WTI (Oct) $86.79 +$3.25, Brent (Nov) $92.84 +$3.69, Diff -$6.05 +44c, USNG (Oct) $7.99 +8c, UKNG (Oct) 370.0 -34.0p, TTF € 196.0 -€84.33

Oil price

Oil was flat last week with no need to reiterate all the reasons, save to say that further Covid scares are making the Chinese economy looking to be in the worst state it has been for many years but Opec+ are having none of the argument about demand savaging the oil price by saying that they will counter any move by reducing supply.

Finally the rig count is not showing that domestic US producers are in any way looking to add to that supply equation, Baker Hughes reported on Friday that overall units were down 1 at 759 but oil rigs were down 5 at 591.

Angus Energy

Angus announced on Friday afternoon that transmission specification gas quality has been comfortably achieved by the plant in its 24/7 operations since First Gas.

The Company has achieved flow rates from well A4 of 4 mmscf/d (million standard cubic feet per day) at approximately 55 bar and well over 4.5 mmscf/d from well B2 at approximately 45 bar which, taken together, greatly exceed the 2017 combined shut-in rate of 5 mmscf/d from those wells as advised in the Company’s presentation of December 2019 and in subsequent communications.

The Company has been running the process plant at an effective throughput of 3.3 mmscf/d on average for the last three days which has steadily risen from 0.5 mmscf/d at the beginning of operations.  Adjusting for short outages resulting from resolving typical commissioning “trip” issues, the plant is evidencing a current capacity to process gas of 4.6 mmscf/d, which would comfortably meet the Company’s hedge obligations for September.

Our aim is to raise this process capacity, and reduce the incidence of commissioning trips, such that in the coming days the plant will reach a minimum steady state of 5.5 mmscf/d or greater which would again comfortably meet the Company’s hedge obligations for Q4.   To that end we continue to increase engine speed and utilise more natural well head pressure.   Additionally, stabilised condensate production has started at circa  50 barrels per day.

The Company intends to advise production figures, together with an update on the installation of the second compressor, at the end of this month and thereafter the Company expects to report production figures quarterly.

This big news was somewhat obscured by the timing of its release on Friday afternoon and also it was competing with other international news…

However it did seem to me to be nearly 10 mmscf/d of production which, taken together, greatly exceed the 2017 combined shut-in rate of 5 mmscf/d from those wells and certainly more than many expectations, mine included. 

This will mean that revenue will be better than expected and the famous hedge is well and truly covered, for some people a point of some contention. Angus goes from strength to strength and once again I would like to commend the management who firstly saw the opportunity and secondly delivered the Saltfleetby field against quite some market cynicism. 

The shares have quadrupled since January and with sensible raises investors have had the chance to buy in and  are now reaping those rewards, this is a great asset and I highly commend George Lucan and his team and expect much more progress in due course, as I said keeping the Barbarians at the gate might be even harder…

Canadian Overseas Petroleum

Canadian Overseas Petroleum Limited announce a material increase to its Proved (“1P Reserves”) and  Proved plus Probable Oil and Gas Reserves (“2P Reserves”) and 1P and 2P Discounted Net Revenue Before Tax resulting from the acquisition of the assets of Cuda Energy LLC.

The Company has received a Reserve Report  prepared by Ryder Scott Company LP dated September 2, 2022 and effective as at July 31, 2022 to reflect the addition of the assets of Cuda acquired on July 26, 2022. The Report is compliant to Canadian regulatory requirements pursuant to National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).

Material increases to COPL’s 2P Reserves and NPV from those as at December 31, 2022 were due to the addition of the complimentary Cuda assets and the increase in crude oil prices as at July 31, 2022, which were as follows:

• Net Working Interest (“WI”) 1P Reserves after royalties increased 47.2%;
• Net WI 2P Reserves after royalties increased 38.5%;
• Discounted 1P NPV increased 93.2%;
• Discounted 2P NPV increased 90.8%;
• Net 1P Reserves Unit Value increased 31.2%, and
• Net 2P Reserves Unit Value increased 37.8%.

1. “Gross Reserves” are the Corporation’s working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Corporation.
2. “Net Reserves” are the Corporation’s working interest (operating or non-operating) share after deduction of royalty obligations, plus the Corporation’s royalty interests in reserves. 
3. “Proved” reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. There is a 90% probability that the actual remaining quantities recovered will exceed the estimated proved reserves. 
4. “Probable” reserves are those additional reserves that are less certain to be recovered than proved reserves.  It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. 

Arthur Millholland, President & CEO, commented:
“The updated reserves of the Company and the significant increase in COPL’s 2P NPV 10% to $492 million illustrate the benefit of the timing of our acquisition of the Cuda assets in a high oil price environment. We purchased these assets for $19.15 million with the incremental reserves acquired at a cost of $2.20 per barrel. This is a remarkable metric to the comparative valuation of the 2P Reserves of $15.70 per barrel as at July 31, 2022. We will continue to release updates to the market as we work through our plan as presented earlier this year.”

This is an early stage in my following of COPL but so far I have been impressed and without doubt the Cuda assets are delivering in excess of expectations. I will continue to catch up and look forward with interest to more meetings with the CEO in due course. 

i3 Energy

i3 Energy has announced the unaudited results for its period ended 30 June 2022.  

HIGHLIGHTS

Dividend Declaration

• During the first half of 2022, i3 announced total dividends of 0.60 pence/share (totalling £6.853 million), equating to an H1 yield for the period from 1 January 2022 to 30 June 2022 of approximately 4.5% for i3’s shareholders based on i3’s closing share price on 4 January 2022
• After announcing in December 2021 that the Company was committing to pay a minimum of £11.827 million in dividends during the course of 2022 (3.5x all dividends paid during 2021), i3 announced in February 2022 that it would be moving to a monthly dividend and in May 2022 that it would be increasing its dividends payable during 2022 by 25% to £14.784 million, equating to 1.3125 pence per share or a 9.8% yield for i3’s shareholders based on i3’s issued and outstanding ordinary shares and closing share price on 4 January 2022

Financial Highlights

• H1 revenue of £101.6 million (H1 2021 £26.5 million), net operating income(1) (Revenue less royalties, opex, processing and transportation) of £68.8 million (H1 2021 £12.5 million), and cash flow from operations of £48.6 million (H1 2021 of £8 million)
• Employees elected to convert 114,547,030 options at a market price of c.28 pence per share into 66,305,381 ordinary shares (primarily settled on a post-tax in-the-money basis thereby reducing the resulting option shares and associated dilution by 42%), enabling all staff to become invested and aligned as shareholders

(1) Non-IFRS measure.

Operational Highlights

• Average production of 18,950 barrels of oil equivalent per day (“boepd”) for the six-month period (107% higher than H1 2021) while exiting H1 above 20,000 boepd, August above 21,100 boepd and presently above 21,600 boepd, offsetting expected natural declines through excellent operations management, targeted maintenance capital allocation, and the initial deployment of i3’s ongoing 2022 capital programme
• Canadian Capital budget increased by up to USD 50 million above the previously announced (December 2021) USD 47 million 2022 programme (together, the “Enlarged Capital Budget”), focused on continued low-risk, high-return development drilling of i3’s core Glauconite and Cardium fairways, with expanded Montney and Clearwater programmes; i3 remains on track to deliver peak 2022 production above 24,000 boepd
• Drilled 20 gross wells (11.7 net) wells during H1; production associated with the majority of the operated Q2 2022 capital programme now in the initial clean-up phase or being tied into infrastructure, with initial well results continuing to achieve or exceed management’s expectations
• Increased the Company’s Clearwater position by ~20% through the acquisition of 15 net sections (38.5 km2) of proximal, strategic acreage
• Executed a Farm-in Agreement with Europa Oil and Gas (“Europa”) for a 25% working interest (“WI”) in i3’s Block 13/23c North (Licence P.2358) which contains the Serenity oil discovery, in exchange for Europa funding 46.25% of the cost of the upcoming appraisal well up to a gross capped cost of £15 million, above which any costs will be funded in proportion to the respective working interest of each company
• Inaugural annual sustainability report published outlining the Company’s Environmental, Social and Governance (“ESG”) initiatives and plans to reduce greenhouse gas emissions

POST PERIOD AND OUTLOOK

On 9 September 2022, the Company announced the appointment of John Festival as Non-Executive Chairman of i3’s Board of Directors, effective immediately.  Linda Beal, who has seen the Company through a period of transformational growth as Interim Chairperson, remains as a Non-Executive Director with the Company and will focus on her roles as chair of the Audit and Governance Committees.

On 1 August 2022, i3 announced that all conditions precedent under the Farm-in Agreement with Europa had been satisfied and that its farmout of a 25% working interest the Serenity oil discovery was complete.

Following the Serenity farm-out, i3 retains a 75% WI in Block 13/23c North (Licence P.2358) and a 100% WI in Block 13/23c South (Licence P.2358), which contains the Minos High Prospect and Liberator oil discovery.

Between July and September, i3 announced monthly dividends totalling £5.1 million (0.4275 pence per share), bringing the year-to-date yield to 7.7% for i3’s shareholders based on i3’s closing share price on 4 January 2022.

As announced on 26 August 2022, with the full deployment of its Enlarged Capital Budget, i3’s 2022 Net Operating Income (“NOI” = revenue minus royalties, opex, transportation and processing) is forecasted to be approximately USD 200 million driven by recent fluctuations in commodity prices, pricing differentials and inflationary pressures. This remains USD 8 million above the forecasted NOI of USD 192 million announced by i3 on 12 April 2022, which increased rapidly thereafter to USD 241 million by i3’s Q1 operational update of 9 May 2022. The recent softening in full-year 2022 commodity pricing predictions and expected differentials since May’s Q1 update result in a 9.4% decrease to i3’s revenue forecast (circa 6% for gas and 3.4% for liquids), while inflationary pressures are predicted to increase costs (royalties, opex, transportation and processing) by 3.0%. i3 continues to employ a defensive risk management strategy with current hedges in place to cover 36% and 22.5% of the Company’s projected H2 2022 and H1 2023 production volumes, respectively.  i3’s hedges are as follows:

The Company’s focus for the remainder of 2022 will be on 5 key areas:

1. The growth of i3’s Canadian business by way of operational excellence, capital deployment and strategic upsizing in core areas;
2. Serenity appraisal drilling and, upon success, the booking of reserves and initiation of field development planning;
3. Dividend distributions to shareholders of up to 30% of free cash flow;
4. Conducting operations safely and in an environmentally secure manner; and
5. Continuing to develop the ESG strategy outlined in its recently published maiden annual sustainability report.

Majid Shafiq, CEO of i3 Energy plc, commented:
“We are very pleased to announce a solid set of results for the first half of the year. These reflect the hard work of our staff in Canada and the UK in successfully progressing our business plan on all fronts. We have made great strides in executing efficiently on our operated drilling program in Canada, with all wells drilled being on prognosis geologically and production contributions now commencing following tie-ins to infrastructure. We are also very happy to bring in a partner to the Serenity oil field in the UK and plans to drill the appraisal well are on track to spud this month. Our operations team continue to perform diligently to maintain our base production volumes, whilst operating safely with no lost time incidents being recorded. We also published our inaugural annual ESG report which set out our commitment to high ESG standards and operating practises. Our move to a monthly dividend program reflects our confidence in the stability and resilience of our production assets and we look forward to updating the market over the next quarter as our busy drilling program continues.”

Another company I’m coming back to and I have yet to meet the company since Covid ended so I’m being somewhat conservative in my views. The assets look good and the upside seems to have significant potential, worth being back writing about them I suspect…

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