WTI (Feb) $71.65 -12c, Brent (Mar) $77.04 -$1.35*, Diff -$5.39 +$1.23*
USNG (Feb) 2.51 -5c, UKNG (Feb) 81.42p -2.58p*. TTF (Feb) €32.405 -€0.485*.
*Markets closed yesterday.

Oil price

Oil opened up sharply this morning after more shenanigans in the Red Sea where US ships intercepted missiles from Houthi rebels aimed at merchant shipping. After this Iran announced that it was sending a ship which rather panicked markets. Since then a drift has taken place and oil is down a touch. 

Diversified Energy Company

Diversified has announced that it has closed an innovative transaction that has allowed the Company to unlock additional value from its current asset base at an attractive multiple while further enhancing liquidity and reducing leverage.

In summary, the Transaction consisted of the Company executing a sale of producing assets in Appalachia to a Special Purpose Vehicle in which Diversified retained a 20% minority interest and operatorship of the Assets. The Transaction generated proceeds to the Company of approximately $200 million, comprised of an Asset Backed Securitization placed at the SPV and a sale of an 80% equity interest in the SPV for approximately $30 million.  Proceeds (net of transaction-related costs) were used to repay outstanding borrowings under the Company’s Sustainability-Linked Loan (revolving credit facility), resulting in an approximate 12% reduction in net debt, and for general corporate purposes.

The implied valuation of the Transaction represents a multiple of 5.7 times the expected hedged 2024 EBITDA of approximately $35 million.  The sold Assets owned by the SPV were previously included as collateral on the Company’s Sustainability-Linked Loan and had a PV-10 of approximately $230 million (gross production ~50 MMcfe per day) based on forward looking commodity prices, which resulted in the borrowing base for the Company’s revolving credit facility being redetermined to $305 million.

Rusty Hutson, Jr., CEO of the Company, commented: 
“This latest transaction further demonstrates the attractiveness of Diversified’s asset base that provides reliable production and consistency of cash flows. At an attractive multiple, this Transaction has provided a path for the Company to unlock additional value from our assets, reduce our outstanding debt, and enhance our liquidity.”

This disposal to the SPV keeps DEC with a meaningful stake of 20% and also operatorship of the producing assets in Appalachia. In the transaction the company has reduced its debt and  generated proceeds to the Company of approximately $200 million, comprised of an Asset Backed Securitization placed at the SPV and a sale of an 80% equity interest in the SPV for approximately $30 million. 

This deal is a smart if slightly complicated structure but one which means that the proceeds will reduce net debt by some 12% and add to the general corporate purposes of the company. DEC continues to show appeal as it structures according to the market place, the management is very smart indeed. 

Union Jack Oil

Union Jack has provided its summary of the Competent Person’s Report for the Wressle field and Broughton North Prospect, dated 31 December 2023, prepared by ERC Equipoise Ltd.

The Executive Summary from ERCE’s Report has been published on the Company’s website www.unionjackoil.com.

Union Jack holds a 40% economic interest in PEDL180 and PEDL182.

HIGHLIGHTS

• 263% increase in 2P Reserves compared to 2016 CPR
• Reclassification of 1,883 mboe in Penistone Flags Contingent Resources to 2P Reserves
• 59% upgrade to the Ashover Grit and Wingfield Flags Estimated Ultimate Recoverable (“EUR”)
• 23% upgrade to Broughton North Prospective 2U Resources

David Bramhill, Executive Chairman of Union Jack commented: 
“Based on the information contained within the Wressle CPR, a 263% increase in 2P Reserves is indicated.

“Today’s announcement marks the successful conclusion of the detailed technical programme that has been undertaken on Wressle and the wider PEDL180 and PEDL182 licence areas. This comprehensive programme has involved the reinterpretation of the reprocessed 3D seismic, integration of the results of the well testing programme and production data developed in the period to July 2023.

“The additional data and enhanced understanding have led to the material upgrades in the Reserves of the Ashover Grit, Wingfield Flags and Penistone Flags, and the increase in Broughton North’s Prospective Resources.

“The increase in Wressle’s Reserves vindicates the focus by the JV partners management of the field’s production to maximise recoverable volumes. This provides further support to the development approach we have undertaken to date.

“The installation of artificial lift on the Wressle-1 well marked the start of the next phase of Wressle’s development, which will also focus on the export of gas production to the UK National Transmission System, recently approved by the JV.

“Following the identification of the material increase in Reserves and Resources, we look forward to 2024 with enthusiasm, where we expect to be able to continue to crystallise the potential additional value of Wressle for the benefit of UJO’s shareholders.”

This is a very impressive reserves report indeed, 2.373 mmbbls of 2P gross reserves weighing in at a 263% increase proves that the reinterpretation of the reprocessed 3D seismic, integration of the results of the well testing programme and production data developed in the period to July 2023 was very much worthwhile. 

But it is not just Wressle that has made gains, the wider PEDL 180 and 182 have also proved extremely value added as the data and ‘enhanced understandings’ have led to material upgrades in the Reserves of the Ashover Grit, Wingfield Flags and Penistone Flags, and the increase in Broughton North’s Prospective Resources.

I have said it before and will say it again, Wressle is the gift that keeps on giving, but this time one can add that a great deal has been given by a very tough interrogator of the data and that the chance to also add the export of gas production through the UK NTS which adds value to all of the players in the partnership.

At 20.5p the shares have, like most others in the sector fallen but a modest bounce like today should only be the start, Union Jack, armed with this most powerful weapon should see a significant bounce once investors realise that this is an attractive capital and income play.

Competent Person’s Report

ERCE has made an independent estimate of the hydrocarbon Reserves and Resources (Contingent and Prospective) associated with Wressle and the Broughton North Prospect, located in onshore licences PEDL180 and PEDL182 on the western margin of the Humber Basin in Lincolnshire.

The CPR was prepared on behalf of the Operator, Egdon Resources U.K. Limited, Union Jack and Europa Oil & Gas Limited.

In the preparation of the Report, ERCE has adopted the June 2018 SPE/WPC/AAPG/ SPEE/SEG/SPWLA/EAGE Petroleum Resources Management System (“PRMS”) as the standard for classification and reporting. A glossary of all technical terms used is included in the Report.

ERCE has produced the CPR as at 30 June 2023 (the “Effective Date”). The Report was based on information provided by the Operator up to 24 July 2023, which has included updated seismic interpretations and production data.

Estimates of recovery factors were prepared, based on consideration of the results of production performance analysis, reservoir simulation models, classical reservoir engineering calculations and the performances of analogue fields. ERCE has derived independent estimates of Reserves and prepared forecasts of production of oil and gas.

Production profiles have been generated by ERCE for both Reserves and Contingent Resources. The forecasts generated for Reserves have then been used as input to an economic model to undertake an Economic Limit Test (“ELT”) and assess commerciality. The economic model has been provided to ERCE by the Operator and has been reviewed by ERCE to confirm the fiscal regime is correctly represented.

Wressle Gross Oil and Gas Reserves (mboe)

Source:  Union Jack

Wressle Gross Oil and Gas Reserves: Ashover Grit and Wingfield Flags (mboe)

Source:  Union Jack

Wressle Gross Oil and Gas Contingent Resources and Reserves: Penistone Flags (mboe)

Source:  Union Jack

Broughton North Oil and Gas Prospective Resources

The Broughton North prospect lies within Licence PEDL180 and is located immediately northwest of the Wressle field, across a northeast-southwest trending fault. The majority of the prospect is covered by the same 3D seismic survey that covers the Wressle field.

Broughton North Gross Oil and Gas Prospective Resources (mboe)

Source:  Union Jack
Note:      1 barrel of oil equivalent (“boe”) is equal to 5,714scf of natural gas

Europa Oil & Gas

Europa has provide summary details from a Competent Person’s Report for the Wressle field  and Broughton North Prospect, dated 31 December 2023, prepared by ERC Equipoise Limited.

ERCE’s summary of the findings of the Wressle CPR has been published on the Company`s website www.europaoil.com

Europa holds a 30% economic interest in PEDL180/182. All figures are in gross terms, unless otherwise stated.

HIGHLIGHTS

• 263% increase in 2P Reserves compared to 2016 CPR
• Reclassification of 1,883 mboe in Penistone Flags Contingent Resources to 2P Reserves
• 59% upgrade to the Ashover Grit and Wingfield Flags Estimated Ultimate Recoverable (“EUR”)
• 23% upgrade to Broughton North Prospective 2U Resources

Wressle Competent Person’s Report

ERCE has made an independent estimate of the hydrocarbon Reserves and Resources (Contingent and Prospective) associated with Wressle and the Broughton North Prospect, located in onshore licences PEDL180 and PEDL182 on the western margin of the Humber Basin in Lincolnshire.

The CPR was prepared on behalf of Egdon Resources U.K. Limited, Union Jack Oil plc and Europa.

In the preparation of the Report, ERCE has adopted the June 2018 SPE/WPC/AAPG/ SPEE/SEG/SPWLA/EAGE Petroleum Resources Management System (“PRMS”) as the standard for classification and reporting. A glossary of all technical terms used is included in the Report.

ERCE has produced the CPR with an effective date of 30 June 2023. The Report was based on information provided by the Operator up to 24 July 2023, which has included updated seismic interpretations and production data.

Estimates of recovery factors were prepared, based on consideration of the results of production performance analysis, reservoir simulation models, classical reservoir engineering calculations and the performances of analogue fields. ERCE has derived independent estimates of Reserves and prepared forecasts of production of oil and gas.

Production profiles have been generated by ERCE for both Reserves and Contingent Resources. The forecasts generated for Reserves have then been used as input to an economic model to undertake an Economic Limit Test (“ELT”) and assess commerciality. The economic model has been provided to ERCE by the Operator and has been reviewed by ERCE to confirm the fiscal regime is correctly represented.

Wressle Gross Oil and Gas Reserves (mboe)

Source:  Europa Oil & Gas

Wressle Gross Oil and Gas Reserves: Ashover Grit and Wingfield Flags (mboe)

Source:  Europa Oil & Gas

Wressle Gross Oil and Gas Contingent Resources and Reserves: Penistone Flags (mboe)

Source: Europa Oil & Gas

Broughton North Oil and Gas Prospective Resources

The Broughton North prospect lies within Licence PEDL180 and is located immediately northwest of the Wressle field, across a northeast-southwest trending fault. The majority of the prospect is covered by the same 3D seismic survey that covers the Wressle field. 

Broughton North Oil and Gas Gross Prospective Resources (mboe)

Source:  Europa Oil & Gas

Will Holland, Chief Executive Officer of Europa, said:
“I’m very pleased to announce the material 263% upgrade in 2P reserves at Wressle, which marks the completion of an extensive and detailed independent technical evaluation of Wressle and the surrounding prospectivity. The ERCE evaluation included the reprocessed 3D seismic and the historical production performance at Wressle, which has refined the original 2016 CPR and has led to the significant upgrades in the recoverable reserves of the Ashover Grit, Wingfield Flags and Penistone Flags, and the increase in Broughton North’s Prospective Resources. With NSTA approval for the FDP, I look forward to updating the market during 2024 as we seek to progress the field development and continue to realise the value of the field.”

The comments I have made above for UJO apply to Europa just as much and the discount to potential NAV indicates a highly attractive risk reward proposition and there is much more to EOG than just this onshore part of the portfolio.

But for those other parts that I dealt with in the last RNS from Europa the news today is without doubt the icing on the cake. With the changes that the CPR makes that add the value I mentioned above the guidance appears to be that revenue from Wressle will more than cover ‘ any capital requirements across the portfolio’ and the company brokers imply a current enterprise value of just $9m today. 

This should make for happy reading for Europa shareholders and with a really decent addition today to the portfolio which has upside in a number of areas the shares are also phenomenally cheap, the risk/reward proposition as I said is excellent.A presentation with further details can be found on the Company’s website.

In addition, the Company is holding a webcast for retail investors tomorrow, Wednesday, 3 January 2024 at 2.30 p.m. (GMT). The presentation will be hosted on the Investor Meet Company (“IMC”) platform and is open to all existing and potential shareholders. Questions can be submitted pre-event via your IMC dashboard up until 9.00 a.m. the day before the meeting or at any time during the live presentation. Investors can signup for free and add to meet Europa via: https://www.investormeetcompany.com/europa-oil-gasholdings-plc/register-investor

I  looking forward to the IMC presentation at 2.30 tomorrow which I will be on primarily to hear chapter and verse on the recent EG asset I mentioned above. The new asset has a huge amount of upside and the broker report I mentioned sees all the upside there. 

United Oil & Gas

United has announced an update on the ASD S-1X exploration well on the ASD South prospect in the Abu Sennan licence, onshore Egypt. United holds a 22% working interest in the licence, which is operated by Kuwait Energy Egypt (“KEE”).

Summary 

As communicated on 18 December 2023, the ASD S-1X exploration well commenced drilling on 11 November and reached a total depth of 3450 metres on 12 December, ahead of schedule and under budget.

Petrophysical analysis of logs indicated the presence of a total of 9.5 metres of net pay across the prospective section of the well, which included 6 metres of net pay within the primary Abu Roash C (AR-C) reservoir.

The well has now been completed as a single completion in the AR-C reservoir and successfully tested oil on four choke sizes as follows:

These preliminary test flow rates for the AR-C reservoir are in line with pre-drill expectations. 

Based on these test results, notice of a commercial discovery and an application for a development lease at ASD South will be soon submitted to Egypt General Petroleum Corporation by the operator, KEE. Production is expected to commence shortly after approvals are granted and facilities are put in place.

United Chief Executive Officer, Brian Larkin commented: 
“We are pleased with the successful drilling of the ASD S-1X exploration well and these promising initial well test results. Whilst the initial flow test rates are very encouraging, we await well pressure data from further, long-term testing before we can determine the expected longer-term flow rates from this well and we will provide a further update in due course. This discovery opens a new area of the licence and the operator will now submit a notice of commercial discovery and an application for a development lease at ASD South.  New production facilities will need to be built before the well enters production.

Despite this success, it’s important to acknowledge the challenging macroeconomic conditions in Egypt and the persistent difficulty the Company faces in repatriating funds from the country. We remain committed to collaborating with our local Egyptian stakeholders, EGPC, and the operator KEE to navigate and address these challenges.

This well appears to have come in successfully, I say appears as although the initial flow rates are ‘very encouraging’ as there is much to be done to take full advantage of the discovery. Amongst them are the Egyptian economy and repatriation of funds. 

Elsewhere the problems need to be sorted including Jamaica and some other geographies such as the North Sea. 

KeyFacts Energy Industry Directory: Malcy's Blog