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Oil price

Markets took a substantial bath yesterday, Wall Street was over 900 points off at one stage as concern about Covid stats worsening and some geographies going back into lockdown hit economic forecasts. That had a knock-on effect to the oil price with demand worries coupled with a feeling that Opec+ might have upped the baseline numbers and cheating would occur.

Kistos plc

All systems go for Kistos who have announced that Borr Drilling’s Prospector-1 jack-up drilling rig has arrived on location at the Q10-A field (Kistos 60%) and that the Company’s 2021 drilling campaign is underway. The work programme is scheduled to last approximately four months and to start the process of converting approximately 100 MMboe (gross) of 2C resources into 2P reserves. 

As previously announced, planned activities include the appraisal of the Q11-B gas discovery, conducting a flow test of the Vlieland light oil discovery and other activity designed to enhance production from the existing Q10-A well stock. Kistos expects the Q10-A gas field to exit 2021 with gross production of more than 2.0 MM Nm3/d (71 MMcf/d or 12,700 boe/d).

Commenting, Andrew Austin, Kistos’ Interim CEO, said:
“One of the key attractions of the Kistos portfolio is the significant near-term upside potential. We expect that this drilling campaign will start the process of realising that potential and will result in strong organic growth in our reserves and in our production. We look forward to reporting on the progress of our work programme in the coming months.”

Moving these substantial 2C resources into 2P reserves has a significant uplift in valuation and whilst the shares are near the recent peak confirming this would surely blow that away and initial target prices of c. 500p would start to look conservative. 

PetroTal Corp

A Q2 2021 operational update from PTAL today in which the company appears to be in very strong operational nick. Q2 2021 production averaged 8,825 bopd which was 2% higher than guidance of 8,655 bopd. PetroTal completed its second water disposal well (“3WD”), thereby potentially doubling its produced formation water disposal capacity to approximately 100,000 barrels of water per day (“bwpd”) once the CPF-2 facilities are completed.

Two cores were successfully recovered from the 3WD which should enhance reservoir models and understanding of Bretana’s oil in place estimates and the 7D oil well continues to outperform expectations producing approximately 260,000 barrels of oil since it started producing on April 30, 2021.  The well achieved pay-out in early July and has averaged over 2,500 bopd from July 1 to July 16, 2021.

PetroTal is currently producing a constrained 8,800 bopd and successfully disposing of all the produced formation water into the 2WD and 3WD water disposal wells, however, water disposal pumping capacity is operating at reduced levels.  Over the next month, the Company will continue optimizing water disposal pumping capacity to further enhance production rates to 10,000 bopd.

Drilling also commenced on the Company’s next horizontal well (BN-8H) on July 12, 2021.  The BN-8H well should be completed by early September at a cost of $12.25 million and is expected to boost field production to over 13,000 bopd, further significant progress. 

Phase two of PetroTal’s central processing facility (“CPF-2”) is on track for Q4 2021 completion putting very positive gearing for the company’s economics. Total cash liquidity at June 30, 2021, was approximately $79 million, of which $54 million is unrestricted.  At June 30, 2021, accounts payable and accrued liabilities were approximately $37 million; and, as part of PetroTal’s commitment to our local stakeholders, the Company recently joined the Indigenous Chamber of Commerce of Peru and was also recognized by The Ministry of Energy and Mines (MINEM) for Community Citizen Socio-Environmental Monitoring Program (“PROMOSAC”), developed with community participation, reflective of the Company’s focus on community support.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“We are pleased to continue meeting our goals even though Peru continues to suffer the consequences of a third Covid-19 wave.  After successfully completing the 7D well that continues to outperform our 3P forecast, we completed the 3WD well which will effectively double our water disposal capacity to approximately 100,000 bwpd.  We are now starting to drill more of our prolific horizontal wells which are weighted nicely in the back half of the 2021 capital investment program.  Despite some operational challenges, the Company was able to slightly beat Q2 2021 production guidance, even considering curtailed production rates.  The core data extracted from the 3WD well will be useful for oil in place calibration in our 2021 year-end reserves report.  The field is now producing approximately 8,800 bopd and should ramp up quickly as we optimize water disposal operations and prepare to receive production from the new BN-8H oil well in early September which will allow us to take Bretana’s oil production to new highs.”   

PetroTal has performed very well operationally in, as they say, in tricky domestic conditions. It has also done quite well on the share price front but it seems to me that there is much more to come here as and when the market really works out just how full of value the company is.

I should mention the reservoir data that were taken by the cores cut from the 3WD well, particularly the one through the oil-to-water transition zone. Whilst the company can’t suggest anything just now I can speculate that they are being a touch cautious in suggesting excluding say 3m from the OIP number, should this been overly cautious and if it was nearer half a metre the recoverable number should go up in a meaningful way. 

I am expecting to see as we move into the second half of the year a consolidation of oil sold through the pipeline earlier in the year and at historically low prices. Right now there must be a short 2m barrels of oil in the pipeline for which the company in Q3 will be getting maybe as much as $30-40 more than they would have then. Do the math, even at $70 oil this quarter should present a much more attractive p&l.

Finally, with Q3 2021 average production guidance of 11,750 bopd,  the company correctly remain cautious about year end guidance until more data has been collected but again I feel that original thoughts of a higher rate would be justified and PTAL on 1X cashflow is just too cheap.

Predator Oil & Gas

Predator announced yesterday that it has conditionally placed 26,000,000  new ordinary shares of no par value in the Company at a placing price of 5 pence each to raise £1.3 million before expenses. ‘The Placing was significantly oversubscribed and utilises the Company’s existing headroom shares under the Financial Conduct Authority restrictions for companies on the Official List of the London Stock Exchange’s main market for listed securities.

In terms of the use of proceeds, the Company is ‘intent on rapidly building upon the safe and successful MOU-1 drilling campaign to further appraise, in consultation with its partner, the large MOU-4 Target. The Company has an existing option to use the Star Valley Rig 101 for the drilling of MOU-4 during Q4 2021. Commercial discussions will be advanced with gas off-takers in the industrial sector in Morocco to seek  joint venture partnerships to secure first rights for a future potential Gas Offtake Agreement.  The work programme below will address these strategic objectives’.

Paul Griffiths, CEO of Predator Oil & Gas Holdings Plc commented:
“MOU-1 was safely and successfully drilled within the Company’s pre-drill budget estimates and completed for proposed rigless testing after presentation of results to our partner. Our immediate priority is to incorporate the positive results of the MOU-1 well into the evaluation of the MOU-4 Target to optimise the location for a step-out well. The recent appointment of Lonny Baumgardner as Chief Operating Officer following the completion of MOU-1 includes the portfolio to develop the Company’s ties with the Moroccan downstream gas sector for which he is uniquely placed. Significant potential exists for joint venture partnerships with gas-off takers as the requirement for gas in Morocco becomes an  increasing priority . MOU-1 delivered a result that allowed us to de-risk the MOU-4 Target whilst unexpectedly validating the pre-drill seismic “bright spot”, related to the presence of gas, as being attributable to the western limit of the MOU-4 Target and not an isolated  target as previously interpreted above what was thought to be the pre-drill MOU-4 Target equivalent section.”

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