week in which the Opec cutbacks had less impact than the rather mixed bag of economic data. 

Jadestone Energy

Jadestone has announced that the final well in the Company’s 2023 East Belumut field drilling campaign offshore Peninsular Malaysia has now been completed.  The overall programme has delivered results significantly ahead of expectations. The Company is also pleased to provide an update on Group production, progress on the Akatara project and recent crude oil liftings.

East Belumut Infill Drilling Campaign (Jadestone 60% working interest and operator)
The fourth and final well in the East Belumut  infill drilling campaign is currently being tested after reaching c.4,600 metres measured depth in the south west of the field. This is approximately 730 metres measured depth more than originally planned, due to the better than expected oil column encountered at the toe of the well, and the longest reach horizontal well ever drilled in the field. Overall, a 1,700 metre horizontal section was drilled in the target formation, aided by successful optimisation of the well trajectory using geo-steering tools. The well is expected to produce at initial rates in excess of 3,500 bbls/d.

Combined with the three wells drilled to date, which are currently producing at an aggregate gross rate of c.7,000 bbls/d, the results of the East Belumut infill campaign have far exceeded expectations, which were for initial gross aggregate rates from all four wells of 3,500 bbls/d. The drilling capex will be cost recovered and pay-back is expected by Q2 2024 next year. The well results are already being used to update the geological model for the East Belumut field, will have a positive impact on reserves, and are likely to provide a number of new infill targets for future drilling campaigns.

Group Production Update
Since the Company’s most recent announcement on 13 November 2023, overall group production performance has continued to be robust, averaging c.20,000 boe/d during this period. The main factors driving this positive outcome are:

• Recent average production of c.7,000 boe/d net (11,200 boe/d gross) from the Peninsular Malaysia assets, in large part due to the success of the infill drilling campaign on the East Belumut field detailed above; and  
• Average production of c.7,500 bbls/d from Montara, based on strong well performance and FPSO uptime. 

Overall, since 1 April 2023, Group production has averaged c.14,900 boe/d, equivalent to an average of c.13,500 boe/d year-to-date. As previously reported, production is now expected to be towards the upper end of the April to December 2023 guidance range of 13,500 – 15,000 boe/d (equivalent to an annual 2023 guidance range of 12,600 – 13,700 boe/d). This incorporates a planned shutdown for one week at Montara in early December for compressor maintenance.

2023 guidance for capex (US$110-125 million) and operating costs are also reiterated.

Akatara
The Akatara development project is currently 87% complete and pre-commissioning activities have commenced, with the project remaining on schedule for first gas before mid-2024. Approximately 1,600 workers are currently on site, with c.3.2 million safe man-hours worked to date on the Akatara project.

The mobilisation of the Elang-1 rig to the Akatara project is now expected in the third week of December 2023 (previously end of November) to workover five existing wells which will provide the raw gas feed into the Akatara Gas Processing Facility. This change in timing will not impact the first gas date. 

Liftings
Since the beginning of Q4 2023, the Company has lifted approximately 1.4 mmboe generating significant revenues.  A further 370,000 boe are expected to be lifted in December, with proceeds expected to be received before year-end.

Paul Blakeley, President and CEO commented:
“The East Belumut drilling programme has proved to be very successful, significantly exceeding our pre-drill expectations and testament to the hard work and enthusiasm of the many people across the business involved in this campaign.  This is our core strategy at work, having acquired the interests in 2021 and now starting to add value through our differentiated view of the subsurface potential.  These results will significantly expand the scope for further infill drilling on East Belumut and I expect will generate a number of well campaigns for the future.

Production performance across the portfolio has been solid recently, underpinned by strong performance in Malaysia and stabilisation of production at Montara.  We will continue to work hard to make this “business as usual” in the future.  At Akatara, the project continues to make good progress and remains on schedule, still comfortably targeting first gas in the first half of next year.”

Slowly but surely Jadestone is regaining the credibility that it had before the months of Montara misery. It is down to the fact that the management had built up a big supply of credit in the bank of investor credibility that it is able to make a trading update like this.

The East Belumut programme is clearly doing way better than expectations, something that has been alluded to recently, the fourth well is clearly going so well that one wonders whether the company’s data before drilling was so wrong, but hell, luck be a lady tonight. 

Elsewhere all remains the same, Akatara is 87% complete and on target for first gas mid next year, Montara is ‘stabilising’ and Malaysia continues to be a ‘strong performer’. Right now for the company it is heads down and do the operational stuff well, find another deal or two and hope that the *** share price picks up…

Petrofac

Petrofac has announced that Aidan de Brunner has today joined the Company as a Non-Executive Director. Aidan brings to Petrofac over 20 years of board, management, investment and financial advisory experience gained across a variety of global businesses.

As the Group pivots to the execution of the new contracts won in 2023, Aidan will commit a significant portion of his time to supporting the Board for a limited period. He will drive engagement with finance providers, investors and other stakeholders in an active review of strategic and financial options to deliver on Petrofac’s potential following its most successful period for new awards in many years.

Strategic and financial options to strengthen balance sheet
The Board is examining a range of strategic and financial options with the objective of materially strengthening the Company’s balance sheet, securing bank guarantees and improving short-term liquidity. A key aim of this review is to protect the interests of Petrofac’s shareholders, creditors and employees while the Group continues its focus on safe and effective delivery for its clients.

Management has been making progress in organic actions to unwind working capital, collect receipts on ongoing and new contracts and to unlock long-outstanding commercial settlements. In addition, Management is considering the sale of non-core assets, and is actively engaged in discussions with financial investors to take a non-controlling position in certain other components of the business portfolio. As part of an overall plan, these transactions would result in a material improvement on the balance sheet. The Company is also exploring potential new financial options across all its classes of capital.

Business update
Operationally, as demonstrated by its backlog growth, the Group continues to deliver well for its clients, and has a healthy Group pipeline scheduled for award in the period to the end of 2024.

The full year free cash flow guidance1 provided with our interim results was based, in part, on unwinding historical working capital and collecting advance payments on the new contracts secured in 2023. While the Group has made progress in reaching contractual settlements and unwinding working capital, given delays in securing advance payment guarantees, it no longer expects to receive these advances before the year-end. Consequently, it no longer expects to meet the guidance previously provided for full year cash flow.

The Group has continued to maintain liquidity above its financial covenant2 and will provide further details in its trading update on 20 December 2023.

Update on performance guarantees
As noted in Petrofac’s H1 results, it is an industry standard contractual requirement to provide Performance Guarantees for EPC contracts. Banking and surety market appetite for the provision of these guarantees in support of the contracts won by Petrofac has reduced, resulting in delays in their provision. Petrofac remains in active discussions with its credit providers to secure the guarantees on the new contracts as well as with the clients of these new contracts. The measures being taken to strengthen the balance sheet are, in part, designed to secure future guarantees.

Group Chief Executive Tareq Kawash commented:
“Petrofac’s underlying business is robust with material growth in our backlog from approximately US$5.5 billion in new awards in new and traditional energy this year. This demonstrates our competitive strength and long-term potential. To deliver on this, we are working hard to address short-term liquidity challenges and strengthen the financial position of the Group. I am grateful for the continued efforts of our people, and the support of our clients and other stakeholders, as we work to deliver a positive future for Petrofac.”

The Chairman René Médori commented:
The Board is fully focused on reviewing a range of strategic and financial options with the objectives of strengthening the Group’s balance sheet and protecting the interests of all our stakeholders. The appointment of Aidan de Brunner reinforces the skills and experience of the Board in support of these efforts.”

Petrofac will issue its pre-close trading update on 20 December 2023.

This is yet another update from PFC whereby a litany of problems pours cold water on the recent details of the really very strong order book and must be an anathema to those out on the ground winning huge contracts.

It is very noticeable that at the very top of this RNS is the announcement of the new NED who will ‘commit a significant portion of his time to supporting the Board for a limited period’. In addition he will ‘drive engagement with finance providers, investors and other stakeholders in an active review of strategic and financial options to deliver on Petrofac’s potential following its most successful period for new awards in many years’. Part time….eh? 

So, a new NED, so not an executive, is going to help with the strategic review which management are going to sort out the problems at Petrofac which include sorting out the free cash flow situation as this report states that the company is going to miss the issued guidance and sorting out the total mess that is the advance payments situation.

To be honest I really thought that PFC had got the non operational, non engineering, problems out of the way which is why in recent months I have got the stock completely wrong and that’s after following the company pretty much ever since it started 40 odd years ago. 

The ultimate irony is that the shares are up the best part of 30% today, a combination of short closing, and the relief that the order book is not only full but growing thanks to those ranks of engineers that have made Petrofac what it is today.

KeyFacts Energy Industry Directory: Malcy's Blog