WTI (Feb) $74.08 +$1.52, Brent (Mar) $79.10 +$1.22, Diff -$5.02 -30c
USNG (Feb) $2.70 -17c, UKNG (Feb) 71.0p -2.67p, TTF (Feb) €28.305 +€0.085

Oil price

The Red Sea geopolitics are just winning over the lowering of expectations with regard to interest rate falls in the US this spring, it should be up on the week. Dav-oh-no has been a complete waste of time as usual. 

BP has appointed Murray Auchincloss as full time CEO after the sacking of Looney and the Bernadettes, more of the same seems to be fine for the BP board but it shouldn’t be for the shareholders who have seen significant underperformance, this won’t change that.

Scirocco Energy

Scirocco notes the announcement yesterday by Reabold Resources plc that it has been informed that the third and final tranche of the payment from Shell U.K. Limited for the sale of the entire issued share capital of Corallian Energy Limited, as announced on 1 November 2022 by Reabold, will be distributed to former Corallian shareholders over the coming days.

https://www.londonstockexchange.com/news-article/RBD/notification-of-final-tranche-of-shell-payment/16293787

In line with its investment policy in 2018, Scirocco undertook a minor investment in Corallian through the subscription for 83,333 shares at a price of £1.50 per share. Scirocco has previously received two payments; an initial payment of c. £67,000 corresponding to £0.80 per Corallian share and a second payment of £108,333 corresponding to £1.30 per Corallian share. Based on the Reabold announcement, Scirocco expects to receive a payment of £91,666 corresponding to £1.10 per Corallian share, bringing the total consideration up to £3.20 per Corallian share, now that Shell has received the Development and Production Consent for the Victory development from the North Sea Transition Authority.

Commenting on the update, CEO Tom Reynolds said:
“We’re pleased to provide this update which adds cash to Scirocco’s balance sheet. The sale of these assets creates optionality for the Company’s ongoing assessment of alternative options and next steps.”

Nothing really to add here, yesterday and today the knock on effects of the Victory deal see payments being made such as this, in this case Scirocco will use it to strengthen the balance sheet and ‘create optionality’ for the company.

Deltic Energy

Deltic Energy, the AIM-quoted natural resources investing company with a high impact exploration and appraisal portfolio focused on the Southern North Sea, presents the results of a Competent Person's Report (or "CPR") in relation to the Pensacola Discovery on Licence P2252 in the Southern North Sea in which Deltic holds a 30% interest.

Following completion of post-well analysis of data collected by the 41/05a-2 discovery well, Deltic commissioned RPS Energy Ltd (or "RPS") to undertake a technical review of the volumes and a commercial review of the Pensacola discovery.  This independent assessment of Contingent Resources builds on the Company's previous estimates of technically recoverable volumes and for the first time illustrates the commercial potential of the Pensacola discovery based on two potential development scenarios - a gas and oil (or "combined") development and a gas only development. A copy of the Summary CPR Report can be found here.

Highlights

• Maiden Contingent Resource estimate completed for the Pensacola Zechstein Reef discovery by RPS, a leading provider of CPR services in the UK
• RPS estimates the Pensacola structure to contain gross P50 Hydrocarbons Initially in Place of 326 MMboe, in-line with Deltic's previous estimate of 342 MMboe
• RPS estimates 2C Contingent Resources, net to Deltic, of 21.8 MMboe in the combined case and 15 MMboe in the gas only case
• Based on the two development scenarios assessed, RPS estimates a 2C Post Tax NPV10 of USD$205M net to Deltic (combined case) and USD$199M net to Deltic (gas only case)
• These project NPV10 valuations equate to approximately 169p - 174p per Deltic share
• Subsequent to the CPR work, appraisal well data from the analogous Crosgan Zechstein discovery has been released that supports the potential for thicker, higher quality reservoir across the crest of Pensacola
• Progress continues to be made on both the Pensacola and Selene farm-out processes with a significant level of interest from industry

Hydrocarbons Initially in Place

Prior to the drilling of an appraisal well, which is currently planned for late 2024, RPS estimates of the Hydrocarbons Initially in Place, as discovered by the 41/05a-2 well, are summarised in the table below.

Possible Developments

Prior to the drilling of the planned appraisal well, a number of uncertainties in relation to the potential development of the oil volumes discovered at Pensacola remain and therefore Deltic provided RPS with two possible development scenarios as summarised below:

• A combined oil and gas development requiring two separate production platforms and six horizontal wells (three gas and three oil producers) with hydrocarbons exported to Teesside via a new pipeline. 
• A lower capex gas only development scenario comprising three horizontal development wells producing via a normally unmanned installation exporting gas through a new pipeline to Teesside.
• Capital and operational costs for both scenarios were estimated for Deltic by S&P Global and reviewed by RPS as part of the CPR process.  The gas only scenario assumes significantly lower capital expenditure than that required to support the combined oil and gas development.

Contingent Resources and Valuation of the Combined Gas and Oil Development

The Contingent Resources (development pending) associated with the oil and gas development scenario for Pensacola as estimated by RPS are summarised in the table below:

Net Present Value ("NPV") estimates as of 1 January 2024 for the combined oil and gas development as calculated by RPS, based on RPS (Q4 2023) long term forecasts for Brent Crude (for oil and condensate sales) and UK National Balancing Point (NBP) for sales gas, are summarised below:

1 Deltic holds a 30% working interest in P2252

Contingent Resources and Valuation of the Gas Only Development

The Contingent Resources (development pending) associated with the gas only development scenario for Pensacola as estimated by RPS are summarised in the table below:

Net Present Value ("NPV") estimates as of 1 January 2024 for the gas only development as calculated by RPS, based on RPS (Q4 2023) long term forecasts for Brent Crude (for oil and condensate sales) and UK National Balancing Point (NBP) for sales gas, are summarised below:

1 Deltic holds a 30% working interest in P2252

The gas only scenario recovers less hydrocarbons than the combined case development but has a significantly lower capital and operational cost base, resulting in similar 2C NPV10 valuations to the combined development scenario.

Post CPR Regional Update

The 41/05a-2 well targeted the flank of the Pensacola structure proving the presence of thinner flank dolomites sourced from the erosion of dolomites deposited up-dip over the crest of the structure.  While thicker, better quality reservoir is predicted to be present updip, the properties of the dolomite reservoir over the crestal part of the field are one of the main uncertainties in the estimate of both hydrocarbons in place and contingent resources for Pensacola.

Following completion of the CPR, the North Sea Transition Authority released summary well information for the Crosgan Zechstein appraisal well drilled in early 2023 by ONE-Dyas, with its JV partner Shell.  Crosgan, located approximately 60km to the east of Pensacola, is highly analogous to the Pensacola discovery and the appraisal well (42/15a-4) drilled on the crest of the Crosgan reef structure is reported to have encountered a Hauptdolomit reservoir that was 140m thick and which flowed at a maximum rate of 26.5 MMscf/day on test. 

These positive well results further support Deltic's view that a thicker, higher quality reservoir is likely to be present across the crest of the Pensacola structure.  The information from the Crosgan offset well will be considered in future volumetric reviews along with additional information collected during the drilling of the Pensacola appraisal well later this year.

Farm-out Process Update

As previously communicated, Deltic continues to work on a number of potential options to both realise value and mitigate exposure to future drilling expenditure on both Pensacola and Selene and has received a significant level of interest. Deltic is continuing to engage with a number of different counterparties in relation to a range of potential transactions on both of these assets and looks forward to updating the market in due course. 

Graham Swindells, Chief Executive of Deltic Energy, commented:    
"RPS's validation of our technical assessment of the Pensacola discovery is another step forward for Deltic as we progress towards drilling the appraisal well in late 2024. In particular, we are pleased with the potential valuation that RPS ascribe to the discovery net to Deltic, particularly within the context of our current share price. It's clear that Pensacola is a regionally significant hydrocarbon accumulation and we will continue to work with our partners at Shell and ONE-Dyas to mature the opportunity and optimise the potential development scenarios as we go forward."

This is a significant report for Deltic and its shareholders in which the competent persons have given pretty much what the management thought what the asset at Pensacola is potentially worth. Net to the company the 2C contingent resource is given as 21.8 mmboe and with multiple development opportunities gives Deltic much to think about as they go about the farm-out process.

Indeed the farm-out options are many and differing, for the two assets, ie Pensacola and Selene there are some interested parties in either of the assets and some potentially in both. Drilling will start later in the year, word has it that  the rig options are nearly finalised and the same rig will drill both wells back to back. 

Deltic is one of the most undervalued shares in the market place and this news can only make this even more attractive once the double drilling programme gets underway. I have given potential valuations in the past and think that now it is worth taking a view on a Target Price. Given the potential reward on offer and with a high quality partner I conclude that 200p a share is easily achievable and could certainly be proved to be parsimonious later in the campaign. This is going to be one hell of a journey…

Prospex Energy

Prospex has provided an operational update from the Podere Maiar-1  well site of the Selva field, which is operated by Po Valley Operations Pty Limited, a wholly owned subsidiary of Po Valley Energy Limited.

Po Valley Energy has a 63% working interest of the Selva Malvezzi production concession, while Prospex has the remaining 37% working interest.

Highlights

• After six months of strong gas production, PVO has confirmed that the well is continuing to perform as expected.
• The commissioning and testing period undertaken by PVO has defined optimal well performance and PVO has confirmed that the testing was successfully undertaken at various production levels.
• Slick line work programmes have been completed to monitor well behaviour and any accumulation of debris.
• Production volumes testing will continue over the next four weeks at ~78,000 scm/d to 80,000 scm/d to be followed by another slick line operation programme before a long-term flow rate is set.
• This confirmatory period allows the PVO team to determine the optimal flow rate to ensure no debris accumulation and to establish the most efficient rate of production for the long term.  As a precaution, a Surface Sand Detector is expected to be installed which will provide added protection to the gas plant.
• Further upside potential at the Selva Malvezzi production concession is advancing at pace, with the operator progressing agreements with local landowners and the permitting process with the regulatory authorities in order to deliver the drilling programmes at Selva North, South and East.

Mark Routh, Prospex’s CEO, commented:
“The operator of our Selva Malvezzi production concession, Po Valley Energy, is continuing with the diligent monitoring and maintenance of the well performance and production facilities to ensure a safe and reliable income stream from the asset.

“Prospex is working together with the Po Valley Energy team and using the production income to progress the necessary activities to secure the development drilling programmes for the contingent resources at Selva North and Selva South and, for the target of converting prospective resources at East Selva into proved, developed and producing reserves in the near term.

It is difficult to tell quite what is happening at Selva apart from that it is, well performance as expected and that ‘The commissioning and testing period undertaken by PVO has defined optimal well performance and PVO has confirmed that the testing was successfully undertaken at various production levels’.

So, all as expected then…

KeyFacts Energy Industry Directory: Malcy's Blog