WTI $69.09 +94c, Brent $71.29 +91c, Diff -$2.20 -3c, NG $4.14 -2c, UKNG 110.24p +5.24p

Oil price

A bit of everything on the oil price this week, after Covid cases worried, the geopolitical situation got worse with ships being hijacked and further missiles between Israel and the Lebanon. Rystad Energy are predicting further stock draws at Cushing maybe reaching lows of 20m barrels by the autumn which be a 10 year low.

Sound Energy

Sound has announced that it has received a written notification by the Moroccan General Tax Administration of a re-assessment in respect of Moroccan taxes pursuant to a tax audit undertaken on Sound Energy Morocco East Limited (“SEME”), the Company’s wholly owned subsidiary, by the Moroccan Tax Administration during 2020 and related to the fiscal periods 2016 to 2018.

According to the Administration’s original assessment, the historical licensing changes detailed in the Notification related to the Tendrara Lakbir Exploration Permits and the transfer of Operatorship from Sound Energy Morocco SARL AU (“SEMS”) to SEME raised taxation claims against SEME. The Moroccan Tax Administration sought to justify this tax claim asserting a so-called acquisition of intangible assets from SEMS by SEME.

In the Notification, the Moroccan Tax Administration has conveyed the decision of the Local Tax committee (“LTC”) that, after several hearings being held, the LTC has found that the charges of SEME relating to the free acquisition of intangible assets be dropped.

The LTC reasoning offered was that, as a claim had also been brought by the Moroccan Tax Administration against SEMS, the LTC considers that taxing the same operation twice would be redundant. The LTC has not dropped the charges relating to the Moroccan Tax Administration’s assessment of a purported disposal of assets by SEME to Schlumberger in relation to the entry of a brand-new petroleum agreement for exploration at Greater Tendrara.

The Company remains clear that the assessments by the Moroccan Tax Administration, as previously announced, arise from a fundamental misunderstanding of the historical licensing changes (relinquishing old licences and entering new licences covering revised acreage with revised terms – with no continuation or transfer of the original licence) and inter-group ownership outside of Morocco.

The dropping of the main tax charge against SEME is a welcome development, however the remaining charge against SEME related to the signing of a brand-new petroleum agreement for Greater Tendrara in October 2018, with its own exploration work commitment negotiated with ONHYM and fully approved by the State of Morocco (represented by the Ministries of Energy and Finance) is still due according to the Moroccan Tax Administration and the tax claims against SEMS remain in due process.

The Company has 60 days from the receipt of the LTC decision to accept or challenge the decision related SEME tax claim in court. Sound Energy remains of the strong opinion that the remaining charges, including that against SEME in respect of entry of the new Greater Tendrara petroleum agreement, have been wrongly interpreted by the Moroccan Tax Administration.  The Company, together with its advisors, continues to seek to engage constructively with the authorities.

So, where does this leave SOU as a result of this? As I see it it’s a good news, bad news type of situation whereby the Moroccan tax authorities are trying to have two bites at the same cherry but from differing sides. It is a perfectly visible ruse so I can’t imagine they think that it will be given any more credibility as a result of this, as Sound have noted they strongly believe that they are on the right side of this case even with the major claim having been dropped.

With so much going on in Morocco at the moment it seems strange that the authorities are making it look like the country is not welcoming international oil companies which I am sure could not be further from the truth. More like it is as I have said before that different Government departments are not talking to each other, maybe this is a chance for ONHYM to step in?

Cairn Energy

The Cairn announcement slipped through the net earlier this week but it is good news and the market are right to applaud it. The news that the well in the Sayulita exploration area in Block 10 offshore Mexico where Cairn has a 15% WI in which ENI as operator has said according to preliminary estimates may contain 150-200Mboe in place.

Good work by the team at Cairn that has justified the share rise and of course I make no comment on India…

Gran Tierra

I’ve been looking at Gran Tierra recently after suffering from Colombia withdrawal symptoms after the passing of Amerisur. They announced 2Q Colombian production of 23,035 b/d which is up 14% y/y. They have kept FY 2021 guidance at 27.5-28.5/- b/d, a capital programme of $130-150m and a 2H FCF of $100-120m. If I get any interest I may delve a little deeper…

Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented:
“Despite the challenges with blockades during the Quarter, we are very pleased that we have now safely and diligently ramped operations back up throughout our Colombia portfolio. Although the blockades temporarily impacted Gran Tierra’s production volumes, the stronger Brent oil price environment more than offset the effect of lower production volumes, as demonstrated by our higher oil sales and EBITDA1 figures. With production restored, we expect Gran Tierra to generate second half 2021 free cash flow2 of $100-120 million. With a constructive oil price environment, a successful first half 2021 drilling program and the expiry of our first half 2021 oil price hedges, we are very excited about the second half of 2021 and all of 2022.”

Far Limited

Far has announced that it has set the meeting date for 15th September  for shareholder approval for the potential return of A$80m or 80c per share.

Bruce Dingwall CBE

I wrote a few words about Bruce on Wednesday and I’ve had a lot of very kind messages, some of whom asked me to repeat them in the blog today as some might have missed them.

Bruce Dingwall CBE was born in Trinidad 61 years ago, the son of a doctor who worked for an oil company which made his entry into the industry a natural choice and he joined Exxon after unsurprisingly studying at Fettes and Aberdeen University.

Best known in the industry for being a founder of Venture Production it was a travesty that it was taken over in a contested bid but Bruce had set up a highly successful vehicle. Having done his stint as Chairman of UKOOA, given his background it came as no surprise that Trinity became the ideal vehicle for him and he was determined to make it succeed, something I’m sure he would have done.

I am proud to be able to say that I was a friend of Bruce’s, a real gentleman who was equally at home in Trinidad on a rig or developing a new plan with colleagues, or in his beloved Perthshire. Having shot with him in the past I can testify to his eye, love for game and immense hospitality plus a great sense of humour and ability to tell a story. He was also a man of the water, as a youngster he wanted to be an Olympic swimmer so he would have loved this week in Tokyo. He was a keen yachtsman and I managed to see him occasionally at the Royal Thames Yacht Club although he was probably more at home stepping off Matelot in St Lucia or other Caribbean harbours.

But most of all he was a kind, compassionate man, always thinking about other people and he gave everything his all, I reckon if you can say that about someone then you must have been a top bloke which basically was what he was, a top bloke. My thoughts and prayers go out to his family at home and his second family at Trinity Exploration in San Fernando, Trinidad, we will all miss him.

KeyFacts Energy Industry Directory: Malcy's Blog