WTI (May) $75.32 +1.85, Brent (May) $75.32 +$1.53, Diff -$5.65 -32c
USNG (Apr) $2.34 +12c, UKNG (Apr) 101.4p +7.12p, TTF (Apr) € 41.505 +€ 1.41

Oil price

Markets are all over the place as we head to the Fed decision on rates later today, the combined wit of The Street is that while Jay Powell hasn’t got a clue he will raise rates by 25bp’s but the tenor of his words may be the signal. Faced with having to control inflation and unemployment he is faced with being between a rock and a hard place.

The markets and he disagree, the former saying that interest rates are now going to come down whilst he is no dove. Oh where is Marcus Ashcroft when you need him?

Genel Energy

Genel has announced its audited results for the year ended 31 December 2022.

Paul Weir, Chief Executive of Genel, said:
“Our production business generated record cash flow in 2022, building our significant financial resources and resulting in a net cash balance at the end of the year of over $200 million. The Company now has an exceptional opportunity to deploy its financial resources carefully to add new assets and grow and diversify our production business in order to improve the resilience and extend the line of sight on the funding of our established dividend programme.

Our capital allocation decisions for 2023 and beyond will be centred around that material, sustainable and progressive dividend programme, while protecting and maintaining the strength of our balance sheet. Our core business remains robust, funding our dividend from free cash flow in the mid-term and there is significant potential still remaining in the portfolio. We have an extremely busy 18 months ahead that carries much potential, and we have a highly capable team in place that is fully focused on delivering on that potential.”

Despite some portfolio casualties in the last few years Genel has today announced a very creditable production of 30,150 kbopd within guidance and for this year some 27-29 kbopd is targeted. This is despite the setbacks at Qara Dagh and Sarta leaving Tawke to do the heavy lifting and of course the long haul that is the arbitration process at the Miran and Bina Bawi PSCs is progressing.

Further long-term growth potential is coming from exploration, one is the moving forward of Somaliland and also bringing forward the Morocco acreage. In Somaliland where there is sizeable prospectivity in any success case but highly dependent on the drill bit it is pure exploration and in Morocco also potentially good but is further down the line. 

Finally Genel are on a well-publicised lookout for M&A work which could provide another sizeable leg of the business and speaking to the CEO this morning I don’t think many areas are off limits, providing they meet Genel’s stated aim of supporting and ultimately progressing the dividend, which rules out areas of high fiscal impropriety such as the UK, or the Gulf of Mexico due to its sophistication.  

With Genel staying very strong and financially capable of paying out a ‘material, sustainable and progressive dividend programme’, I expect the 120p level to be one that will be looked back on as a great opportunity to add to a stock that has a significant yield to it. (12%)

Results summary ($ million unless stated)

1. EBITDAX is operating profit / (loss) adjusted for the add back of depreciation and amortisation, impairment/write-off of oil and gas assets and net reversal of impairment of receivables
2. Free cash flow is reconciled on page 10
3. Reported cash less IFRS debt (page 10)
4. EPS excluding impairment is loss and total comprehensive expense adjusted for the add back of net impairment/write-off of oil and gas assets and net reversal of impairment of receivables divided by weighted average number of ordinary shares

Highlights

• Zero lost time incidents in 2022, with over three million hours now worked since the last incident
• Another year of active drilling on the Tawke PSC and consistent reservoir performance resulted in average daily working interest production of 30,150 bopd (2021: 31,710 bopd)

• Record free cash flow in 2022
  • High oil price and recovery of receivables helped drive free cash flow of $235 million (2021: $86 million)
  • Investment in production and appraisal at Sarta resulted in capital expenditure of $143 million (2021: $164 million)
• Disappointing results at Sarta resulted in a reduction in reserves and an impairment of $126 million, with expiry of the Qara Dagh licence resulting in a write off of $78 million
• Strong balance sheet provides opportunity to acquire and develop new assets
  • Significantly increased financial resources of $495 million ($314 million at 31 December 2021)
  • Net cash under IFRS of $228 million at 31 December 2022 ($44 million at 31 December 2021)
  • Total debt of $274 million at 31 December 2022 ($280 million at 31 December 2021)
• Committed material, sustainable, and progressive dividend programme well established
  • Dividends paid in 2022 increased by 13% to 18¢ per share (2021: 16¢ per share) a total distribution of $50 million
• Carbon intensity of 17.6 kgCO2e/bbl for Scope 1 and 2 emissions in 2022 (2021: 16 kgCO2e/bbl), below the global oil and gas industry average of 19 kgCO2e/boe

Outlook

• Committed dividend funded by free cash flow for medium-term
  • The Board is recommending a final dividend of 12¢ per share (2022: 12¢ per share), a distribution of $33.5 million
• Established dividend programme frames business and capital allocation decisions:
  • Production guidance unchanged at 27-29,000 bopd
  • 2023 capital expenditure expected to be between $100 million and $125 million
  • Progress towards drilling a well in Somaliland
  • Genel continues to actively screen and work up opportunities to invest our cash to extend the line of sight on resilient cash flows that support our dividend programme into the long-term
• Genel continues to invest in the host communities in which we operate, aiming to invest in those areas in which we can make a material difference to society
• The London-seated international arbitration regarding Genel’s claim for substantial compensation from the KRG following the termination of the Miran and Bina Bawi PSCs is progressing. The trial is scheduled for February 2024

Pharos Energy

Pharos Energy plc, an independent energy company, announces its preliminary results for the year ended 31 December 2022.

Jann Brown, Chief Executive Officer, commented:
“2022 was a year of significant change for Pharos. Amidst the macroeconomic challenges and ongoing volatility specifically in Egypt, we delivered crucial milestones that have allowed us to rebuild resilience in the balance sheet, helping us to deliver on our strategy of creating long term, sustainable value for our shareholders via both regular cash returns and organic growth. Pharos is in a much stronger position with the 2023 work programme underway and a focus on sustainable cash generation with capital discipline to deliver returns to our stakeholders.

I would like to thank our global colleagues, investors, government and JV/JOC partners for their continued support and I look forward to updating stakeholders as Pharos works towards a new phase of growth in 2023.”

Pharos has delivered a very solid set of results in what turned out to be a very busy year on all fronts. The hard work done in Egypt in particular the farm-down and gaining enhanced fiscal terms has been rewarded by a drilling programme now underway which rapidly builds cash. As a result the company has embarked on a capital return policy to shareholders including an ongoing buy-back and dividend policy, that was announced today of 1p per share to be proposed at the AGM in May.

In Vietnam work continued on TGT with successful development wells and additional seismic interpretation on the exciting block 125 continues and drilling is hoped for there in 2024. The company has also made a commitment to achieve Net Zero GHG emissions by 2050 and established an Emissions Management Fund, under which we will set aside $0.25 for each barrel sold at an oil price above $75/bbl from 2023 to support emissions management projects.

With cost cutting reducing the size of the board from 9 to 6 and the ‘new’ CEO Jann Brown now a year into the job Pharos has provided a ‘clear road map to cash generation and value creation’ and from what I see that is looking like a solid and highly achievable target which is already being achieved with more to come. Pharos looks set fair with its current portfolio, management and geographical coverage.

2022 Corporate Highlights

• Enhanced fiscal terms secured in Egypt through the signature of the Third Amendment to the El Fayum Concession in January 2022, increasing Contractor’s share of revenue from c.42% to c.50%
• Completion of farm-out transaction and transfer of operatorship of Egyptian assets to IPR in March 2022, delivering a carry of the Group’s remaining 45% interest, expected to continue into Q3 2023
• Completion of $3m share buyback programme announced in July 2022, with a further $3m committed for 2023
• Announcement of policy for annual dividend, based on Operating Cash Flow
• Reshaping of Board structure and composition from 9 to 6 Directors with Jann Brown appointed as Chief Executive Officer in March 2022
• Commitment to achieve Net Zero GHG emissions from all our assets by no later than 2050 announced in September 2022
• Establishment of an Emissions Management Fund, under which we will set aside $0.25 for each barrel sold at an oil price above $75/bbl from 2023 to support emissions management projects

2022 Operational Highlights
Total Group working interest 2022 production 7,166 boepd net 1 (2021: 8,878 boepd net, 7,533 boepd net on a comparative basis1), in line with production guidance;:

• Vietnam production 5,418 boepd net (2021: 5,560 boepd net)
• Egypt production 1,748 bopd 1 net (2021: 3,318 bopd; 1,973 bopd on a comparative basis1)

In Vietnam:

• Drilling programme for two TGT development wells completed in H2 2022, on time and under budget
• Drilling of one CNV well started in H2 2022 and completed in Q1 2023, on time and under budget
• Additional interpretation work on the 3D Seismic in Block 125 is continuing and showing promising results with a number of Prospects identified

In Egypt:

• Commencement of the main El Fayum multi-year and multi-well development programme in Q2 2022 after farm-down
• Seven wells put on production in 2022, plus one additional well drilled in Q4 2022
• Rig on a long-term contract secured in July 2022, providing a stable platform for a continuous drilling campaign
• Request for a short extension on North Beni Suef (NBS) granted in Q4 2022
• Drilling commenced on the first of two NBS commitment exploration wells in parallel with acquisition of additional 3D seismic

2022 Financial Highlights

• Group revenue of $221.6m2 3 (2021: $163.8m2 3)
• Cash generated from operations $110.7m (2021: $51.5m)
• Operating cash flow $53.4m 6 (2021: $10.8m)
• Cash operating costs of $16.36/bbl4 (2021: $16.05/bbl4)
• Cash balances as at 31 December 2022 of $45.3m (2021: $27.1m)
• Net Debt as at 31 December 2022 of $28.9m4,5 (2021: $57.5m4,5)
• Profit for the year of $24.4m (2021: loss $4.7m)
• Net Debt to EBITDAX of 0.23x 4 (2021: 1.00x4)

2023 Highlights and Outlook

• Continuation of share buyback programme announced in January, with a further $3m committed for 2023 so far
• Dividend payment of 1p per share to be proposed for approval at 2023 AGM
• Net Zero roadmap to be published in H2 2023
• Forecast cash capex for 2023 c.$38m (c.$23m after Egyptian carry by IPR)
• Group working interest 2023 production guidance 6,050 – 7,500 boepd net:
• Vietnam 2023 production guidance 4,700 – 5,700 boepd net
• Egypt 2023 production guidance 1,350 – 1,800 bopd net (equivalent to gross production of 3,000 – 4,000 bopd)

In Vietnam

• Work on submitting Revised Field Development Plans (RFDPs) for two wells on TGT and one on CNV is progressing, with all wells remaining in contingent budget until approval
• Application for extensions to TGT & CNV licences submitted to partners for approval
• Application for extension to Blocks 125 & 126 licence submitted in December 2022, as no suitable rigs were available for drilling in 2023, and is now with the Prime Minister’s office for approval
• Discussions ongoing with a number of interested parties to secure a farm-in partner before drilling the commitment well on Block 125

In Egypt

• Multi-well development drilling in El Fayum continues in 2023, with nine wells planned for the year
• Two commitment exploration wells expected to be drilled in the El Fayum Concession
• Drilling of first commitment exploration well on NBS underway, with the additional commitment exploration well to follow later in the year. An additional extension of the exploration period until September 2023 was granted by EGPC in March 2023
• Acquisition of the c.110 km2 of additional 3D seismic at NBS has started

Arrow Exploration Corp

Arrow has provided an update on the drilling activity at Rio Cravo Este (“RCE”) on the Tapir Block in the Llanos Basin of Colombia.

RCE-4
The RCE-4 well was spud on March 1, 2023 and reached target depth on March 8, 2023.  RCE‑4 targeted a three-way fault bounded structure with multiple high-quality reservoir objectives. The well was drilled to a total measured depth of 8,546 feet (8,053 feet true vertical depth) and encountered six hydrocarbon bearing intervals totaling 45 net feet (measured depth) of oil pay.

The well was completed in the C7-A and C7 Stringer zones and the currently producing from those zones.  A submersible pump has been inserted but has yet to be turned on. The well is currently being choked back and it is naturally flowing with a 25/168 choke and, in the last 24 hours, it has produced at a rate of 728 BOPD gross (364 BOPD net) of oil at 28.5 API and with a 1% water cut. The Company will provide a further update on production rates in due course.

Initial production results are not necessarily indicative of long-term performance or ultimate recovery.

RCE-3
The RCE-3 well is flowing at 822 BOPD gross (411 BOPD net) while being choked back currently with a 21/128 choke.  The submersible pump has been inserted but not turned on at this time. Water cut remains at 0%.

RCE-5
The RCE-5 well spud on March 19, 2023. Management’s expectations are that target depth will be reached within the next two weeks.

Carrizales Norte
Once the RCE-5 well is on production, the 1500 HP drilling rig will be moved from the pad at Rio Cravo Este to the Carrizales Norte field where Arrow plans to drill three oil wells at the 3D seismic identified extension of the Carrizales field.

Capella Field
The Capella field continues to be shut in and discussions between the government, protesters and the operator are ongoing. The Company hopes for a quick resolution of the protesters’ concerns. Further updates will be given once the field is back on production. 

Marshall Abbott, CEO of Arrow commented:
“We are very encouraged by the initial production of RCE-4, the fifth well on the Tapir block, which has been completed in the C7-A and C7 Stringer zones with additional zones currently behind pipe. The RCE-4 well costs came in under budget and it was the quickest well drilled to date on the block.”

“The RCE-4 and RCE-3 wells are currently flowing better than expected and the Company is choking the wells back in an effort to manage the reservoir and discourage premature water production. Arrow plans to engage the pumps and slowly increase production once the wells have stabilized.”

“The continued strong production rates from existing tied-in wells, combined with the encouraging results from new wells in Colombia, continue to provide us with confidence that our objective of achieving a production rate of 3,000 boe/d within 18 months of the AIM listing can be achieved. This is an exciting time for Arrow, and we look forward to providing further updates on our progress.”

I would call this a better than textbook drilling programme, each well delivers net pay in several zones, each well is cheaper and faster than expected and is rewriting the record books by bringing oil onstream within days. 

As such RCE-4 is another success, with 45ft of net pay and already flowing 727 b/d (364 net) from the C7A and C7 stringer with yet more behind the pipe. As mentioned, yet again the well was under budget and quicker than before. As for RCE-3 it is flowing 822 b/d (411 net) and both wells have had a submersible pump installed but in neither case has it been switched on. 

At sub 16p per share Arrow is cruising towards its 3/- b/d target and making out like there is no one watching, my target price remains solidly at 50p which makes it a three bagger before we even look at next year. As we near the quarter end and a look at the blog stocks this Arrow will definitely be in the quiver going forward…

KeyFacts Energy Industry Directory: Malcy's Blog