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Oil price

Labor Day yesterday meant that markets were quiet if open, nothing can be added to yesterday’s comments.

Chariot

Chariot has announced that it has signed a contract with Stena Drilling, one of the world’s foremost independent drilling contractors, to use its Stena Don drilling rig for the planned Anchois gas appraisal well within the Lixus licence, offshore Morocco. Drilling operations anticipated to commence in December 2021 and are expected to take up to approximately 40 days.

Stena Don is a semi-submersible rig, suitable for drilling, completion, and workover operations. Planned appraisal drilling objectives are to unlock the development of the discovered sands by confirming the gas resource volumes, reservoir quality and well productivity.

It will also provide a future production well for the development of the field and potentially deepen the well into additional low-risk prospective sands with the aim of establishing a larger resource base for longer term growth.

Adonis Pouroulis, Acting CEO of Chariot, commented:
“The signing of this contract is an important moment in our planned drilling campaign for the Lixus Licence, offshore Morocco. We anticipate drilling commencing in December, with the well expected to take up to 40 days to drill. As a team, we have been keenly focused on delivering the drilling campaign that we recently raised money for, and we are pleased that this contract award brings us a step closer to achieving this. We look forward to keeping our stakeholders appraised we get closer to the spud date.”

This is an important step for Chariot as they fix a time for drilling the Anchois appraisal well on the Lixus licence. There is so much promise in the area offshore Morocco that the market will correctly treat this as a proxy for the company’s value going forward through this part of the field as well as adjacent sands.

In the meantime the recent flurry of announcements has shown that the ‘new’ management at the company has been very busy. I am meeting with the team later this week for an update and regard the company very highly indeed to make substantial progress in Morocco and importantly across the continent in its new chosen ventures.

Cairn Energy

In its half year report this morning Cairn proposes a capital return to shareholders of up to US$700m subject to India resolution and details its Egypt acquisition as a first step in a new growth platform. The company makes it clear that in the near term India resolution will enable further shareholder returns and acceleration of strategy: up to US$700m is to be returned to shareholders via special dividend and buyback, subject to approval, with the remainder retained to further enhance the producing asset base.

With the aim of securing long-term sustainable production, significant exploration potential and supporting cashflow growth the Egypt acquisition is advancing to completion with transition planning underway. in the near term the existing portfolio is showing ‘effective operational delivery’ with a further oil find in Block 10 offshore Mexico.

Like most companies in the Energy Transition a Net Zero roadmap has been developed with key senior appointments to deliver Cairn’s energy transition strategy. As one would expect at present the balance sheet strength and financial flexibility is an important virtue,  Group cash at 30 June 2021 US$341m and no debt drawn following special dividend in January 2021 of US$257m.

Cairn continue the proposed divestment of its UK North Sea producing assets and  progressing towards Q4 2021 completion, see net capex numbers in outlook below. Cash outflows on capital expenditure of US$25m during first half of 2021 were in line with expectations.

For the rest of 2021 the company are planning a number of key asset transactions. This includes a proposed capital return of up to US$700m following India resolution, completion of the Egypt deal in Q3  and UK disposal in Q4.

So, full year forecast net capital expenditure is US$125m*; Exploration & Appraisal US$85m, Development & Production US$40m which means that Cairn expect to end 2021 net cash positive excluding India proceeds.

*Includes US$20m for Kraken and Catcher which is refundable on sale completion

Simon Thomson, Chief Executive, Cairn Energy PLC said:
“Our significant acquisition in Egypt, which we expect to complete shortly, adds material gas-weighted production, low-cost, near-term growth and attractive exploration potential, in a region with strong demand trends. We intend to use our differentiated financial flexibility to add further scale to our production base and look forward to the next phase of strategic delivery.

Cairn is changing and I find it at an interesting crossroads, I really can’t wait for virtual meetings to stop and we get a chance to hear the strategy in person in order to define its future. There are lot’s of plusses of entering into Egypt and we need to see how that beds down but it will crucially up its gas production in this energy transition age."

Obviously the India resolution is in the bag and shareholders will get a wallet warmer worth waiting for elsewhere we wait for confirmation. One way or another subject to these confirmations one might be tempted to start getting a bit more positive feelings about Cairn.

Empyrean Energy

Having been quiet for some time EME has started to come out of hibernation with its news last week that they have signed a drilling contract for the Jade project with COSL with a targeted well spud date set for 15 December to 30 December 2021.

The final contract requires a Drilling Program and Geological Program to be incorporated  in the coming weeks, both of which are underway. I was looking out for the cost of the well and the COSL proposal includes a significantly reduced drilling cost estimate of US$12.3m saving some 30+% of the previous estimate US$18.5m, plus a success-based testing cost estimate of US$7.4m. Also the Drilling Program, Geological Program, and preparation for the Well Site Survey and preparation for various permits required to drill are all underway.

Now that the starting gun has been fired its worth looking at the cash/funding situation. Two months ago the company announced a £5m raise which will obviously need to be topped up to pay for the drilling programme. This could be via a J/V, warrants or another equity raise. Readers will remember the smart warrant  which above 8p to 12p (Current price 5.45p) converts to raise enough not to need to dilute via equity which as the share price increases becomes a self-fulfilling leap of faith.

Investors are looking at Jade, as I did when first run through by the incredible Gaz Bisht, as a potential barn burner, with Gaffney Cline giving a 32% GCoS chance and the company 41% chance, the prize is substantial. The Jade Prospect has a GCA audited mean in place potential of 225 MMbbl and a P10 in place upside of 395 MMbbl.  In addition four recent nearby discoveries by CNOOC immediately to the West of the Jade Prospect are filled to their P10 potential or better. All four CNOOC discoveries have gas clouds showing in the overburden on seismic.

Empyrean CEO, Tom Kelly, stated:
“This award of contract to COSL at approximately 34% below our previously anticipated drilling cost estimate is a massive leap forward for Empyrean and the reduced drilling cost is effectively better than a 34% JV style deal as there is zero dilution to Empyrean. The countdown to the drilling of the Jade prospect has begun. Locking in rig availability, finalising costs and setting a target spud date were all essential to securing the remaining funds required to drill the Jade Prospect whether that be by JV, warrant exercise or equity raise.

The thorough work Empyrean has completed in conjunction with AGR resulting in the negotiation and award of contract is a credit to our technical director Gaz Bisht and the team at COSL. All other drilling preparation activities, including finalising the site survey, ordering long lead items and securing the necessary drill permits, are progressing well. We also thank CNOOC for their continued support and cooperation throughout this process.”

I rate this as a very real risk/return investment opportunity, these would be good odds for a 30-50m barrel discovery but for a 400m bbl chance of conventional oil with nearby discoveries I think Empyrean’s time may have come. The numbers whichever way you cut it look huge and even if the warrants don’t rise high enough Jade could really prove to be meaningful, definitely one to watch as the autumn approaches and it’s on the doorstep of the biggest consumer of oil in the world…

KeyFacts Energy Industry Directory: Malcy's Blog