WTI (May) $81.35 -27c, Brent (May) $86.09 -16c, Diff -$4.74 +11c
USNG (May) $1.72 -7c, UKNG (May)* 69.05 -0.45p, TTF (May)* €28.025 + €0.9
*Denotes expiry of the April contract.

Oil price

Much has been written already but I intend to look at the month and the quarter next week. This, short week has seen a mixed bag and even today the price has rallied. With today being the last trading day of the week, month and quarter and ahead of a long holiday weekend and an Opec meeting next week no self respecting trader is going to have an uneven book. 

Arrow Exploration

Arrow has announced the results of its 2023 year-end reserves evaluation by Boury Global Energy Consultants Ltd and an operations update.

All reserves volume figures stated below are on a Working Interest Gross Reserve basis. Currency amounts are in United States dollars and comparisons refer to December 31, 2022.

Highlights

Proved (“1P”) reserves:

• Increased by 57% to 5.29 million barrels of oil equivalent, driven principally through the discovery of the Carrizales Norte field and successfully drilling the Rio Cravo Este field, both on the Tapir Block, Colombia;  and
• Net present value before tax, discounted at 10% (“NPV-10”) is $134.88 million ($25.51/boe) for 1P reserves.

Proved plus Probable (“2P”) reserves:

• Increased by 54% to 11.8 MMboe; 
• Before tax NPV-10 is $280.22 million ($23.66/boe) for 2P reserves.

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

• Increased by 53% to 17.8 MMboe;
• Before tax NPV-10 is $445.02 million ($24.98/boe) for 3P reserves.

–   Before tax NPV-10 values have increased 133% for 1P and 120% for 2P, over year-end 2022, due to reserves growth and notwithstanding decreases in the oil price forecast used by BouryGEC at year-end 2023.

–    2023 Proved Developed Producing (“PDP”) reserves decreased by 5.9% to 1.23 MMboe from 1.31 MMboe in 2022. This is mainly due to the Capella field being temporarily shut down. Nonetheless, PDP reserves represent 23% of 1P reserves, reflecting an attractive ratio of base production to low-risk drilling targets;

–  Before tax NPV-10 per share of US$0.47/share, US$0.98/share, and US$1.56/share for 1P, 2P, and 3P reserve categories, respectively;

–  Find and Develop cost of US$5.41/boe, US$2.42/boe, and US$1.61/boe for 1P, 2P, and 3P reserve categories, respectively;

–  Reserves recycle ratio is at good levels of 5.1 for 1P, 9.2 for 2P and 12.9 for 3P; and

–  The post tax NPVs set out in the BouryGEC report reflect changes in the Colombian tax regime during the year but not certain corporate tax shelters resulting from capital expenditures which do not have reserves implications, such as the Tapir 3D seismic project.

Marshall Abbott, CEO of Arrow, commented:
“Our exciting growth story continues, backed by strong demand we are pleased to bring forward further material reserve increases from our extensive acreage in Colombia. Arrow delivered significant increases in volumes and pre-tax values of 1P, 2P and 3P reserves in 2023, due to the Carbonera and Ubaque discoveries at Carrizales Norte and successfully drilling at Rio Cravo Este, which exceeded expectations. Reserves replacement ratios amounted to 343% 1P and 624% 2P. We are pleased with the results of the BouryGEC reserves evaluation, which reinforces the significant value of our Colombian and Canadian assets.

The BouryGEC 2023 report does not take into account the current drilling campaign at Carrizales Norte where CN-5, CN-6 and CN-7, drilled in Q1 2024, are in various phases of development. CN-8 will spud within the next few weeks to test a material extension to the north of the existing Carrizales Norte development. Given the encouraging results to date, we expect further reclassifications and increases in reserves. 

Furthermore, the imminent drilling of the Carrizales Norte horizontal wells into the thick Ubaque reservoir, if successful, is expected to result in a step change in production and lead to booking of substantial additional reserves.

Arrow’s prospect inventory is multifaceted and supports the hydrocarbon density of the Tapir block in the fertile Llanos Basin. We look forward to a successful drilling campaign on a fully funded $45MM capital budget that is weighted towards infill and development wells”.

This reserves report was as good as it was expected to be, Arrow is in a very strong position with its outstanding portfolio in Colombia. The 11/11 last year has given up  ‘material reserve increases’ in this report and from both the Carrizales Norte and the Rio Cravo Este which is not only highly encouraging but also ‘exceeded expectations’. 

Perhaps the most telling figures, amongst many on show today are of reserves replacement ratios of 343% for 1P and 624% for 2P. It should also be remembered that this report does not include any of the wells in thew highly successful ongoing drilling campaign at Carrizales Norte including the CN-5, CN-6 and CN-7 as well as the upcoming CN-8. And given the encouraging results to date, the market should ‘expect further reclassifications and increases in reserves’. 

Given that the company may well publish an interim update which will include the wells above, there is much to be confident about for ongoing valuations and with these flow rates already announced numbers will continue to rise. And the 15 well drilling campaign for this year, budgeted and board approved  is fully funded from cash and revenues and there is much to look forward to. 

There is another particularly exciting prospect to add to the Arrow story which is about to unfold and that is the prospect of a horizontal drilling campaign in the Ubaque which is ‘tailor made for such drilling’ and where a made to measure pad is being built and nearly ready for action. It goes without saying that whilst the cost of drilling these wells is higher, the reward is even greater and I would expect at least two horizontals to be drilled starting in Q2.

I was very lucky that a few weeks ago I spent a week in Bogota as a guest of the Arrow board, the best news about this announcement today is that I can now go ahead and publish the second part of of the time I had in Bogota.

Arrow has had a very god run and the shares have risen by some 40% in the last few months but I am convinced that the shares have a great deal of upside from here and will remain in pride of place in the upcoming Bucket List. 

2023 Year-End Reserves Summary

Management has presented below a summary of Arrow’s reserves as at December 31, 2023, on a working interest gross reserves basis, which have been estimated by BouryGEC, an independent qualified reserves evaluator, in a reserves report with an effective date of December 31, 2023.  The figures in the following tables have been prepared in accordance with the standards contained in the most recent publication of the Canadian Oil and Gas Evaluation Handbook (the “COGEH”) and the reserves definitions contained in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). In addition to the summary information disclosed in this announcement, more detailed information will be included in Arrow’s annual reserves evaluation for the year ended December 31, 2023 to be filed on SEDAR (www.sedar.com) and posted on Arrow’s website (www.arrowexploration.ca).

After tax values have been calculated without taking into account the tax shelter created by capital spending on projects that do not have reserve values associated with them, such as the Tapir 3D seismic project, drilling at Carrizales Norte and annual G&A. Spending on these projects will provide a tax shelter and result in a reduction in future income tax payments.

Brent Crude Oil Price and AECO Gas Price Forecasts in BouryGEC Reserves Evaluation

Year-End Working Interest Gross Reserves – Breakdown by Category and Country (Mboe)

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

(1)      “Core” assets include Arrow’s share of reserves in the Tapir Block (including Mateguafa) and the Santa Isabel Block (Oso Pardo). Arrow’s 50% interest in the Tapir Block is contingent on the assignment by Ecopetrol SA of such interest to Arrow. 1P Reserves relate to the Tapir license to 2028, 2P reserves relate to the Tapir license to 2033 and 3P reserves relates to the Tapier license to 2038.

(2)      “Non-core” assets include the Ombu Block (which includes the Capella Field)

(3)      “Canada” assets include Fir and Pepper

Year-End Net Present Value at 10% – Before Tax ($ Thousands)

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Year-End Net Present Value at 10% – After Tax ($ Thousands)

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

Forecast Revenues and Costs – Undiscounted ($ millions)

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

(1)      BT = Before Taxes and AT = After Taxes
(2)      Operating Cost less processing and other income
(3)      Revenue includes Petrolco Income

2023 Year-End Working Interest Gross Reserves Reconciliation (Mboe)

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves. 

Operations Update

CN-5
The CN-5 well was spud on February 8, 2024, and reached target depth on February 14, 2024. CN-5 was the first well drilled into the west Carrizales Norte field and results from this well have confirmed the productive potential of the multi-pool field. The well was drilled to a total measured depth of 9,205 feet (8,715 feet true vertical depth) and encountered a thick hydrocarbon-bearing interval in the Ubaque formation.

Arrow completed the final test on the CN-5 well in the Ubaque formation which has approximately 45 feet of net oil pay. The pay zone is a clean sandstone exhibiting consistent 25% porosity (permeability of 5 to 6 Darcies) and high resistivities. An electric submersible pump (ESP) has been inserted in the well after perforating.

The well was perforated in the top 12 feet of the Ubaque formation and initial flow rates were very encouraging.

The oil from the CN-5 well has an API gravity of 13.6°. The ESP is being restricted at the lowest setting of 30Hz with a choke size of 48/128 to properly evaluate the water cut. Currently, the well is being produced at an average rate of 350 BOPD gross (175 BOPD net) with a water cut of 8%.

The testing results indicate the well is capable of higher rates and the longer term flow rate will be determined in the first weeks of production.  Gradual production ramp up is intended to prevent premature water breakthrough and adds to ultimate oil recovery.  

Initial production results are not necessarily indicative of long-term performance or ultimate recovery.  

CN-6
The Company spud the CN-6 well on February 26, completed it in the Carbonera C7 formation, and has been put into production. The well penetrated a 16 ft pay zone in a high quality upper Carbonera C7 sand, with a porosity of 27%. The well is currently flowing, with an ESP, at 220 BOPD gross (110 BOPD net) of 33.2° API gravity.  Water cut for the CN-6 well tested at 71%.  As reservoir stewards, the Company will conservatively produce at rates that allow for maximum oil recoveries and optimal production rates.

Initial production results are not necessarily indicative of long-term performance or ultimate recovery. 

The Ubaque and Gacheta formation were not tested in the CN-6 well. 

CN-7 and Pads Construction

CN-7 was spud on March 19 and has reached total depth of 9,847 feet. Well logs are very encouraging and confirm pay zones in the Carbonera, Gacheta and Ubaque formations. The well will be put on-stream in the next few weeks. The rig will then be skidded 25 meters to the CN-8 location which is targeting a material extension northward in the Carbonera C-7, Gacheta and Ubaque reservoirs.

Construction continues on the CN B Pad (horizontal pad) and the Baquiano pad.  The CN B pad is now ready to receive a drilling rig.  Arrow expects the Baquiano pad will be ready in April with the expectation that it will spud in Q3 2024. 

Arrow expects to spud the first horizontal well from the CN B Pad in Q2 2024 to further develop the Ubaque reservoir in the Carrizales Norte field.  Current projections are that horizontal wells will take approximately one month to drill and put on production.

Oso Pardo

The Company has decided to defer its stimulation plans in the Oso Pardo wells to prioritize time and resources in the Tapir drilling program. Further updates will be provided when available.

Production and Cash Balance

The Company’s current production is approximately 2,900 boe/d.  The company has experienced some minor production disruptions caused by drilling operations at the CN field development and water disposal requirements at the RCE field.  These minor disruptions are expected to be resolved quickly.

The Capella field, where Arrow has a non-operated 10% interest producing net approximately 280 BOPD, continues to be offline.  After discussions with the Operator, the Company hopes that partial production will resume in Q3, 2024.

Arrow currently has approximately $12 million cash in the bank and no debt.  The Company expects that the remainder of the 2024 capital program will be funded by cash on hand and operating cash flow. 

San Leon Energy

San Leon notes the announcement made on 27 March 2024 by Decklar Resources Inc. in Canada.  San Leon has a 11% shareholding in Decklar Petroleum Limited, the local subsidiary of Decklar operating in Nigeria, and has also made a US$5.5 million loan to DPL, via 10% per annum unsecured subordinated loan notes.

As most recently stated in its announcement on 30 November 2023, San Leon continues to explore a potential sale of its non-core investments in DPL, although any completion remains subject to the proposed purchaser finalising its own funding arrangements. A further announcement will be made in relation to this at the appropriate time.

Part of the text of Decklar’s announcement is set out below:

• Decklar Resources Inc. and its co-venturer Millenium Oil & Gas Company Limited announce continued crude oil injection volumes from the Oza Oil Field through the Trans Niger Pipeline to the Bonny Export Terminal.
• Decklar and Millenium sell additional crude oil production from the Oza Oil Field to a local refinery in Edo State.

Decklar Resources and its co-venturer Millenium Oil & Gas Company Limited are pleased to announce ongoing crude oil injection volumes into the Trans Niger Pipeline for transport to and export from the Bonny Export Terminal from the Oza Oil Field and continued sales to a local refinery in Edo State.

Delivery of Crude Oil from the Oza Oil Field

Decklar and Millenium have injected over 18,400 barrels of crude oil into the TNP for transport to the Bonny Export Terminal thus far in 2024. Decklar and Millenium have injected a total of 34,600 barrels of crude oil into the Bonny Export Terminal from commencement of TNP pipeline operation in late 2023. Crude oil production from the Oza Oil Field through the TNP to the Bonny Export Terminal is being sold to Shell Western Supply and Trading Limited (“Shell”). Crude oil held in storage at the Oza Oil Field and crude oil being produced into storage tanks from the Oza-1 and Oza-4 wells is being transported by truck a short distance in-field to the transfer pumping station at the Oza Oil Field for injection into the TNP. The first crude oil export cargo of 15,000 bbls to Shell was loaded on board a vessel with a bill of lading date of February 7, 2024, with sales proceeds expected in the last week of March. Decklar and Millenium are expecting another crude oil export nomination notice from Shell before the end of March 2024 for the export of another 15,000 barrels of crude oil currently held in the Bonny Export Terminal tanks.

In addition, total deliveries to date in 2024 to the Edo refinery totalled over 15,000 bbls.”

Whilst they have plenty on their plate this is good news from SLE, Decklar in whom they have a stake and a loan to are increasing production into the TransNiger pipeline and getting respectable sales.

Union Jack Oil

Union Jack has announced, further to its announcement dated 11 March 2024, that the Company has been informed by the Operator, Reach Oil & Gas Company Inc, that the drilling rig is on location and that the Andrews-1-17 well has now spudded.

The Andrews-1-17 well will test the West Bowlegs Prospect, located in Seminole County, Oklahoma, USA in which Union Jack hold a 45% working interest:

• Andrews-1-17 well has a geological chance of success estimated by the Operator to be 75%
• Approximate ten-day drilling period to a depth of 5,200 feet
• Completion time is swift, estimated at approximately a further eight days including perforating and flow-back, if successful

A further update will be given following the Andrews-1-17 well reaching its intended total depth of 5,200 feet, prior to the commencement of wireline logging operations, completion, perforation and testing, if successful.

Good news for UJO that the Andrews-1-17 well has spudded and we can expect 10 days of drilling plus 8 of completion before we know the result. As before I can say that this course of action from UJO is pretty smart, with this sort of money to invest and a better environment to do it in the opportunity to make a return on its investment in a pretty short is very wise.

Coro

Coro notes the announcement released by Conrad Asia Energy Ltd, the holder of a 76.5% operated interest in the Duyung Production Sharing Contract, offshore Indonesia, in which the Group has a 15% interest.  

In its announcement, the Operator provided an update in respect of, inter alia, Mako Gas Field reserves and resources as of 31 December 2023 following receipt by the Operator of an updated reserves and resources report prepared by Gaffney, Cline & Associates (Consultants) Pte Ltd in which GCA has updated its assessment of resources for current expectations of Final Investment Decision and production commencement delay. The Update Report follows an earlier 1st July 2022 GCA reserves and resource report. 

As approved by the Indonesian regulatory authority SKK Migas in 2022, the Operator proposes a two-phase development plan based on six initial development wells tied back to a leased production platform at the Mako gas field, with sales gas transported via the West Natuna Transport System (“WNTS”) pipeline to Singapore for sale to the Singapore market, and potentially to the Indonesian domestic market via a yet-to-be constructed spur from the WNTS. Two further development wells are planned 3 years after first gas. The development plan proposes a plateau production of 120 MMscfd for 3.5 (Low case), 6.5 (Best case), or 11.5 (High case) years.

Update Report

The revised estimates of gross (full field – 100%) recoverable dry gas as of 31 December 2023 per the Update Report are:

Consequently, the net attributable to Coro 2C resources are reduced from 42.1 to 36.6 Bcf gas.

Revisions pertain to the revised FID timing and delay in Mako field production startup until mid-2026.

The full field resources above are classified as contingent.

Gas volumes are expected to be upgraded to reserves once select commercial milestones have been achieved, including execution of a Gas Sales Agreement and a Final Investment Decision.

Notes 

1.  Gross field Contingent Resources are 100% of the volumes estimated to be recoverable from the Mako Field in the event that it is developed in accordance with the approved plan of development.
2.  Net Contingent Resources represent Coro’s actual net entitlement under the terms of the PSC that governs the asset.
3.  The volumes presented in the table above are “unrisked” in the sense that no adjustment has been made for the risk that the asset may not be developed in the form envisaged.
4.  Last economic production year prior to the Duyung PSC expiry date for 1C, 2C and 3C is 2033, 2036 and 2036, respectively. Without considering the Duyung PSC expiry date, 2C and 3C can be produced commercially up to 2037 and 2041 respectively.

Coro announces that binding Key Terms have been agreed for the sale and purchase of the domestic portion of Mako gas with PT Perusahaan Gas Negara Tbk, the gas subsidiary of PT Pertamina (Persero), the national oil company of Indonesia.

Under these binding Key Terms, Conrad, the operator of the Duyung PSC, and PGN will agree in good faith and sign a fully termed Gas Sales Agreement for the domestic portion of the gas produced from the Mako field located in the Duyung Production Sharing Contract in the West Natuna Sea, offshore Indonesia. Coro has a 15% working interest in the PSC.

This domestic GSA will be subject to the construction of the pipeline connecting the West Natuna Transportation System with the domestic gas market in Batam, and it forms part of the Domestic Market Obligation as set out in Mako’s revised Plan of Development. The GSA with Sembcorp Gas Pte Ltd, announced by the Company on 12 September 2023, sits alongside this domestic GSA and will cover the majority of  Mako sales gas volumes.

There is no comment at all from Coro here, as such I can add little but one can detect something from the Empyrean words below.

Empyrean Energy

Empyrean has noted the announcement released by Conrad Asia Energy Ltd, the holder of a 76.5% operated interest in the Duyung Production Sharing Contract, offshore Indonesia, in which Empyrean has an 8.5% interest.  

Conrad has announced that it has entered into binding Key Terms for the sale and purchase of the domestic portion of Mako gas with PT Perusahaan Gas Negara Tbk (“PGN”), the gas subsidiary of PT Pertamina (Persero), the national oil company of Indonesia. Under these binding Key Terms, Conrad and PGN will agree in good faith and sign a fully termed Gas Sales Agreement for the domestic portion of the gas produced from the Mako field  located in the Duyung Production Sharing Contract in the West Natuna Sea, offshore Indonesia.

• On 27 March 2024, Conrad and PGN entered into binding Key Terms thereby committing to agree and to sign a GSA for the domestic portion of the gas produced from the Mako field.
• Under the Key Terms, the parties will conclude negotiations for and agree in good faith a GSA that will include and be based upon the Key Terms. The parties shall endeavor to sign such GSA by no later than 31 May 2024.
• This GSA will be subject to the construction of the pipeline connecting the West Natuna Transportation System with the domestic gas market in Batam. It forms part of the Domestic Market Obligation  as set out in the Mako’s revised Plan of Development. The sales volumes under this GSA will represent approximately 29.5% of Mako sales gas volumes until the PSC expires in January 2037
• The remainder of the Mako sales gas volumes will be sold to Singapore where a term sheet was signed in 3Q 2023 and Conrad is moving towards finalising a GSA over the coming months.
• These Key Terms are an important step towards the Mako development final investment decision (“FID”) planned by midyear 2024.

Empyrean CEO, Tom Kelly, commented:
‘These Domestic Market Obligation key terms are an important step towards FID for the Mako gas field development. The domestic sales are subject to a pipeline spur being built connecting WNTS with Batam, and sales gas will be sold into Singapore if the spur does not proceed or until it is completed. This is another milestone for the project on the pathway to production.’

As per Tom Kelly’s comments this is an important step for Empyrean and  keeps them in the hunt for the crucial FID. As such this is of significant importance for both companies.

Duyung PSC – Update re Mako Gas Field Resources

In its Annual Report, Conrad also provided an update in respect of, inter alia, Mako Gas Field reserves and resources as of 31 December 2023 following  of an updated reserves and resources report (the “Update Report”) prepared by Gaffney, Cline & Associates (Consultants) Pte Ltd (“GCA”) in which GCA has updated its assessment of resources for current expectations of Final Investment Decision and production commencement delay. The Update Report follows an earlier 1st July 2022 GCA reserves and resource report.

As approved by the Indonesian regulatory authority SKK Migas in 2022, a two-phase development plan based on six initial development wells tied back to a leased production platform at the Mako gas field is proposed, with sales gas transported via the West Natuna Transport System (“WNTS”) pipeline to Singapore for sale to the Singapore market, and potentially to the Indonesian domestic market via a yet-to-be constructed spur from the WNTS. Two further development wells are planned 3 years after first gas. The development plan proposes a plateau production of 120 MMscfd for 3.5 (Low case), 6.5 (Best case), or 11.5 (High case) years.

Update Report

The revised estimates of gross (full field – 100%) recoverable dry gas to the end of the PSC as of 31 December 2023 per the Update Report are:

Consequently, the net attributable to Empyrean 2C resources are reduced from 24 to 20.8 Bcf gas.

Revisions pertain to the revised FID timing and delay in Mako field production startup until mid-2026.

The full field resources above are classified as contingent.

Gas volumes are expected to be upgraded to reserves once select commercial milestones have been achieved, including execution of a Gas Sales Agreement (“GSA”) and a Final Investment Decision.

Notes:

1.   Gross field Contingent Resources are 100% of the volumes estimated to be recoverable from the Mako Field in the event that it is developed in accordance with the approved plan of development.
2.   Net Contingent Resources represent Empyrean’s actual net entitlement under the terms of the PSC that governs the asset.
3.   The volumes presented in the table above are “unrisked” in the sense that no adjustment has been made for the risk that the asset may not be developed in the form envisaged.
4.   Last economic production year prior to the Duyung PSC expiry date for 1C, 2C and 3C is 2033, 2036 and 2036, respectively. Without considering the Duyung PSC expiry date, 2C and 3C can be produced commercially up to 2037 and 2041 respectively.

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