WTI $115.07 +98c, Brent $119.43 +$2.03, Diff -$4.36 +$1.05, USNG $8.73 -18c, UKNG 157.0p +17.9p, TTF €86.770 -€0.105

Oil price

Oil was up strongly last week for all the usual reasons, a shortage of supply and ahead of the driving season which traditionally starts today, products are more of a worry. US Markets are shut today for Memorial Day and might be easier tomorrow as Germany is suggesting today that the EU may not have any Russian oil sanctions for tomorrows declaration, on the more positive side China is easing Covid restrictions-again.

Savannah Energy

Savannah Energy plc, the British independent energy company focused around the delivery of Projects that Matter in Africa, is pleased to announce the signing of an agreement with the Ministry of Petroleum and Energy of the Republic of Chad for the development of up to 500 megawatts of renewable energy projects supplying electricity to the Doba Oil Project and the towns of Moundou and Doba in Southern Chad, and the capital city, N’Djamena. A signing ceremony was held last Friday in N’Djamena, attended by His Excellency Djerassem le Bemadjiel, the Minister of Petroleum and Energy of the Republic of Chad, His Excellency Mark Matthews, Ambassador of the United Kingdom to the Republic of Chad, Sarah Wilson, Deputy Head of Mission at the British Embassy N’Djamena, Chad, and Andrew Knott, Chief Executive Officer of Savannah.

Centrale Solaire de Komé

The first Project Savannah has agreed to develop comprises an up to 300 MW photovoltaic solar farm and battery energy storage system (“BESS”) located in Komé, Southern Chad (the “Centrale Solaire de Komé”). This Project is being developed to provide clean, reliable power generation for the Doba Oil Project and the surrounding towns of Moundou and Doba. In doing so, it will displace existing hydrocarbon power supply resulting in a significant reduction in CO2 emissions and provide a supply of clean, reliable electricity on a potential 24/7 basis to the surrounding towns of Moundou and Doba (which currently only have intermittent power access). The expected tariff for the electricity generated from this Project is expected to be significantly less than that being paid for the current hydrocarbon-based power generation in the region. At 300 MW, the Centrale Solaire de Komé would be the largest solar project in sub-Saharan Africa (excluding South Africa) as well as constituting the largest battery storage project in Africa. Project sanction for the Centrale Solaire de Komé is expected in 2023 with first power in 2025.

Centrales d’Energie Renouvelable de N’Djamena

The second project covered by the Agreement involves the development of solar and wind projects of up to 100 MW each to supply power to the country’s capital city, N’Djamena (the “Centrales d’Energie Renouvelable de N’Djamena”). A significant portion of this project is anticipated to benefit from the installation of a BESS, potentially enabling the provision of 24/7 power supply. At up to 200 MW, the Centrales d’Energie Renouvelable de N’Djamena would more than double the existing installed generation capacity supplying the city and increase total installed grid-connected power generation capacity in Chad by an estimated 63%. Savannah expects the cost of power from the Centrales d’Energie Renouvelable de N’Djamena to be lower than existing competing power projects, which are currently primarily hydrocarbon-based. Project sanction for the Centrales d’Energie Renouvelable de N’Djamena is expected in 2023/24 with first power in 2025/26.

Savannah expects to fund the Projects from a combination of its own internally generated cashflows and project specific debt.

His Excellency Djerassem le Bemadjiel, the Minister of Petroleum and Energy of the Republic of Chad, said:
“We are delighted to work with Savannah on these two potentially transformational power projects for Chad. Our country is blessed with a significant renewable energy resource and we are excited that a leading British company such as Savannah is seeking to harness this resource to provide utility scale power to our country. I warmly welcome the projects and Savannah’s entry into the Chadian power sector. We are already engaged to provide all the support needed for implementing these projects and having the first power delivered to our population and our industries in line with the State plan for enhancing the power offering in our country.”

His Excellency Mark Matthews, Ambassador of the United Kingdom to the Republic of Chad, commented:
“I am delighted that a British company, Savannah Energy, is making such a substantial investment in renewable energy in Chad. Chad has plentiful resources of renewable energy which, through investments like this, can be harnessed to develop the economy and improve the lives of Chadians. This is a further example of UK commitment to Chad.”

Andrew Knott, Chief Executive Officer, Savannah Energy, commented:
“I am delighted to announce the Centrale Solaire de Komé and the Centrales d’Energie Renouvelable de N’Djamena projects. Both of these represent a major vote of confidence in Chad by Savannah and have the potential to contribute to a transformative change in the country’s GDP over the course of the coming years, as well as bringing the significant quality of life benefits associated with access to regularised power to the regions in which the Projects are situated. The Projects represent one of the largest ever foreign direct investments in Chad and are believed to the largest ever by a British company.

I would like to thank General Mahamat Idriss Deby Itno, President of the Transitional Military Council, President of the Republic of Chad and Head of State; His Excellency Djerassem Le Bemadjiel, Minister of Petroleum and Energy of the Republic of Chad, and the wider Chadian government  for the enthusiastic support we have received in relation to making these projects happen. We look forward to working with the Government and our developmental finance partners over the course of the coming years as we move through the feasibility and construction phases of the projects to our intended first power dates in 2025/26.

Centrale Solaire de Komé and Centrales d’Energie Renouvelable de N’Djamena are the second and third large-scale greenfield renewable energy projects that Savannah has announced this year, following on from our announcement of the up to 250 MW Parc Eolien de la Tarka project in Niger. We expect to announce our involvement in further large-scale greenfield power projects over the course of the next 12 months”

This announcement came out on Friday but just missed the deadline for the blog, here are my thoughts…

Yet again Savannah has moved ahead, this time with a ground-breaking agreement with the Government of Chad for the development of up to 500 megawatts of renewable energy projects supplying electricity to the Doba Oil Project and the towns of Moundou and Doba in Southern Chad, and the capital city, N’Djamena.

The comments by CEO Andrew Know also indicate that with one project already announced and now these two agreed there will be more to come. With a number of exciting projects across Africa in various stages of completion the appetite for renewable energy seems to be substantial and with SAVE on the lookout for more deals I remain extremely confident of further profitable agreements. 

Diversified Energy Company

Diversified Energy has announced that on 27 May 2022 it closed an asset backed securitisation  of substantially all remaining unsecuritised upstream producing natural gas and oil Appalachia assets. This financing is linked to key performance indicators based on emissions reduction targets and represents the Company’s third ESG-aligned ABS in 2022. The Assets were previously pledged as collateral under the Company’s Revolving Credit Facility.  In conjunction with the closing of the $445 million ABS and reflective of the transfer of the collateral, Diversified’s 16-member bank group, led by KeyBank National Association, redetermined the Company’s RBL borrowing base at $300 million. Diversified will use the ABS proceeds to repay all outstanding borrowings under its RBL and for general corporate purposes, resulting in liquidity(a) of approximately $500 million pro forma as of 31 March 2022.

Transaction Highlights

Key terms:

• ABS note amount of $445 million ($423 million, net of a certain fees and approximately $15 million in restricted cash interest reserve)
• Fixed coupon of 5.78% (notes issued at par)
• A rating of BBB (Fitch Ratings, Inc.)
• Fully-amortised maturity of December 2030 (b)
• Sustainable Fitch provided an assessment and Second Party Opinion of Diversified’s KPI-linked framework and determined the notes align with the ICMA’s framework for sustainability-linked bond principles

The KPI-linked notes include certain emissions reduction targets based on targets from the Company’s 2021 Sustainability Report(c)

Favourable hedge structure:

• Long-dated natural gas swaps at a weighted average price of $3.91/MMBtu
• Long-dated NGL swaps at a weighted average price of $43.27/bbl
• Purchased natural gas put spreads in the outer years, providing downside price protection while preserving exposure to higher natural gas prices. The Company includes the fair market value of the put spreads on its balance sheet.
• Redetermined borrowing base and increased liquidity:
• Undrawn RBL borrowing base of $300 million
• $150 million increase in the Company’s liquidity since its 1Q22 trading statement(d)
• Liquidity(a) of approximately $500 million, as of 31 March 2022 and pro forma for recent acquisitions, comprised of RBL availability and approximately $200 million in cash on hand

Rusty Hutson, Jr., CEO of the Company, commented:
“We are pleased to close another fixed-rate, fully-amortising and liquidity-enhancing ABS, at a tighter spread to prevailing interest rates than our prior ABS notes despite a rising rate environment. We are especially excited to include many new investors as we further expand the investor universe for high-quality E&P securitisations, and we look forward to working with these financial institutions including those that have invested in our prior securitisations.  We plan to remain active in the ABS market given the supportive commodity price backdrop, strong investor demand for seasoned-issuers like Diversified and our desire to transition long-term assets from our RBL into low fixed-rate, fully-amortising notes.”

This is another good piece of securitisation which defines the debt and also gives scope for further deals which I know are rarely far away from management’s thoughts. In addition it is another financing is linked to key performance indicators based on emissions reduction targets and reminds me that Rusty and his team have taken the ESG approach very seriously for some time. Indeed this is the third ESG issue so far this year and I wouldn’t be surprised to see a continuation of this policy. 

DEC shares are up some 25% since the turn of the year and the last Bucket List, in addition shareholders have received substantial dividends and I would expect more of the same. More deals, more activity from the top quality management, who will deliver more big pay-outs in a market place that shows that opportunities still exist for such acquisitions so I expect more upside in the shares. 

Egdon Resources/Union Jack Oil

Egdon has advised that the North Sea Transition Authority has approved the Field Development Plan for the Wressle oil field in North Lincolnshire, held under licences PEDL180 and PEDL182 where Egdon is operator with a 30% interest.

The NSTA has also approved the Licences entering their production phase, which will continue through to 2039.

Commenting on these positive developments, Mark Abbott, Managing Director of Egdon Resources plc, said:
“This is a key milestone for the Wressle project as it transitions from an extended well test to production under an approved field development plan.  Wressle continues to generate high levels of production and revenues.  The Wressle-1 well is currently amongst the most productive in the onshore UK and to date has produced over 170,000  barrels of oil.

I am proud of the Egdon team and our contractors for their efforts and determination in achieving this key milestone. My thanks also go to our joint venture partners Union Jack Oil and Europa Oil and Gas, for their support and advice during this process.

Our focus now turns to completing the installation of the few remaining permanent production facilities and progressing the planning, permitting and implementation of the gas monetisation plan. This will enable a reduction in gas incineration and remove the limitations on oil production. In parallel we are advancing the development plan and consenting process to enable production from the Penistone Flags reservoir where gross Mid-case Contingent Resources of 1.53 million barrels of oil and 2 billion cubic feet of gas have been independently reported.” 

Union Jack which holds a 40% economic interest in Wressle also noted the news and,

Executive Chairman of Union Jack, David Bramhill commented: 
“The approval of the FDP by the NSTA is another significant and important milestone in the history of Wressle.

“Wressle-1 is currently amongst the most productive wells in the UK, and to date has produced over 170,000 barrels of high-quality oil.

“Focus now turns to completing the installation of the few remaining permanent production facilities and progressing the planning, permitting and implementation of the gas monetisation plan.

“My thanks go to our Joint Venture partners Egdon Resources U.K. Limited (Operator) and Europa Oil and Gas plc, whom, along with Union Jack have made the FDP approval process a success.”

As per the comments from Egdon and Union Jack this morning the approval of the FDP for the Wressle field is of significant importance and more importantly key to the UK domestic gas market.  

Rockhopper Exploration

Rockhopper has announced its audited results for the year ended 31 December 2021.

2021 Highlights

Sea Lion and the Falkland Islands 

• Definitive legally binding documents announced and, post-period, signed with Navitas Petroleum LP and Harbour Energy plc 
• Navitas to acquire 65% interest in, and become Operator of, Rockhopper’s North Falkland Basin licences
• Harbour to exit the Falklands
• Navitas to fund all of Rockhopper’s Phase 1 Sea Lion project costs* pre FID via 8% loan
• Navitas to fund two-thirds of Rockhopper’s Sea Lion Phase 1 project costs* from FID to one year after first oil, or project completion if earlier, via interest free loan (for any costs not met by third party debt financing)
• Loans repaid from 85% of Rockhopper’s working interest share of Sea Lion Phase1 project cash flows

(* This excludes licence costs, taxes, abandonment and decommissioning costs (including the Temporary Dock Facility) and contract termination costs incurred in connection with Harbour withdrawing)

Corporate and Financial

• Administrative expenses at lowest level since pre-Sea Lion discovery – G&A US$3.3 million
• Cash of US$4.8 million as at 31 December 2021 

Outlook 

• Ombrina Mare Arbitration proceedings formally closed on 25 April 2022 – seeking significant monetary damages
• Tribunal has 120 days after closing to issue its Award, extendable by 60 days
• Satisfaction of various conditions precedent to the Navitas and Harbour transaction required for deal completion, including various regulatory and other approvals required from the Falkland Islands Government
• Navitas to assume operatorship of Sea Lion and strengthen operating capability
• Lower upfront cost Sea Lion development to be worked up and financing sought
• FID targeted 2023/24

Keith Lough, Chairman of Rockhopper, commented:
“We are delighted to have signed legally binding documentation allowing Harbour a clean exit and bringing Navitas into the Falklands. At current oil prices and with an increased focus on security of supply, we believe a responsibly developed Sea Lion presents an exceptional chance to create very significant value for all stakeholders. 

We look forward to working closely with Navitas on a lower cost development and associated financing plan for the project. With the Ombrina Mare arbitration result expected later in the year, we hope and believe that 2022 will be the start of a bright new chapter for Rockhopper“.

With these historic results there is little to add to the numbers but the news recently that Navitas has formally joined the team ready to develop the Sea Lion project means that going forward it should be an exciting time for Rockhopper shareholders. 

Arrow Exploration

Arrow has announced that the Rio Cravo Este-2 (“RCE-2”) well was brought on production on May 23, 2022. The Company has also successfully spud the next well, RCS-1 (Rio Cravo Sur-1) on May 23rd in the Tapir Block of its Rio Cravo Este 2 area, located in the Llanos Basin of Colombia.

Operations Update

The second well on the Tapir Block, the RCE-2, well was brought on stream slowly on May 23rd. The well initially produced clean oil at high rates but has developed a water cut.  The well is currently being managed at reduced rates of 1000 BOPD (500 net). This exceeds forecast pre-drill rates of 360 BOPD net and the water cut has stabilized at less than 20%. Consistent with good production practice, oil flow rates will be adjusted in a timely manner. The Company will produce oil rates around the current level over the intermediate term. The well is expected to pay-out in less than six months.

The RCS-1 well, was successfully spud on May 23rd and is currently drilling ahead at 1500 feet. RCS-1 is expected to reach Total Depth of 8700 feet on or about June 7th.The well is targeting 6 separate hydrocarbon bearing reservoirs. The Company expects the RCS-1 well to come in 20 feet higher at the Carbonera Formation C-7 level, the primary objective, than was experienced in the RCE-2 well. Drilling and casing of the well will be followed by completion and testing. Total testing time is dependent on the number of zones encountered but is expected to take approximately five days per zone.

The Company is proceeding with a full field development plan to be submitted to Colombian Regulators for approval. The development plan includes additional wells targeting the Carbonera C-7, the Middle Gacheta and the Lower Gacheta, all of which tested commercial rates in the RCE-2 Well. Existing 3-D seismic has been successfully reprocessed and interpreted and is supportive of an expeditious development program. The Company anticipates full field development will be internally funded by cash flow.

Marshall Abbott, CEO of Arrow, commented: 
“We are encouraged with the results of the RCE-2 well, which add materially to our production, reserves and cashflow. Building on this momentum, we have successfully spud the RCS-1 well, and look forward to providing the results of the zone testing once drilling is complete. We expect that this new well will further increase our production rates, producing additional positive cashflow and reserves for Arrow during an ongoing high commodity price environment.”

Continued strong production rates from existing tied-in wells combined with additional and expected production from the RCE-2 well and RCS-1 wells support the Company’s objective of achieving a production rate of 3,000 boe/d within 18 months of its AIM listing (October 2021).

I am increasingly getting excited about the prospects for Arrow and they are without doubt delivering on the promises they made in initial presentations. With the RCE-2 well success now delivering in terms of production as well as cashflow and reserves and the RCS-1 well having just spudded successfully the future is very exciting. 

Echo Energy

Echo Energy, the Latin American focused upstream energy company, is pleased to provide an operational update regarding the Company’s producing Santa Cruz Sur assets, onshore Argentina.

The Company confirms that daily gas production has materially increased in the Oceano field, following a successful facilities maintenance and upgrading programme focussed on improvements in efficiency, reliability and load capacity of the gas facilities at Oceano, which delivers gas to residential suppliers. As part of the Company’s plan to increase production, the Oceano field was temporarily shut-in in April 2022 to allow for maintenance and upgrades to the compressor and associated infrastructure.

In Q1 2022, the Oceano field produced an average of 1.72 MMscf/d of gas (net to Echo) and is now producing at an average rate of 2.63 MMscf/d of gas (net to Echo) over the 12 days following the maintenance and upgrades. This represents an increase of 53% in daily gas production at the Oceano field and markedly exceeds the Company’s expectations prior to the operations being undertaken.

Following post-maintenance commissioning, total average daily gas production (net to Echo) across the Santa Cruz Sur assets, for the 12 days prior to 21 May 2022, increased to 8.4 MMscf/d being a 14% increase over the average daily gas production levels achieved in Q1 2022.

As previously announced, the Company has identified an extensive programme of production enhancement opportunities across its portfolio of assets at Santa Cruz Sur, including infrastructure and facility improvements, well interventions and well workovers.   

 Martin Hull, Chief Executive Officer of Echo Energy, commented:
“The increase in production from the Oceano field is clearly encouraging and is a further demonstration of the significant potential that we believe exists within the Company’s Santa Cruz Sur assets. We continue our focus, as cashflow allows, on making targeted and cost effective investments to drive production performance and improving revenues in an environment of sustained elevated commodity prices. We remain committed to building value for our shareholders and look forward to reporting further progress”

This is encouraging indeed from Echo and after such a long time the Argentine portfolio is at last showing real growth. The shares however have been quite a disappointment and have halved in a year in which the hydrocarbon prices have risen sharply, something has to move and if this increase in production is to be maintained then the stock is indeed way too cheap. 

United Oil & Gas

United Oil & Gas has announced an update on the drilling of the ASV-1X exploration well in the Abu Sennan licence, onshore Egypt. United holds a 22% working interest in the Abu Sennan licence, which is operated by Kuwait Energy Egypt.

The well was drilled to a Total Depth of 3,496 metres encountering nine metres of net reservoir in the primary Abu Roash “C” (ARC) reservoir target and 111 metres of net reservoir in the secondary Kharita target. Indications of hydrocarbons were recorded on the mud log over the ARC reservoir target and oil was identified from the geochemical analysis of ditch-cuttings, however the initial petrophysical interpretation did not indicate the presence of net pay in either the ARC or Kharita reservoir intervals.

Given the evidence from the mud log, the oil seen in the ditch-cuttings, and the similarity to the petrophysical response observed across the ARC reservoir in the previously drilled ASZ-1X well, the Joint Venture partners have agreed to perform a well-test on the ARC reservoir in the ASV-1X well. For the purposes of comparison, the ASZ-1X well was drilled in 2018, and whilst initial petrophysical results suggested a lack of net pay in the ARC reservoir, the well flowed hydrocarbons on test, and was put onto production.

Further operations on the well and any potential application to EGPC for a development concession will be determined based on the results of the comprehensive testing programme currently being undertaken.

The ASV-1X well was drilled by the Sino Tharwa-1 rig. It is the second well of the 2022 drilling campaign, and the first exploration well in the programme. On completion of the initial well-testing on ASV-1X, the rig will move to the Al Jahraa Field to drill the Al Jahraa-14 development well.

United’s Chief Executive Officer, Brian Larkin commented:
“Given the indications of the presence of hydrocarbons in the well coupled with the similarities in the petrophysical analysis to an analogue well drilled in 2018 targeting the same reservoir, we fully support the Joint Venture’s decision to carry out a testing programme on the well. The additional data provided by the well will augment our understanding of the potential in the licence whilst the high gas readings and oil recovered from cuttings in the ARC is encouraging for the prospectivity of this eastern area of the Abu Sennan licence, and will be incorporated into the future exploration drilling plans.

Following completion of the first phase of the well-testing programme, our active, fully funded 2022 drilling programme continues with the spudding of the development well, Al Jahraa-14 on the Al Jahraa Field a follow up to the commercial discovery at AJ-13 at the end of 2021.”

The well is certainly not a duster, at least not until further testing is completed so it will be best to wait and see what the results are, last year’s 100% hit rate is on the line. The nature of the UOG portfolio being what it is, any disappointment in Egypt impinges heavily on the company in general and with Jamaica still at farm-out stage the ultimate irony is that the CNS assets, sold but then returned when the buyer couldn’t raise the cash, may now play a part, otherwise the imbalance in the portfolio would definitely be skewed. 

The shares have also underperformed, down some 50% on a year, maybe just having Egypt for ‘regulation production’ means that any slip-ups are punished and perhaps there might be one more change in the portfolio yet to come, possibly something with exploration upside. Having said that the value of Egypt on its own must be more than the current market cap so whatever happens the shares are probably too cheap.

Ascent Resources

Ascent has announced its official entry into a binding damages-based agreement – essentially a “no win no fee” funding arrangement – to appoint Enyo Law LLP to pursue the Company’s Energy Charter Treaty and UK-Slovenia Bilateral Investment Treaty arbitration claim against the Republic of Slovenia.

Enyo – the specialist arbitration and litigation legal firm who filed both of the Notice of Disputes on behalf of the Company and represented it in last year’s pre-arbitration negotiations with the Republic of Slovenia – will be advancing the disbursements which are expected to be incurred in the pursuit of the claim and will only be paid out of a portion of the proceeds of the arbitration in the event of a successful damages award or execution of a binding settlement agreement (if achieved sooner).

The closing of this funding allows the Company to securely initiate the arbitration proceedings against the Republic of Slovenia in relation to the significant damages by the Company’s Slovenian investment as a result of Slovenia’s breaches of the protections established by the ECT and BIT, including, inter alia the prohibition of expropriation, the guarantee that the investments would be accorded fair and equitable treatment and Slovenia’s guarantee that the management, maintenance, use, enjoyment or disposal of the investments would not be impaired by arbitrary, unreasonable or discriminatory measures.

Notwithstanding the size of the Company’s damages, in its view, having increased (for reasons including the increased gas price and the consequences of the recent legislative changes in Slovenia) and remaining significantly in excess of a hundred million Euros, it should be cautioned that in the event the Company is successful in its claim any amount actually received by the Company may be significantly lower.

Andrew Dennan, Chief Executive Officer, commented:
“Today’s completion of the ‘no win, no fee’ damages based agreement allows the Company to immediately advance its material damages claim against the Republic of Slovenia in an international forum, as we seek redress for shareholders after many years of frustration, arbitrary decision-making against the Company’s investment and delays being imposed on the project. This impact has recently been amplified with our investment effectively being expropriated by virtue of the new amendments to the mining law which specifically target the destruction of our full investment value.

We are delighted to have secured this arrangement on behalf of our shareholders and which now positions Ascent’s equity holders with material upside exposure to a claim seeking damages of  several hundred million dollars.”

As a NED of Ascent I can’t comment on the news but thought it worth just pointing out the update.

Angus Energy

Following on from last week’s RNS in which Angus announced the buying of the remaining 49% of the Saltfleetby gas field I had the chance to get George Lucan, Angus MD in to Core London for my CEO interview slot. The link is below

Core Finance Managing Director interview: George Lucan, Angus Energy

KeyFacts Energy Industry Directory: Malcy's Blog