WTI $82.64 +$1.42, Brent $84.67 +95c, Diff -$2.03 -47c, NG $4.86 +61c, UKNG 173.87p -30.13p

Oil price

Oil is well and truly happy at the moment and quite rightly too, even 7% inflation in the USA doesnt seem to worry it. But Opec+ are keeping a wary eye on the rise and yesterday the Omani Oil Minister said that ‘Opec+ don’t want $100 oil, our 400/- b/d increases should stop the market overheating’.

The EIA have been very busy, yesterday’s inventory stats continued the trend but the teenage scribblers still get it wrong, the crude draw was 4.55m barrels vs guesses of 1.9m. The product market is still adding stocks, this week by 8m b’s of gasoline and 2.5m of distillates but not a great surprise seasonally and refiners are now cutting refining rates to cut stocks.

The EIA have also announced that they are forecasting lower oil prices in 2022 as inventories start to build between 2Q 22 and 4Q 23 but actually it’s not the apocalyptic scenario some might expect. With ’21 averaging $71, and currently $80, they forecast $75 in ’22 and $68 in ’23, not exactly doom and gloom. Actually I don’t think that their themes are so bad, nor different to mine, they see non-Opec supply down and demand up, their 2023 forecast is for world demand of 102.27m b/d leading to….yup, you’ve guessed it, a higher demand for Opec+ crude, just as mentioned by me here.

Predator Oil & Gas

Corporate update – Independent valuation of contingent gas resources 

Highlights          

• CPR establishes gross Contingent Resources of 393 BCF following MOU-1
• Estimated Net Present Value (unrisked) for Predator’s 75% interest US$592 million
• Fully funded for  MOU-1 extended rig-less well testing operations

Predator has announced, as previously referenced in the Operations Update released on 15 December 2021, the completion by SLR Consulting (Ireland) Ltd. of a Competent Persons Report. The CPR comprises of an independent re-assessment and valuation of the “Guercif MOU-4 Prospect” as evaluated by SLR in the CPR referenced in the Operations Update released on 7 December 2020 and now defined as the Tertiary Moulouya Turbidite Fan Appraisal Project following the incorporation of the positive MOU-1 drilling results.

CPR summary results

Contingent resources
The Best Estimate assessment uses a gas initially in place (“GIIP”) estimate of 595 BCF based on an area of closure following the drilling of MOU-1 of 31.7 km². MOU-1 established a common structural closure with the original MOU-4 Prospect and calibrated the pre-drill seismic amplitude anomalies over this area with the gas-bearing interval encountered in MOU-1.

The gross Best Estimate for the Appraisal Project based on a conservative 66% gas recovery over 13 years is 393 BCF (295 BCF net attributable to Predator’s 75% interest). SLR indicate a High Estimate of 708 BCF net attributable to Predator’s 75% interest based on a higher GIIP estimate for thicker reservoirs.

The results of the MOU-1 well have confirmed and de-risked the previously reported pre-drill CPR assessment of Prospective Resources.

As a consequence the CPR has moved the pre-drill Prospective Resources to Contingent Resources and defines the Best Estimate of 295 BCF net to the Company’s 75% interest to be “potentially recoverable from a known accumulation by the application of a development project”. The CPR concludes that “based on the potential size of the MOU-4 structure, the project is likely to be commercially viable”.

Expected net present value (“ENPV”)
The definition of Contingent Resources has resulted in an ENPV of US$148 million based on 25% of the 295 BCF (74 BCF) of the net resources attributable to the Company’s 75% interest. The 25% chance of proceeding to development reflects the remaining production, transport, legal, contractual and environmental issues relating to a large-scale gas-to-power development. Unrisked ENPV is US$592 million. The CPR states that “the chance of commerciality for a pilot Compressed Natural Gas (“CNG”) development supplying lower volumes of gas to industrial markets is likely to be considerably higher”, based on a higher reported average gas price to the Moroccan industry of US$11.40/mcf in 2021.

A CNG development is the preferred development option for the Company. Net capital costs for the Company’s 75% interest required for a CNG pilot development are reported in the CPR to be “US$12.21 million with operating costs of US$2.3/mcf”. At US$11/mcf gas sales price to industry this “provides a commercial model for CNG”. CNG is adaptable to the dispersed nature of the Moroccan industrial gas market. It also enables accelerated monetisation of gas with minimal initial investment in drilling as the production profile is very flexible and can be tailored to mobile trucking and individual customer requirements without the need for extensive drilling to establish a substantive threshold gas profile with which to justify investment in pipeline costs to secure minimum throughput to recover fixed infrastructure investment. The continued availability of the Star Valley rig in Morocco makes scaling up of a pilot CNG development achievable.

Gas confirmed and future follow-up activity
The CPR confirms that the MOU-1 well penetrated the extreme western limit of the Tertiary MOU-4 submarine fan  Even at this extremity the CPR notes that “petrophysical log analysis by NuTech confirms 10 metres of net gas pay within thin sands within a gross section of more than 60 metres”.

MOU-1 testing is planned for Q2 2022 following the anticipated relaxation of COVID travel restrictions in Morocco. The Company is fully funded to carry out an extended rig-less testing programme.

Pre-drill preparations for the MOU-4 step-out well 8 kms. to the east of MOU-1 on the same structure de-risked by MOU-1 is progressing as planned at a location where the maximum thickness of reservoirs sands is interpreted to be present. The CPR confirms the “analogy of MOU-4 to the Anchois-1 gas discovery in the offshore Rharb Basin”.

MOU-1 confirmed for the first time a working hydrocarbon system in the Guercif Basin for thermogenic dry gas originating from a much deeper source interval. It defined a new gas province in Guercif and de-risked multiple gas prospects over an area of at least 200 km² to be followed up in the future. The immediate focus is on appraising and developing the MOU-4 Appraisal Project.

The Anchois area is a proven offshore extension of the Rharb Basin and with MOU-1 Guercif is now proven to be the eastern onshore extension of the Rharb Basin. Together this re-emerging gas province is a continuous geological unit extending over 250 kms. from west to east and beginning to generate substantive gas discoveries much larger than any encountered to date in the onshore Rharb Basin. The gas province is well positioned geographically to serve the domestic gas market and to access infrastructure – road, rail and gas pipelines. In addition the area is connected to Europe via the Maghreb Gas Pipeline.

The Guercif licence covers an area of 7,269 km². MOU-1 de-risked the petroleum system in Guercif by proving migration pathways for deep thermogenic gas from a much deeper source rock. In addition to the Tertiary gas, which is the Company’s near-term focus, multiple deeper Jurassic oil and gas prospective leads have been identified for future evaluation and drilling. The location for one of these features, “MOU-NE”, is included in the Company’s Environmental Impact Assessment for its currently scheduled drilling programme for the MOU-4 Appraisal Project. MOU-NE lies updip from an abundant micro-seepage with an oil signature identified by a Geo-Microbial Technologies micro-seepage survey in 2006 and 2007 (as referenced in the current CPR).

Corporate update

The success of the MOU-1 well in de-risking a working petroleum system in the Guercif licence area covering 7,269km² creates a significant challenge for the Company in terms of accelerating the evaluation of the full potential of the licence area. This will require securing the longer term financing and joint venture partnerships required to realise shareholder value at a time when the oil and gas sector is being strongly impacted by climate change concerns. The Company’s current public market capitalisation no longer reflects the value of its Guercif asset in terms of its development potential. Guercif represents one of the largest onshore licences in Morocco with gas prospectivity established by MOU-1.

The Company will consider all options to monetise its asset during 2022.

Paul Griffiths, CEO of Predator Oil & Gas Holdings Plc commented:
“We are pleased to report the results of the CPR confirming the continuity of the MOU-1 and MOU-4 structures which has established material Contingent Gas Resources net to the Company of 295 BCF and an unrisked ENPV of US$592million.

The realisation of Contingent Gas Resources gives the Company an additional option for shareholder monetisation. In order to create greater financial substance a reversal into an entity wanting exposure to the Guercif opportunity should not be discounted as a future option.

Management and the largest individual shareholder would be very supportive of such a move if the value proposition was sufficiently attractive for shareholders and guaranteed accelerated exploitation of the full potential of the Guercif licence area.

The ENPV versus current market capitalisation demonstrates an imbalance that does not reflect potential shareholder value.”

Further good news today as PRD announce that the CPR establishes gross Contingent Resources of 393 BCF following MOU-1, always a well that the management believed in. In addition, the document gives the company an Estimated Net Present Value (unrisked) for Predator’s 75% interest US$592 million which quite rightly pointed out by the CEO, demonstrates a huge imbalance between market cap and potential. 

Readers know that I am a huge fan of Morocco where high gas prices and favourable fiscal terms offer the chance of significant growth for companies who trust their own judgement in building a portfolio in country and always with the help of ONHYM.

Finally it is interesting that CEO Paul Griffiths has opened the door for an ‘additional option’ of monetisation via reversal into ‘an entity wanting exposure to the Guercif opportunity’ by not discounting such a move. In my view PRD offers a number of ways of creating significantly more value and is open to offers of all types and is aware that it has a fantastic portfolio of assets in Morocco which is one of the best markets in the world right now. 

Pharos Energy

Pharos has issued the following trading and operations update to summarise recent operational activities and to provide trading guidance in respect of the financial year to 31 December 2021. This is in advance of the Company’s Preliminary Results on 16 March 2022. 

Summary

Group working interest 2021 production 8,878 boepd net, in line with production guidance:

• Vietnam production 5,560 boepd net
• Egypt production 3,318 bopd

2022 production guidance:

• Vietnam 2022 production guidance 5,000 – 6,000 boepd net
• Egypt 2022 production guidance will be confirmed post transfer of operatorship to IPR

Financial

• Cash balances as at 31 December 2021 were approx. $27m; net debt c.$58m
• Group revenue for 2021 was c.$163m before net hedging loss of c.$30m:
• Vietnam revenues for the year c.$130m
• Average realised oil price per barrel from Vietnam was just under $73/bbl, representing a premium to Brent of just under $2/bbl
• Egyptian revenues for the year circa $33m*
• Average realised oil price per barrel from Egypt achieved was approx. $65/bbl, representing a discount to Brent of c.$5/bbl

Corporate

• Relevant law regarding the Third Amendment of the El Fayum Concession Agreement formally issued by the Egyptian President dated 31 December 2021
• Significant progress made on all material conditions precedent to the transaction with IPR
• Separate announcement issued this morning with details of directorate changes

* Egyptian revenues are given post government take including corporate taxes.

Ed Story, President and CEO, said:
“2021 was a year of achievement for Pharos, enabling us to return to growth in 2022. We have seen the successful completion of Phase 1 of the TGT development drilling programme in Vietnam which has increased production and cash flows, the farm-out of the Concessions in Egypt which offers growth with little near term capex, and the RBL refinancing which gives the Company financial headroom. These milestone events have happened at a time of rising oil prices to significantly strengthen our outlook for the future. We look forward to updating investors throughout the coming year as we embark on a period of growth for the business.”

I am confident that Pharos are in a good place with the new Egyptian assets settling down and therefore giving the company the chance to use this cash flow to fund the more dynamic Vietnamese part of the portfolio. My interview with CEO Ed Story from November 24th is worth another look when you take into account the management changes etc.

Core Finance CEO Interview: Ed Story, President and CEO of Pharos Energy

KeyFacts Energy Industry Directory: Malcy's Blog