WTI $66.05 +$2.47, Brent $68.46 +$2.02, Diff -$2.41 -45c, NG $2.89 -2c, UKNG 63.3p +0.55p

Oil price

A rapid about turn from the oil price yesterday, the US seemed to indicate that the Iran deal was ‘not that far down the road yet’ which settled the bulls and also data from them and the UK was more positive. As well as that the US recorded air passenger levels of 2m and reported a big increase in mainly domestic travel although corporate and international numbers were slowly rising.

Chariot Oil & Gas

Chariot has announced that further to the Company’s announcement released at 4.56 p.m. on 24 May 2021, the Bookbuild has closed and the Company has conditionally raised gross proceeds of US$16.5 million (£11.7 million) through the successful Placing of and Subscription for 212,553,929 of New Ordinary Shares, at the Issue Price of 5.5 pence per Ordinary Share.

In addition to the Placing and Subscription, and as set out in the Launch Announcement, the Company proposes to raise up to a further US$5 million (£3.5 million) by the issue of New Ordinary Shares ‘pursuant to an Open Offer to Qualifying Shareholders at the Issue Price on the basis of 1 Open Offer Share for every 6 Existing Ordinary Shares held on the Record Date’. Qualifying Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares through the Excess Application Facility. Details of the Open Offer and the action to be taken by Qualifying Shareholders to subscribe for Ordinary Shares under the Open Offer will be set out in the Circular, which will be sent to Shareholders on 28 May 2021.

Magna Capital LDA (of which Adonis Pouroulis is a substantial shareholder) has conditionally agreed to underwrite the Fundraising, ensuring that the total fundraising will equate to approximately US$23 million (£16.3 million) before expenses, by subscribing, in two tranches on or before 31 January and 28 February 2022, for new Ordinary Shares at the Issue Price. Mr. Pouroulis has personally sub-underwritten the Underwriting Commitment. The Underwriting Commitment is transferable at Magna’s sole discretion and shall reduce in equal proportion to any funds received separately by the Company from the Open Offer, a farm-in or a fundraise.

The gross proceeds includes US$3.4 million (£2.4 million) conditionally raised from certain of the Company’s Directors, as part of the Subscription. The Placing Shares and Subscription Shares represent in aggregate 54.7 per cent. of the Company’s Existing Ordinary Shares. The Issue Price represents a discount of approximately 29.58 per cent. to the mid-market closing price on the London Stock Exchange of 7.81 pence per Ordinary Share on 21 May 2021.

The net proceeds of the Fundraise will be used to drill an appraisal well at the Anchois Gas Development offshore Morocco to confirm the discovery, progress work programme on the acreage surrounding the Anchois gas discovery for future development, to integrate transitional power team and existing project, fund near-term power project and for general working capital purposes.

Adonis Pouroulis, Acting CEO of Chariot, commented:
“We are excited to announce the completion of today’s Placing and Subscription, subject to shareholder approval at the forthcoming General Meeting. This successful fundraise marks a key turning point in the evolution of the Company, as we seek to build a transitional energy business in Africa, that we believe will deliver value for all stakeholders. With the net proceeds, Chariot intends to accelerate the timeline of the Anchois Gas Development coming online, with a near-term appraisal well now in sight and the launch of Chariot’s Transitional Power division, following the acquisition of AEMP earlier in the year in partnership with Total Eren.

This fundraise will turbocharge our growth ambitions in both our transitional gas and transitional power businesses which are highly scalable in terms of both the prospective gas resources offered in Anchois and surrounding area, and in the pipeline of projects to provide clean power to mining and industrial clients in Africa.

We encourage and welcome existing shareholders to join us on this exciting journey through the Open Offer and look forward to providing further updates on our progress in due course.”

This news today is most important and I’m sure will cement Chariot as a key player in Africa for both gas and renewable energy. Indeed I would suggest that the moves that have been made by Adonis Pouroulis since he took over have made Chariot a unique story in Africa and with potentially substantial upside.

The moves that have been made since then have the effect of considerably de-risking Chariot, at Anchois, where significant work has been done looks a lot more robust now that this raise confirms a well will be drilled this year. The cost of drilling this well seem to be lower than the expectations next year and that this year provides the company with a window of cheaper costs.

Apart from Anchois, the moves that they have made with regard to the partnership with Total Eren look to me to be able to be bracketed in that rare ‘company maker’ situation. The opportunities in the African mining industry and the use of renewables will be found by the management and financed by access to Total’s inexpensive debt makes this, exclusive deal seem copper bottomed to me. Talk of 500 MW or even a GW are not impossible and with 1.2bn people on the continent rising to 2bn mean that sustainable, green ESG compliant energy will be the place to be.

This financing is clearly significant for Chariot and whilst the discount has been commented on I feel that the ability to get some institutional investors on board is a justifiable price worth paying. Indeed the fact that this management has delivered a lot this year, and at this stage the CEO is putting a substantial amount to take part in the raise via direct investment, as well as his underwriting of what looks like an attractive offer which has been structured so that existing investors can participate at the same price looks eminently backable to me.

The deals this year, combined with the opening up of Chariot into being a major player in gas and renewable power for Africa’s huge mining industry and operating in at least 17 countries with an existing presence assured, plus the backing of the exclusivity of the partnership with Total looks like a no-brainer to me. A unique story, without doubt I would say that weans Morocco off coal for power and supplies a huge basic industry with renewable power.

Union Jack/Reabold Resources

Union Jack and Reabold have provided an update on mobilisation of associated equipment and planned test activities at the West Newton B site. The licence area is within the western sector of the Southern Zechstein Basin.  The West Newton A-1, A-2 and recent B-1Z discoveries are on-trend with the prolific offshore Hewett gas complex.

Rathlin Energy, the Operator, has provided the JOA partners with the following guidance. On Monday 24 May 2021, equipment required to complete and test the West Newton B-1Z well commenced mobilisation to site. This equipment includes a workover rig, well test package, Certified Ultra-low Emission Burners, a wireline unit and other related materials. 

The equipment will be rigged–up during the first week of operations, after which completion activities including perforation and well treatment operations will commence. The well test will follow these operations. Overall, the duration of the West Newton B-1Z completion and testing operations are expected to take approximately six weeks.

All operations are being conducted in accordance with regulatory requirements, permissions, planning conditions and Covid-19 restrictions and guidance.

Initially, site activities including rigging up and completion operations will be conducted during daylight hours (07:00-19:00), however, once well testing operations are underway site activities will move to 24-hours a day, seven days a week.  HGV and delivery traffic will be planned for daytime hours (07:00-19:00), Monday to Saturday and will follow the approved traffic management route. The site will have a manned security presence and wellsite supervision 24-hours a day, seven days a week.

The West Newton B-1Z completion and testing operations are targeting and fully appraising hydrocarbons within the conventional Kirkham Abbey Formation reservoir.

Following the completion of operations on the WN B-1Z well, it is the Operator’s intention to mobilise equipment and personnel to the West Newton A site to re-commence testing of the WN A-2 well, also appraising hydrocarbons within the Kirkham Abbey reservoir.

David Bramhill, Executive Chairman of Union Jack, commented:
“The planned testing programmes at the West Newton B and A sites are the next milestone events in determining the development potential of West Newton.

“The results to date continue to support the Board’s belief that West Newton is a large-scale, conventional onshore hydrocarbon asset with potential offshore-sized reserves and resources in place.

Stephen Williams, co-CEO of Reabold, commented:
“We are pleased to see continued progress being made at West Newton, with testing of the B-1z well key for the future development of the licence and, in particular, for indicating the optimal location for the drilling of the horizontal B-2 well. We look forward to keeping shareholders abreast of developments over the next few months, in what could be a transformational period for the Company.”

There is little doubt that the companies at West Newton are heading for the most important 6 weeks of the entire programme. The industry is split and the Zechstein is about to be tested, the process has taken a long time and the jury is out, for what it’s worth I have nailed my positive colours to the mast and feel that UJO and RBD will be successfully be rewarded in six weeks time.

Serica Energy

Serica has provided a Columbus and R3 operational update this morning. The Columbus development well was spudded in mid-March and drilled, as planned, to a total measured depth of 17,600ft. A 5,900ft horizontal section was drilled through the reservoir formations of the upper Forties and encountered a sequence of sands and shales, in line with pre-drill expectations.

The well requires sand screens to be installed to prevent fine particles being produced; difficulties were encountered while running the screens and it was ultimately not possible to install them. As a result, the reservoir section of the well will be side-tracked and re-drilled, using data collected during initial drilling to optimise its trajectory and avoid the difficulties encountered running the screens in the original well.

According to the company the additional operations are expected to take around 3-4 weeks at a net cost to them of around £3 million. It is important to realise that these operations are not expected to affect the timing of production start-up which is still expected during Q4 2021.

Separately, the R3 well has now been cleared of all equipment installed when it was originally completed in 2005. Reservoir access has been regained thus allowing new completion equipment to be run in preparation for production. The new completion is currently being installed prior to performing a flow test on the well, which is expected to be carried out in June. A diving support vessel has been contracted to install the subsea control equipment required so the well can start producing in Q3 2021.

Mitch Flegg, Chief Executive of Serica Energy, commented:
“Whilst frustrating, the additional operations on Columbus are not expected to affect the timing of first production and the economic returns of the project remain very attractive for the Company.”

I remain confident that both the operations at Columbus and at R3 are substantially on track to provide significant bottom line growth for Serica. Occasional irritating operational bugs serve to remind us that these things don’t always go without modest hitches but the overall economics of the project remain intact, note that the reservoir formations are in line with pre-drill expectations. SQZ remains right at the top of the Bucket List of preferred stocks and at these levels look way too cheap to me.

Hurricane Energy

Full year results from HUR this morning,  Lancaster produced an average of 13,900 bopd in 2020, supported by 98% production uptime from the Aoka Mizu FPSO. However, ‘production was significantly less than expected due to the field materially underperforming relative to pre-production expectations’.

The Company recorded a loss for the year of $625.3 million, including impairment charges totalling $567.1 million in respect of the Lancaster field and the Company’s exploration assets and an associated deferred tax write-off of $54.2 million.

In addition an internal technical review of the Lancaster field reservoir model resulted in significant downgrades to Lancaster Reserves and Contingent Resources. This revised interpretation was broadly consistent with a Competent Person’s Report by ERC Equipoise published in April 2021, and also negatively impacted the resource potential of the Company’s other discoveries. What it does not say is how it is humanely possible for consecutive CPR’s to show such differences, surely the point is that they are tough on the company so that this shouldnt be able to happen.

Net free cash of $111.4 million at 31 December 2020 (31 December 2019: $133.6 million) was significantly less than anticipated due to lower oil prices caused by the COVID-19 pandemic as well as lower Lancaster production than anticipated. Net debt at year-end was $118.6 million (31 December 2019: $96.4 million)

In combination, lower than expected cash generation during 2020 and significantly reduced potential future cash flows from Lancaster means the Company will not be in a position to repay its $230 million of convertible bond debt at maturity in July 2022. After ‘exploring all possible alternatives’, the Company announced a proposed restructuring of the Company’s Convertible Bond debt on 30 April 2021. Material uncertainties regarding the Company’s ability to continue as a going concern have been identified, pending the results of the proposed financial restructuring process.

‘If duly approved and implemented, the proposed financial restructuring is expected to take effect in June 2021. This would deliver a viable balance sheet from which to execute the Company’s revised strategy of maximising cash flow from the existing Lancaster wells and infrastructure to pay down debt. In parallel, the Company will continue to develop the technical and commercial case for further development opportunities at Lancaster and, if supported by its Bondholders, execute any further investment as efficiently as possible’.

Antony Maris, CEO of Hurricane, commented:
“This has been a profoundly difficult period for Hurricane and its stakeholders. The understanding of the West of Shetland fractured basement play has changed significantly. As a result, the potential of the Lancaster field is much smaller than originally thought and cannot support the level of debt in the Company which was sized for a much larger Reserves and Contingent Resources base.

Against this extremely challenging backdrop, the Company has explored all potential options to resolve the Company’s financial situation, with the proposed financial restructuring ultimately being deemed the best possible outcome. We understand the impact this will have on our shareholders and the strong feelings that have been expressed as a result, but this was a necessary move in order to secure the Company’s future.

If the proposed restructuring is approved and implemented, we will focus our efforts on maximising Lancaster cash flows to pay down debt, as well as making the case for further development of our West of Shetland asset base”

It is interesting that the CEO says that the company is unable to support its debt and therefore a restructuring is needed that would wipe out the equity shareholders in order to pacify the bondholders. It makes it sound like this is the only option and in my view that may not be the case. Production of say,  14,000 b/d at $70 and a fairer restructuring between debt and equity might just be doable but it’s not on the cards.

I am aware of the moves by Crystal Amber as major equity holders which seems to me to be pretty sensible under the circumstances, other shareholders would probably be wise to see what they are doing. Indeed I dont know where Kerogen stand on this, if they still have a substantial holding it must be in their interests to join with CA, and unless they have been buying the debt to offset their risk they should fight. So, I suspect that the retail holding being pretty substantial may be enough to vote the board down if it went that far….the alternative is not worth thinking about…

Touchstone Exploration

The company provides an operational update, highlighted by the recovery of pressure gauges from the Cascadura Deep-1 well on the Company’s Ortoire onshore exploration block in Trinidad. The results from the test were ‘solid’ and confirmed that the formation was damaged whilst drilling but still gave up 23 mmcf/d of flow back.

This seems to me to be very positive as it should increase on production and the damage should be minimised over time, it is a significant sized reservoir that sure, will take a bunch of wells to fully evaluate, in the meantime there is much more pay to analyse and this is already a properly big find. The Touchstone share price should be massively above here and when the market ‘gets it’ an upwards adjustment will be made.

Paul Baay, President and Chief Executive Officer, commented:
“I am pleased to report that the downhole gauges recovered from Cascadura Deep-1 have provided excellent data, and the information has increased our confidence in the substantial size of the pool’s reserves and its potential deliverability. The data is consistent with the previous testing performed at Cascadura-1ST1, and we are encouraged by the lack of any boundary limits observed on the reservoir.

The team continues to move all of our projects forward under the COVID-19 restrictions that were recently enacted in Trinidad. We continue to have a comprehensive COVID-19 protocol in place in collaboration with our industry partners, and we are committed to the safety and well being of our employees, contractors and the residents of the communities we operate in. For the most part, our routine operations remain uninterrupted, and we will recommence the affected operations as soon as we can safely do so.

I remain confident that we will spud Royston-1 in June despite recent construction delays due to COVID-19 emergency health measures. The drilling of Royston-1 will complete the first phase of our exploration program at Ortoire. The second phase is expected to include the Steelhead and Guabine prospects targeting the Herrera and Karamat Formations, as well as our Cretaceous prospect at Kraken. The phase two exploration program is anticipated to be performed in parallel with development programs at our confirmed Ortoire discoveries. Our future capital projects are anticipated to commence following the start of production from Coho and Cascadura, as these discoveries are expected to provide the funding for our future development and exploration programs.

KeyFacts Energy Industry Directory: Malcy's Blog