WTI (Oct) $87.78 +99c, Brent (Nov) $94.0 +$1.16, Diff -$6.22 +17c, USNG (Oct) $8.24 +25c, UKNG (Oct) 340.0p -30.0p, TTF (Oct)  €181.645 -€14.35 

Oil price

Little to add today, oil rose as the dollar weakened and markets remained positive ahead of inflation day in the US today. As I write the number is in, worse than expected an the street has shed 600 points.

US retail gasoline continues to fall, it is now $3.69 per gallon which is down 5.6 cents on last week and minus 24c on the month and up still 52.5c y/y.

Union Jack Oil

Union Jack has announced that Gaffney, Cline & Associates Limited has prepared an independent Reserves and Contingent Resources report with an Effective Date of 30 June 2022, on the Wressle Oilfield, PEDL180 and PEDL182, onshore United Kingdom. Included in this work was the development of an Illustrative Production Scenario for the potential future development of the field that includes the Contingent Resources. In addition, an independent assessment of the upside potential of the producing Ashover Grit and the Santon Sands horizons was undertaken.

HIGHLIGHTS

• Ashover Grit Speculative Deeper Oil-Water Contact assessment indicates a potentially significant increased estimate of STOIIP  of 10.12 million barrels of oil and a recoverable resource of 2.43 MMBbl
• The Wressle-1 well also indicated the hydrocarbon potential of the Santon Sandstone where GaffneyCline has estimated a Contingent Resource
• Illustrative Production Scenario shows a constrained plateau production rate of 800 barrels of oil per day for approximately five years
• Ashover Grit and Wingfield Flags oil reserves at the Effective Date of 30 June 2022 stood at 1P 320,000, 2P 670,000 and 3P 1,030,000 barrels of oil following past production of 203,000 barrels of high-quality oil with zero water cut

The Report has been prepared exclusively for Union Jack and its content does not necessarily reflect the Operators or other Partner views.

In the preparation of the Report, GaffneyCline has adopted the Petroleum Resources Management System  standard and used definitions contained therein.

RESERVES AND CONTINGENT RESOURCES OF THE WRESSLE OILFIELD

Licence Summary and Ownership Details

The Wressle oilfield is located within licences PEDL180 and PEDL182 in Lincolnshire on the Western Margin of the Humber Basin.

Union Jack holds a 40% economic interest in these licences.

Licence Ownership Details

Wressle Oilfield Oil Reserves as at 30 June 2022

The remaining 2P reserves of 0.67 MMBbl compares to initial gross 2P reserves of 0.62 MMBbl as originally reported in the Company’s announcement of 26 September 2016. This figure is post past production of 203,000 barrels of oil.

Wressle Oilfield Contingent Resources as at 30 June 2022

Gross Contingent Resources are 100% of the volumes estimated to be recoverable from the discovery if it is developed.

The volumes reported here are “unrisked” in the sense that no adjustment has been made for the risk that the discovery would not be developed in the form envisaged or not at all (i.e. no “Chance of Development” factor has been applied).

Wressle Oilfield Gas Contingent Resources as at 30 June 2022

The associated gas from the Ashover Grit and Wingfield Flags production is classified as Contingent Resources as no method to monetise these resources is currently in place. Contingent Resource estimates take into account gas production to effective date.

The volumes reported here are “unrisked” in the sense that no adjustment has been made for the risk that the discovery would not be developed in the form envisaged or not at all (i.e. no “Chance of Development” factor has been applied).

Wressle Oilfield: Estimates of Gross Technically Recoverable Resources (“TRR”)

Cumulative production to 30 June 2022 is 203 MBbl of oil and 116 MMscf of gas.

ASHOVER GRIT AND SANTON SANDS UPSIDE POTENTIAL

Ashover Grit Deeper Oil-Water Contact

There remains uncertainty about the extent and size of the Ashover Grit trap.  Mapping of the Ashover Grit at the Wressle oilfield by GaffneyCline using the 3D seismic data indicates that the spill-point of the trap could be deeper than the oil-down-to derived from log data used in the estimation of Reserves. However, a water-up-to in the deeper part of the Ashover Grit in the Wressle-1 well at 1,622m TVDss is deeper than the closure. Therefore, the trapping mechanism and spill-point are uncertain and may be deeper than the values used in the Reserves estimation. These results provide a potentially significant increased STOOIP estimate and potentially recoverable volumes. Not all of the volumes may be recoverable from the Wressle-1 location.

Single Deterministic Estimate for Deeper Oil-Water Contact Scenario

The volumes estimated use the same reservoir parameters as the Reserves estimates for the Ashover Grit with the exception of the Gross Rock Volume estimate

A recovery factor of 24% is assumed.

Santon Sandstone Upside Potential

The Wressle-1 well also indicated the hydrocarbon potential of the Santon Sandstone. This reservoir requires further data to be obtained during future drilling in the field before any development can be planned, however this provided additional future potential. This formation was not tested in the Wressle-1 well.

Santon Sandstone Contingent Oil Resources

Santon Sandstone Contingent Gas Resources

Future Development of the Wressle Oilfield and Illustrative Oil Production Profile

The Wressle-1 well is currently producing oil and gas from the Ashover Grit reservoir.

The current field development Plan envisages that along with continued production from the Ashover Grit and Wingfield Flags, the Penistone Flags reservoir is developed with two or three additional wells.

Based on the reserves and contingent resources identified in the Report, an Illustrative Production Scenario shows that a constrained plateau production rate of 800 barrels of oil per day may be possible for approximately five years.

There is significant uncertainty on the initial flow rate that will be obtained from the Penistone Flags reservoir and that, whilst the observation that 800 barrels of oil per day may be possible for approximately five years and is based in part on the recent FDP, this Illustrative Production Scenario does not necessarily reflect the Operator’s or the other Partner’s views.

Executive Chairman of Union Jack David Bramhill, commented:
“The GaffneyCline Report reflects a serious technical effort over a prolonged period and its content is highly encouraging for the future of the Wressle development.

“GaffneyCline’s findings, observations and technical work in respect of the potential upside in respect of the Ashover Grit reservoir have gone a long way in answering our questions regarding future potential upside and prolonged productivity.

“The Illustrative Production Profile indicates robust and material productivity for at least five years and beyond. Should the Deeper Oil-Water Contact potential of the Ashover Grit reservoir become proven, the incremental value of Wressle as a development would be transformational for the Wressle partners.

“The current Reserves at the Ashover Grit and Wingfield Flags in respect of 2P figures according to GaffneyCline stands at 670,000 bbls of oil as at 30 June 2022. This figure is post past production figures of 203,000 bbls of oil, a substantial upgrade to the originally reported recoverable Reserve.

“Union Jack thanks GaffneyCline for their diligence in compiling this excellent, informative, and value adding report.”

This is a very interesting report, it has been commissioned despite some uncertainty about the  extent and size of the Ashover Grit but that has been rewarded by a ‘significant increased estimate of STOIIP of 10.12 MMBbl and a recoverable resource of 2.43 MMBbl’. 

The Wressle-1 well also indicated the hydrocarbon potential of the Santon Sandstone where GaffneyCline has estimated a Contingent Resource and that the Illustrative Production Scenario shows a constrained plateau production rate of 800 barrels of oil per day for approximately five years. In addition it should be remembered that in the FDP the Penistone Flags reservoir is developed with two or three additional wells. 

The market has this morning fallen, it may have taken this good news the wrong way or probably more likely some profit taking, after all the shares have effectively doubled in the last month. This is too tempting for some investors who had seen a good profit and the shares approaching the five year high.

As it happens I disagree and if were allowed I would be taking the opportunity to buy stock at this level, after all my recently published target price of 100p should be achievable especially when you look at the wide and diverse portfolio of assets almost all of which has considerable upside. 

Deltic Energy

Deltic has announced the successful completion of the Placing and Subscription announced on 12 September 2022, conditional inter alia on shareholder approval. The Placing and Subscription raised gross proceeds of £15 million and was significantly oversubscribed.

Further, the Company today confirms the details of the Open Offer to raise gross proceeds of up to approximately £2 million and provides a Notice of General Meeting to shareholders.

Results of Placing and Subscription

A total of 426,285,717 new Ordinary Shares have been conditionally placed with new and existing institutional investors pursuant to the Placing by Stifel Nicolaus Europe Limited and Canaccord Genuity Limited, at a price of 3.5 pence per new Ordinary Share. In addition, certain Directors and senior management of the Company have subscribed for a total of 2,285,712 new Ordinary Shares, at the Placing Price pursuant to the Subscription.

A total of 428,571,429 new Ordinary Shares will therefore be issued pursuant to the Placing and Subscription, raising gross proceeds of £15 million. The new Ordinary Shares to be issued pursuant to the Placing and Subscription and Open Offer represent approximately 25.7 per cent. of the Company’s enlarged ordinary share capital after completion (assuming full take-up under the Open Offer).

The Placing Price represents a 10.9 per cent. discount to the mid-market closing price on 12 September 2022.

Open Offer

Further to the Launch Announcement and given the successful closing of the Bookbuild, the Company confirms its intention to raise up to approximately £2 million by the issue of up to 58,581,868 Open Offer Shares at the Placing Price, payable in full on acceptance.

Any entitlements to Open Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility. The balance of any Open Offer Shares not subscribed for under the Excess Application Facility will not be available to the Placees under the Placing.

Qualifying Shareholders should note that the Open Offer is not a rights issue and therefore the Open Offer Shares, which Qualifying Shareholders do not apply for will not be sold in the market for the benefit of Qualifying Shareholders who do not apply for Open Offer Shares. The Open Offer application form is not a document of title and cannot be traded or otherwise transferred.

Qualifying Shareholders may apply for Open Offer Shares under the Open Offer at the Issue Price pro rata to their holdings of Ordinary Shares on the Record Date on the basis of:

• 1 Open Offer Share for every 24 Existing Ordinary Shares held

Subject to availability, the Excess Application Facility enables Qualifying Shareholders to apply for Excess Shares up to the maximum number of Open Offer Shares available less their Open Offer Entitlement.

Applicants can apply for less or more than their entitlements under the Open Offer, but the Company cannot guarantee that any application for Excess Shares under the Excess Application Facility will be satisfied, as this will depend, in part, on the extent to which other Qualifying Shareholders apply for less than or more than their own Open Offer Entitlements. The Open Offer is conditional on admission of the Open Offer Shares to trading on AIM becoming effective and the Placing and Subscription having become unconditional.

Posting of Circular and Notice of General Meeting

Completion of the Fundraising is conditional, inter alia, upon the passing of certain resolutions by the Company’s shareholders at a General Meeting to be held at 11 a.m. on 30 September 2022, notice of which will be set out in the Circular. The Circular also contains, inter alia, the full terms and conditions of the Open Offer, a letter from Mark Lappin, the Chairperson of Deltic, explaining the Open Offer and providing the Directors’ recommendation in respect of the Open Offer, and an expected timetable of principal events. The timetable is also set out further below.

Graham Swindells, Chief Executive of Deltic Energy, commented:
“We are delighted by the positive response to our fundraising from both new and existing investors. We are very grateful for their support in what has been an oversubscribed transaction and we are happy to offer our wider existing shareholders the opportunity to participate in the open offer. It has been a strong endorsement of Deltic’s equity story and we are looking forward to our assets moving into the operational phase with the Pensacola well in the coming weeks and following that with our work on the Selene prospect, which is anticipated to spud within the next 12-18 months. This is an exciting time for the Company and I look forward to updating our shareholders, long-standing and new, on our progress.”

Deltic progress to the meat and drink of the operations at Pensacola with a ‘significantly oversubscribed’ raise of £15m and an Open Offer for £2m both done at 10.9% discount which is fair enough under the circumstances.

It has to be said that a fair amount of the heavy lifting on this raise started with the three major shareholders putting their hands in their pockets to the tune of some £5.5m out of the £15m as IPGL, Mr and Mrs Michael Spencer and Inthallo, the fund run by former Baillie Gifford investment manager accounted for c.157m of the 429m shares issued. 

Good also to see an Open Offer so that retail shareholders can participate, after all, the drilling of this well has been a long time coming. To put this into perspective, if it gets taken up, the Open Offer will account for 58.6m shares and the directors just the 2.3m shares…

The shares have roughly doubled this calendar year and at 4p the next moves will be dependent on operational success at Pensacola later this year. 

Jadestone Energy

Jadestone yesterday provided the following update on the operational status of the Montara Venture FPSO.

Following the shut-in of Montara production announced on 12 August 2022, Jadestone has been progressing a remediation plan for the FPSO’s hull and tanks and regularly updating the National Offshore Petroleum Safety and Environmental Management Authority (“NOPSEMA”) on these activities. This plan aims to deliver operational readiness to ensure a safe and reliable restart of the FPSO.

Earlier today, NOPSEMA issued a general direction to the Company, which requires that Jadestone engages an independent reviewer to undertake a gap recognition review, and assure Jadestone’s remediation plans and operational readiness prior to the restart of production operations.  The independent reviewer’s report will be considered by NOPSEMA prior to the restart of production through the FPSO.

The Company will provide a further update on its Montara FPSO remediation plans at its half-year 2022 results scheduled for 20 September 2022.

At this stage, the Company is not in a position to provide guidance on a possible Montara production restart date. As a result, the Company expects that 2022 production could average approximately 13,000 boe/d if production were restored in line with previous guidance, or closer to an average of approximately 11,000 boe/d if the restart were towards the end of 2022.

Paul Blakeley, President and CEO commented:

“We have shut-in production at Montara to focus exclusively on a remediation plan, and have accelerated the inspection and repair activity through prioritising additional maintenance crew offshore. In addition, plans to increase longer-term accommodation space on the FPSO are underway. 

This will deliver a high-level of confidence to all stakeholders in the structural integrity of the Montara FPSO, and allow for a safe and reliable restart of production.  Going forward, we will be reviewing the way we approach inspection and repair on the FPSO’s hull and tanks, with a firm intention to prevent similar occurrences of unplanned downtime in the future.  

We have made significant progress in restoring the FPSO to the standard which we expect while improving its reliability.  We are looking forward to safely delivering the remediation plan, resuming production and restoring confidence in Montara, further adding to the considerable value we have already delivered from the asset since acquisition.”

Who would have thought that the initial leak which was so nearly fixed but turned out so badly for JSE would end up with the production at Montara being shut-in and a substantial remediation plan under way. 

There is little that I can add to what I have said before with regard to Montara but there is another production warning in this update even though any formal guidance cannot be given. Guidance about guidance though is allowed and a figure of 13/- boe/d is suggested but if production is resumed towards the end of 2022 then 11/- boe/d is more likely to be accurate. For the sake of numbers the latter may be a wiser choice. 

Again as I said before this is not going to change reserves, there is no reservoir damage after all and despite this year being disappointing, it is transient and nav is extended not dropped. Also Jadestone still does have one of the best managements in the sector as I have always said and whilst CEO Paul Blakeley is in charge elsewhere in the group it will be business as usual, hopefully with some M&A activity on the cards.

He will have been more than cross about this but the company does have a fine portfolio of assets and despite current frustration the expansion of the portfolio recently means that the outlook is for organic growth plus maybe a bit more. I will speak more after the results next week when I hope to chat to Paul. Having said all that the 20% fall in the last two days I think offers an opportunity, I’m not going to bail out on Jadestone now but for choice I would be buying the stock now. 

KeyFacts Energy Industry Directory: Malcy's Blog