WTI $72.23 +$1.74, Brent $76.19 +1.83, Diff -$3.96 +9c, NG $4.81 n/c, UKNG 177.01 -3.55p

Oil price

A good day for oil as the EIA inventory stats were better than expected with a crude draw of 3.48m, gasoline built roughly the same which was a slight surprise but products demand was made up for with a draw of 2.55m b’s of distillates.

The FOMC said that taper would start probably in December and continuing next year. With interest rates unlikely to rise at least for most of next year markets rallied.

Union Jack Oil

Union Jack Oil has announced that it has raised £3 million by way of a placing of 13,636,364 new ordinary shares of 5 pence each at a price of 22 pence per share.  I understand that the placing was massively oversubscribed which is not a surprise as this funds success.  With so much going on operationally at UJO it is worth looking at their comments below. 

‘In light of the excellent performance at Wressle where flow rates in excess of 950 barrels of oil equivalent per day have been achieved, and the potential untapped upside, the Board has decided to continue to focus on its core projects at Wressle, West Newton and Biscathorpe while also progressing its other existing production and appraisal projects.  The Placing will be principally applied to upgrade the Wressle producing assets to expand future cashflow generation and to fund the planned side-track well at Biscathorpe’. 

The Company intends to use the net proceeds of the Placing to expand the oil production facilities at Wressle that has achieved rates from the Ashover Grit reservoir of 884 barrels of oil per day on a significantly restricted choke setting, with high wellhead flowing pressure and with zero water cut. They will also progress a gas to power revenue stream at the Wressle project facility, drill the planned side-track well on Biscathorpe in 2022, which the Company believes to be one of the UK’s largest onshore un-appraised conventional hydrocarbon targets and  for project contingency and general working capital.   

In making its ongoing commitment to fund its core projects, the Board has decided not to pursue the acquisition of a further 25% interest in the Claymore Piper Complex Royalty Units that was previously disclosed in the Interim Results released on 13 September 2021.

UJO has to a certain extent been punished by its own and partners success at Wressle as the production facilities are being upgraded to handle the significant amount of oil being produced on a daily basis with revenues up in line with those production numbers. 

In these matters I think that UJO’s David Bramhill has been doing a brilliant job at Wressle and in where UJO is positioned right now, the market has not given anything like enough credit for this and the shares are below the highs from the spring, before the huge revenue surge from the field.

Whether the market mistook the fact that the company was fully funded for the existing programme  and not effectively forever may be to their own chagrin, right now the shares are very cheap as shown by the multi times oversubscription.

Chariot

Chariot has announced that it has signed a binding letter of intent with Halliburton, one of the world’s largest oil field service companies, for services on Chariot’s planned Anchois gas appraisal well within the Lixus licence, offshore Morocco.

The services Halliburton will assist Chariot with include but are not limited to, project management services, directional drilling and logging whilst drilling services, drilling fluids materials and engineering services, cementing, pumping, materials and engineering services, wireline logging services, and drill bits and coring services.

Adonis Pouroulis, Acting CEO of Chariot, commented:
“Following on from our recently announced rig award, today’s release marks further progress towards our planned appraisal well on the Lixus licence, offshore Morocco, later this year. We remain on track for drilling operations to commence in December and we look forward to updating the market further as other operational milestones are achieved ahead of drilling.”

IOG

IOG has announced that, further to the announcement made today, the Company has successfully raised gross proceeds of £8.5 million through a placing and subscription. The Company has placed 33,800,000 new Ordinary Shares at a price of 25 pence per New Ordinary Share with existing and new investors.

The Issue Price represents a premium of approximately 1.0% to the 30-day volume weighted average price of an Ordinary Share to 22 September 2021 of 24.75 pence and a discount of approximately 8.3% to the closing mid-market price of an Ordinary Share of 27.25 pence on 22 September 2021. This in itself is highly creditable pricing and that the market feels that IOG has become accustomed to delivering on its promises.

Andrew Hockey, IOG CEO, said:
“I am very pleased to have completed this oversubscribed Fundraise which has been strongly supported by both existing and new institutional investors, and in which myself and several other directors and senior management have also invested. As we approach first gas in Q4 2021, we are already looking to drive accretive new growth beyond. This Fundraise enables us to exercise an attractive extension option for the Noble Hans Deul rig for a dual-lateral well in 2022 to appraise both the Kelham North and Kelham Central prospects on the 30th Round Licence P2442 (Block 53/1b) and prove up a high-return incremental Southern Hub to be tied back directly into our Saturn Banks infrastructure. Our seismic reprocessing has demonstrated potential for up to six assets in this hub, which lies in a historically prolific producing area of the Southern North Sea.

The Kelham North and Kelham Central well is planned to follow a Goddard appraisal well in licence P2438 (Blocks 48/11c and 12b), to be financed out of existing resources and drilled directly after the first two Southwark production wells, enabling the Company to benefit from significant drilling efficiencies. The Goddard appraisal well will evaluate the upside potential to the south-east of the structure potentially enabling a much higher return development.

The Fundraise will also enable us to commence seismic reprocessing on Licence P2589 (Blocks 49/21e and 22b, Panther and Grafton) where we are targeting a similar uplift in commercial potential to P2442.

IOG has a clear strategy to deliver further high-return projects as a Net Zero UK gas and infrastructure operator. With the right team and partnerships in place, this multi-phase “project factory” can generate substantial further shareholder value, while also helping to maximise low carbon intensity domestic UK gas supplies.

I would like to thank our shareholders for continuing to support our exciting journey and look forward to updating further on progress on Phase 1 and beyond.”

With Phase 1 of the IOG project in very good shape and bearing in mind that it makes a very healthy return at 45p/therm against today’s 170p odd price, and is operationally going smoothly. No, this is about the future for IOG and is led by the fact that they have the rig contracted at very cheap rates and gives them a chance to act on improvements seen in the sub-surface work in other areas.

This in due course should add a couple more hubs and ‘refill the hopper’ of opportunity using the leverage of the existing structure for future growth. With its strong position of ownership of the portfolio, well financed balanced sheet and net zero carbon future IOG is without doubt set fair and all in all in a very good position to grow.

Kistos

Kistos has announced that, following a planned four-week maintenance shutdown previously announced by the Company on 1 September 2021, the TAQA operated P15-D platform has resumed normal operations. In turn, this has allowed the resumption of gas export from the Q10-A gas field, which is operated by Kistos with a 60% working interest.

Commenting, Andrew Austin, Kistos’ Interim CEO, said:
“I am pleased that TAQA has completed maintenance operations at P15-D on schedule and that we have been able to restart production from Q10-A on time. This and our on-going drilling programme, which includes work designed to enhance output from the Q10-A area, will allow us to realise enhanced returns from the prevailing gas prices during the remainder of 2021 and into 2022.”

Not much for me to add save for reiterating my strongly held view that 260p was a total aberration and I wouldnt say that 332p is expensive, there is still plenty of upside about which I will ask Andrew Austen when I interview him in a few weeks time…

Rockhopper Exploration

Rockhopper Exploration noted the announcement this morning by Harbour Energy plc regarding its decision not to proceed with the Sea Lion project.

The Sea Lion project (with independently audited 2C resources in excess of 500 million barrels) was discovered and appraised by Rockhopper as Operator with 100%. The Company has unrivalled knowledge of Sea Lion and the North Falkland Basin having held the acreage since 2004, and plans to continue to pursue the development of Sea Lion.

Rockhopper confirms that it is in discussions with Navitas Petroleum LP  around its potential entry to the Sea Lion project following Harbour’s decision not to proceed.  Rockhopper notes that Navitas and partners have recently raised project financing in excess of $900 million and taken final investment decision on the 330 million barrel deep water Shenandoah project in the US Gulf of Mexico.

The previously announced Heads of Terms with Premier Oil and Navitas will expire on 30 September 2021 (unless extended by mutual consent before that date). If the Heads of Terms expire, Harbour will have an initial 90 days to elect how to proceed with their exit. Rockhopper will continue to be funded (excluding licence fees, taxes and project wind down costs) by Harbour during that period under the terms announced on 7 January 2020 and 30 April 2020.

Rockhopper will now work with Harbour and the Falkland Islands Government to ensure an orderly exit by Harbour from the Falkland Islands.

Sam Moody, CEO of Rockhopper, commented:
“This represents both a difficult moment for Rockhopper and a huge opportunity. Whilst we are disappointed that Harbour has decided to not to proceed with Sea Lion, we remain committed to unlocking its development.

“Navitas’ recent financing on its Shenandoah project demonstrates that funding remains available to independent E&Ps in the international markets for large-scale offshore oil developments and we very much look forward to working with them to progress Sea Lion.”

I listened in to the webcast this morning but wasn’t invited to the conference call and thus the important Q&A session although just as it finished my request was granted. Harbour said that, according to my notes, despite quality subsurface reserves Sea Lion is a  multi-billion dollar, in a remote part of the world with no infrastructure which adds to the risk in capex unit costs. This followed a comment that Harbour ‘won’t undertake high risk, multi-billion dollar long lead time projects’.

Readers know that I have a long standing policy of not writing about or covering companies that I have not met and this applies to Harbour, as any other. Having said that, I know the Premier assets well enough having followed them for a long time and of course a detailed knowledge of Rockhopper itself. As for Harbour with their operational problems and suchlike they are clearly keeping their heads down at the moment, I would like to cover the stock someday.

Going forward this provides an interesting situation for Rockhopper, although Harbour plainly concluded it is a quality asset, they don’t seem to like the risk/reward of Sea Lion but I expect there will be some who do and at $75 I think it flies and especially if Navitas remain on board and perhaps a cheaper or smaller solution can be found, the future could be very exciting.

For those of us who have ridden the Sea Lion specifically, and Falklands in general, play over the years this is just another in the ups and downs of this frontier play, no one said that it would be easy… Having said that this is a very good time to rework the numbers and look at a straightforward technically feasible play, you might say that this is now the challenge of a lifetime…

KeyFacts Energy Industry Directory: Malcy's Blog