WTI $86.82 +21c, Brent $90.03 +69c, Diff -$3.21 +48c, NG $4.63 +63c, UKNG 219.82p +19.81p

Oil price

Oil was up $1.68 for WTI and $2.14 for Brent last week and is up another dollar or so today, shrugging off the new BA.2 variant.

Watch out that Saipem made a huge profit warning, more from there in due course.

Kistos

Kistos, the low carbon intensity energy producer pursuing a strategy to acquire assets with a role in energy transition, is pleased to announce that it has entered into a conditional asset purchase agreement and a conditional share purchase agreement with TotalEnergies S.E. to acquire a 20% interest in the Greater Laggan Area producing gas fields and associated infrastructure alongside various interests in certain other exploration licences, including a 25% interest in the Benriach prospect as detailed below.

Details of the Acquisition:

• Kistos will acquire 20% working interests in the producing Laggan, Tormore, Edradour, and Glenlivet gas fields, located offshore the UK West of Shetland.
• In addition, the Acquisition includes a 20% interest in the undeveloped Glendronach gas field.
• The Acquisition also includes a 25% interest in block 206/4a, which contains the 638 Bcf (operator’s P50 resource estimate) Benriach prospect.
• Kistos expects production from the assets to be acquired to average approximately 6,000 boe/d (net) during 2022 with 2P reserves as at the effective date of the Acquisition of 6.2 MMboe (operator’s estimate).
• Emissions from GLA production operations are forecast by Kistos to be approximately 13 kg CO2e/boe in 2022, which is significantly below the North Sea average of 22 kg CO2e/boe (as estimated in the OGA’s “UKCS natural gas carbon footprint analysis” of 26th May 2020).
• The effective date of the Acquisition is 1st January 2022.

The consideration payable in respect of the Acquisition comprises initial cash consideration of US$125 million (subject to customary closing adjustments), payable on completion, and further contingent cash payments as follows:

• In the event the average day-ahead gas price at the National Balancing Point exceeds 150p/therm in 2022, up to US$40 million will be payable in January 2023.
• Should Benriach be developed, Kistos will pay US$0.25 per MMBtu of net 2P reserves after first gas.

The Company will finance the Acquisition from internal resources. Completion is expected to occur in the second quarter of 2022 subject to customary regulatory and partner consents and the Company expects to make a further announcement at such point.

Further background to the GLA assets:

• The producing GLA gas fields are located in water depths of approximately 300m to 625m and are located up to 125km north-west of the Shetland Islands.
• Development approval for the GLA was originally granted in 2010 and first gas was achieved at the Laggan and Tormore fields during 2016. The Glenlivet and Edradour fields received development approval in 2015 and subsequently came on-stream in 2017.
• The Glendronach field was discovered in 2018 and it is anticipated that the development will utilise existing infrastructure
• Produced gas is routed through two dedicated flowlines which surface at the purpose-built Shetland Gas Plant (SGP), where further processing is carried out prior to export to the St. Fergus Gas Terminal in Scotland.

Assets to be acquired

* Operator

Kistos Operational & Financial Update

• As previously announced, the Prospector-1 jack-up drilling rig arrived on location at Q11-B in late-November 2021. After the Slochteren formation proved to be water wet, two shallower horizons were tested and produced at rates totalling more than 1,700 boe/d. The well is now being suspended for possible future use and the data gathered will be evaluated to establish recoverable volumes prior to taking a development decision.
• The Company continues to evaluate the results of the successful appraisal of the Vlieland sandstone formation in the Q07 and Q10 blocks offshore the Netherlands. This oil discovery has been named “Q10-Orion” and Rockflow Resources has been engaged to assist with the Concept Assess phase of the project.
• As well as appraising Q11-B and Q10-Orion, the drilling campaign that commenced in the summer of 2021 was designed to increase output from the producing Q10-A gas field through a series of workovers and the drilling of a side-track to the Q10-A04 well. This resulted in a year-end production rate of 10,800 boe/d (gross) versus 7,200 boe/d (gross) when Kistos acquired the asset in May 2021.
• Higher production and rising gas prices boosted cash flow following the shut-down of the P15-D platform for planned maintenance from mid-August to mid-September 2021. This enabled the Company to exit the calendar year with cash of approximately €77 million even after the Capex associated with the drilling program that enhanced production at Q10-A 1nd the work at Q11-B.

Andrew Austin, Executive Chairman of Kistos, commented:
“We are delighted to announce this transaction with TotalEnergies and look forward to working with them and the other partners in the Greater Laggan Area. The deal increases our gas production and complements Kistos’ strategy in the Netherlands.

“On completion, we will have a solid foothold in both the UK and the Netherlands from which we can continue to implement our growth strategy. We expect the acquisition to increase the Company’s 2P reserves by 6.2 MMboe and effectively double our end-2021 production rate to 13.5 kboe/d on a proforma basis.”

This looks to be another exceptional deal from Kistos even though the market looks like it will take some persuading. The acquisition had been trailed but looking at the numbers it looks pretty good to me. At the current natural gas price of 220p which is the equivalent of around $200 in oil terms I think it pays out in 12-18 months which is an impressive number. Indeed by the end of Q2 when this will complete I estimate that the company will already have taken C. $60m which put next to the year-end cash of  Euros 77m puts the deal into perspective.

Kistos will now have a bigger, more diverse portfolio which I am confident will continue to grow. The company has a policy of only hedging its capex budget which is without doubt the best, if only thing to do. They have doubled the size of the company with no fundraise and at highly advantageous terms, most fields are already onstream and without building costs to take into account. 

With regard to the operational update although the Slochteren formation proved to be water wet, two other, shallower horizons tested and produced at more than 1,700 boe/d. This may obviate the need for a new platform and instead the producers might be tied into the Q-10A platform for an easy, cost saving solution. 

These are cheap barrels, already built by someone else and the company has doubled its size by taking them on when others may not have done so. By that very nature it makes the barrels bought very attractive and also low emission barrels, GLA production operations are forecast by Kistos to be approximately 13 kg CO2e/boe in 2022, which is significantly below the North Sea average of 22 kg CO2e/boe.

This looks to be a sizeable acquisition made without funding and adding low emission barrels to the portfolio. It is what CEO Andrew Austin and his team are proven to have done in the past and will undoubtedly do again in the future, the smart money here is buying the shares on the dip, more often than not a wise way of making money. 

San Leon

San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, is pleased to report that two of its wholly owned subsidiaries, San Leon (Netherlands) Limited and San Leon Energy B.V., have successfully concluded their ongoing legal proceedings with TAQA Offshore BV (“TAQA”) in relation to San Leon’s legacy interests in two royalties on Block Q13A , which is located offshore the Netherlands (the “Amstel Oil Field”), including an Overriding Royalty Agreement entered into with Encore Oil as part of a sale and purchase agreement entered into in 2007 (the “Royalty Agreements”).

TAQA had subsequently purchased the interest from Encore Oil. Production from the Amstel Field started in 2014 but no royalties had been received. The Royalty Agreements became the subject of separate legal proceedings in the Netherlands and the UK.

San Leon is pleased to report that it has now received payments totalling more than €5.7 million from the actions taken in both jurisdictions, including an interim payment in respect of its legal costs. The royalties will continue to be payable in accordance with the terms and conditions of the Royalty Agreements. The Royalty Agreements represent legacy interests and any potential net future benefit to the Company going forward from the Amstel Oil Field on a monthly basis is not expected to be particularly material to San Leon.

Good news from San Leon today which effectively finishes this legacy case and leaves them to get on with other pressing matters. I remain confident that with the shares suspended in the Bucket List rewards will come to shareholders. 

Far

Off-market takeover offer for FAR Limited (ACN 009 117 293) (ASX: FAR) at $0.45 cash per share.

Samuel Terry Asset Management Pty Ltd as trustee for Samuel Terry Absolute Return Active Fund (ABN 67 302 926 069) (Bidder), announced an off-market takeover offer (the Offer) to acquire all the issued fully paid ordinary shares in FAR Limited (ACN 009 117 293) (ASX: FAR) (FAR) for $0.45 cash per share (the Offer Price).

Bidder currently has a relevant interest of approximately 4.9% in FAR through the holding of Samuel Terry Asset Management Pty Ltd as trustee for Samuel Terry Absolute Return Fund. In making the Offer, Bidder is seeking to increase its interest in FAR to at least 50.1% (on a fully diluted basis).

Summary of the Offer

The Offer Price of $0.45 per share is based on the closing price of FAR shares on ASX at the close of trading on 28 January 2022 (being the last trading day prior to the announcement of the Offer).

The Offer Price represents a premium of:

• 23.3% to the last closing price of FAR shares on ASX on 28 January 2022 of $0.365; and
• 18.8% to the one month volume weighted average price of FAR shares of $0.379.

And the reply from Far

FAR Limited (ASX:FAR) refers to the announcement made earlier today by Samuel Terry Asset Management Pty Ltd as trustee for Samuel Terry Absolute Return Active Fund to acquire FAR’s shares at 45c cash per share.

The proposed offer is not yet open and will not close until mid-March at the earliest and accordingly there is no need for shareholders to take any action at this time.

FAR will consider the offer and will advise shareholders of its recommendation in due course.
The takeover bid recognises that FAR’s shares are undervalued having regard to cash backing and the potential of FAR receiving a US$55m contingent payment from the sale of its interest in the RSSD project, as well as its existing oil and gas interests.

The offer is conditional, including on obtaining a minimum of 50.1% acceptance level. Accordingly, there is no certainty that the intended takeover bid will complete.

What looks like an opportunistic bid for Far given the cash in the company will now be fought out and maybe other suitors may be in the wings. The recent well may have been inconclusive but now more than ever its contents will determine the result of the bid, let battle commence. 

KeyFacts Energy Industry Directory: Malcy's Blog