WTI (May) $70.90 +$1.23, Brent (May) $76.69 +$1.37, Diff -$5.79 +14c
USNG (Apr) $2.17 -17c, UKNG (Apr) 99.94p -1.46p, TTF (Apr) €40.480 – €1.10

Oil price

After the Fed raised rates yesterday it was the turn of the Bank of England today and it was no surprise that the Old Lady added her 25 bp’s worth this morning. Yesterday oil rallied despite was a  mixed inventory report from the EIA. Crude added over a million barrels more although products drew substantially, it seems that American refiners are supplying half the world with their products…

Jadestone Energy

Jadestone has announced that the Montara Venture FPSO offshore Australia resumed production operations early on Tuesday 21 March 2023.

In a carefully planned restart programme, production recommenced from the H6 well on the Montara field, with further wells to follow, including the first Skua subsea well which will be brought on line in the coming days.  Production rates will increase with the systematic opening of additional wells in line with the restart plan.

The Company will announce its production guidance for 2023 once Montara output is stabilised.

Paul Blakeley, President and CEO commented:
“I would like to thank everyone in Jadestone who has contributed to the safe and successful restart of Montara operations as we look forward to putting this challenging period behind us and returning to business as usual.  It is a relief to see operations at Montara being restored and we look forward to increasing production and cash flow.  We also plan to return to growth, having completed three acquisitions within the last six months, with several new acquisition opportunities in the pipeline.  Near-term organic growth from the Akatara project remains on track and with our first infill drilling programme in Malaysia, reinforcing the point that 2023 will be a big year for Jadestone.”

Now that Jadestone has or is returning to ‘business as usual’ to quote Paul Blakeley, those of us who  have been big fans of him and his team can start to reassess everything starting with much needed production guidance for this year which is imminent. 

The problem is behind us and as mentioned in his report there is much to be excited about, including the acquisitions made recently, however meaningful, and those in the pipeline. Indeed it is the M&A activity that we have yet to see that makes me most excited about Jadestone going forward.  

Jadestone at today’s 68.3p is almost dead on its low for a year which has been, in my view, entirely dominated by the debacle at Montara. Investors should be aware of that, to me it provides an opportunity to take another look at the company and whilst such a mistake is clearly more than a blip or a schoolboy error this is one of the most accomplished in the sector and one reason why JSE never left the Bucket List. 

I think that it would not be unreasonable for investors to take a fresh look at the company now and for that reason I am sort of restarting  the process by putting a new target price of 150p on the shares and knowing Paul as I do he will be busting every gut to hit the ground running and I suspect that they will be on the road starting today telling the story as if it was day one. 

Gulf Keystone Petroleum

Gulf Keystone has announced its results for the full year ended 31 December 2022 and the 2022 Competent Person’s Report.

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:
“We delivered strong operational and financial performance in 2022 in line with our clear strategy of balancing investment in profitable production growth with sustainable shareholder returns, while maintaining a robust balance sheet and prudent liquidity levels. Higher oil prices and production, combined with continued capital discipline and cost control, enabled us to generate record profitability and cash flow, funding increased investment in future production growth, record dividends of $215 million and the repayment of our $100 million bond resulting in a debt-free balance sheet.  

The benefits of our 2022 investment programme and progress on executing the Jurassic scope of the Shaikan Field Development Plan contributed to a material increase in gross average production to around 53,500 bopd in March 2023, hitting a new record of over 55,000 bopd in the last few days, an important milestone for GKP. In addition, we are pleased that the 2022 CPR has confirmed the Shaikan Field’s significant growth potential and gross 2P + 2C reserves and resources of 817 MMstb, with 100% reserves replacement since the 2020 CPR.

Looking ahead we are reviewing our forward capital programme in light of continued delays to KRG payments to ensure that we maintain a prudent financial position as we continue to develop the Jurassic reservoir and advance towards approval of the FDP. As ever, we remain committed to balancing growth with shareholder returns and financial strength, confirmed by our declaration today of a final 2022 ordinary annual dividend of $25 million, increasing total dividends declared in 2023 to $50 million.”

The good news for GKP is that this was a seriously good set of results and with the Shaikan field, which I have to admit I am a huge fan of, delivering consistently excellent production. With all the cash from this the board are paying down debt and a whopping dividend programme which shareholders unsurprisingly love.

But the less good news if I may, is that for an old grump like me the more significant upside at Shaikan seems to be on the back burner so growth is rather limited. I’m looking forward to seeing what the review of the forward capital programme will lead to especially as it has the tease of ‘in the light of continued delays to KRG payments’ as if they present a barrier to in-country expansion. 

In the meantime the bank of GKP remains open and rather like an insurance company in run-off, shareholders can sit on the yield of 11%, more if special divvis come along. Rather a nice way of life, isnt it?

Highlights to 31 December 2022 and post reporting period

Operational

·      Zero Lost Time Incidents (“LTIs”) in 2022, despite significant increase in operational activity

o  Following an LTI in January 2023 during drilling operations, remedial actions have been implemented

·      Gross average production for 2022 of 44,202 bopd (2021: 43,440 bopd), in line with annual guidance

·      Executing the Jurassic scope of the Field Development Plan (“FDP”) with the agreement of the Ministry of Natural Resources (“MNR”), with 2022 activity laying the foundation for higher future production

o  Drilled and brought online SH-15 and SH-16, the first two Jurassic wells in the FDP sequence, on schedule and on budget, and partially drilled SH-17

o  Prepared well pads and flowlines to enable a continuous drilling programme

o  Completed initial engineering and construction works and procurement of long lead items for production facility expansion and installation of water handling

·      Realising benefits of 2022 investments with recent material increase in production to record highs

o  2023 year to date gross average production of c.48,900 bopd, with gross average production in March to date of c.53,500 bopd and production of c.55,000 bopd in the last few days

o  Production growth driven by continued ramp up of SH-16 following start-up in December 2022, start-up of SH-17 in February 2023, and our well workover programme

o  Minor impact from temporary suspension of pipeline exports in February 2023 following the tragic earthquakes in Turkey and Syria

·      Continuous drilling programme delivering improvements in drilling performance

o  SH-17 drilled, completed and brought onstream in February 2023, under budget and ahead of schedule

o  Drilling of SH-18 progressing well with expected start up in Q2 2023, in line with prior guidance

Financial

·      Record profitability and cash generation in 2022, driven by a strong increase in the oil price, higher production and our continued focus on cost control

o  Adjusted EBITDA increased by 61% to $358.5 million (2021: $222.7 million)

o  Profit after tax increased 62% to $266.1 million (2021: $164.6 million)

o  Gross Opex per barrel of $3.2/bbl (2021: $2.7/bbl), in line with the Company’s 2022 guidance range of $2.9-$3.3/bbl and reflecting higher operational activity

o  Realised price per barrel increased by 49% to $74.1/bbl (2021: $49.7/bbl)

o  While the Company has not accepted the MNR’s proposed change to the pricing mechanism for Shaikan oil sales, changing the reference price from Dated Brent to the Kurdistan Blend (“KBT”) effective 1 September 2022, revenue from September 2022 to December 2022 has been recognised on this basis, resulting in an average reduction in the realised sales price versus the previous pricing mechanism over the period of approximately $12/bbl or $23.4 million

o  The KBT discount to Dated Brent has tightened since November 2022, with the impact on Shaikan realised prices versus the previous pricing mechanism decreasing to $6/bbl in February 2023

·      Increased investment in the Shaikan Field while maintaining capital discipline to drive future profitable production growth

o  Net capital expenditure of $114.9 million (2021: $46.2 million), in line with final 2022 guidance of $110-$120 million

§ $63.4 million: Drilling of SH-15, SH-16 and partial drilling of SH-17 that was completed in early 2023

§ $35.8 million: Early work for the expansion of the production facilities with water handling capacity, as well as future well pad preparation including flowlines

§ $15.7 million: Well workover and interventions to optimise production

·      Strong free cash flow generation funded continued delivery of our strategy to balance growth with shareholder returns while maintaining a robust balance sheet and prudent liquidity levels

o  Free cash flow generation of $266.5 million, more than double the prior year (2021: $122.2 million)

o  Record dividends of $215 million, representing a sector-leading dividend yield of 41% based on the closing share price on 31 December 2022. Since the beginning of 2023, GKP has paid an additional interim dividend of $25 million

o  Redeemed $100 million outstanding bond in August 2022, leaving the Company debt free with significant financial flexibility

o  Cash balance of $118.8 million at 22 March 2023

·      Revenue receipts of $450.4 million net to GKP received from the Kurdistan Regional Government (“KRG”) in 2022 for crude oil sales and repayment of historical revenue arrears

o  While the Company has received $65.7 million net from the KRG in 2023 for August and September 2022 oil sales, overdue receivables for the months of October to December 2022 total $76.0 million net on the basis of the KBT pricing mechanism

2022 Competent Person’s Report

·      GKP announces today the 2022 Competent Person’s Report (“2022 CPR”), an updated independent third-party evaluation of the Shaikan Field’s reserves and resources prepared by ERC Equipoise (“ERCE”)

·      2022 CPR incorporates significant incremental information, including an updated field development plan, new wells, production data and further technical analysis, since the previous 2020 CPR also prepared by ERCE

·      Gross 2P+2C reserves and resources of 817 MMstb as at 31 December 2022, 52 MMstb higher than the previous 2020 CPR after adjusting for production in 2021 and 2022

o  Gross 2P reserves of 506 MMstb increased 34 MMstb or 7% relative to 2020 CPR volumes adjusted for production, resulting in 100% reserves replacement over the two-year period

o  Increase driven by higher plateau rate of 85,000 bopd from the Jurassic reservoir

o  Gross 1P reserves of 199 MMstb decreased 8 MMstb or 4% relative to 2020 CPR volumes adjusted for production due to prudent management of production rates to avoid traces of water ahead of water handling installation

o  Gross 2C resources of 311 MMstb increased 18 MMstb or 6% relative to 2020 CPR volumes due to higher planned production processing capacity

·      2022 CPR highlights the significant growth potential of the Shaikan Field, with a gross 2P reserves-to-production ratio of 31 years based on 2022 gross average production, and reaffirms our deep understanding and prudent management of the reservoir, which has produced over 117 MMstb to date

Gross reserves and resources(1) based on the 2022 CPR compared to the 2020 CPR are as follows:

The reconciliation of changes in reserves and resources between the 2020 CPR and the 2022 CPR is as follows:

GKP’s 80% net working interest (“WI”)(4) share of reserves and resources at 31 December 2022 are:

(1)   Reserves and resources have been calculated in accordance with the June 2018 SPE/WPC/AAPG/ SPEE/SEG/SPWLA/EAGE Petroleum Resources Management System).
(2)   Contingent resources volumes are classified as such because there is technical and commercial risk involved with their extraction. In particular, there may be a chance that accumulations containing contingent resources will not achieve commercial maturity. The 2C (best estimate) contingent resources presented are not risked for chance of development. All Contingent resource volumes quoted in this document are volumes which could be extracted prior to license expiry.
(3)   Aggregated 2P+2C estimates should be used with caution as 2C contingent resources are commercially less mature than the 2P reserves.
(4)   Net working interest reserves and resources do not represent the net entitlement resources under the terms of the Production Sharing Contract (“PSC”).

Outlook

·      Given continued delays to KRG payments, we are currently reviewing our forward capital programme and 2023 net capital expenditure guidance of $160-$175 million

o  With further clarity around KRG payments, we would consider continued drilling following SH-18

o  With continued payment delays, we would review reductions to our capital programme

·      Looking ahead, subject to timely KRG payments and oil prices, we are focused on transitioning towards capitalising on the significant growth potential of the Shaikan Field, as confirmed by the 2022 CPR, and attractive returns on capital from the accelerated payback of investment as we recover our historic costs

o  Targeting step up in production levels through execution of the Jurassic scope of the FDP, drilling additional Jurassic wells and expanding the production facilities

o  While timing of FDP approval remains uncertain, we continue to advance towards key project sanction milestones, including the conclusion of the Gas Management Plan (“GMP”) tendering process and, as appropriate, financing arrangements

·      We are committed to balancing profitable production growth, shareholder returns and a robust balance sheet according to our disciplined financial framework, in line with our historic track record

o  Following payment of $25 million interim dividend in March, we are pleased to announce declaration of a final 2022 ordinary annual dividend of $25 million, in line with the Company’s dividend policy

o  Subject to approval at the AGM on 16 June 2023, we expect to pay final dividend on 21 July 2023, based on a record date of 7 July 2023 and ex-dividend date of 6 July 2023

o  Total dividends declared in 2023 of $50 million, equating to an 11% yield for year to date 2023, based on the closing share price on 22 March 2023

o  The Board remains committed to distributing excess cash to shareholders via dividends and/or share buybacks and will continue to review distributions based on our disciplined financial framework, as outlined in our 30 January 2023 trading update, which includes regular assessment of the Company’s expected liquidity, cash flow generation and investment needs

·      Continue to monitor discussions between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan following the Iraqi Federal Supreme Court ruling in February 2022. GKP’s operations currently remain directly unaffected

2023 guidance

·      2023 guidance remains dependent on timely KRG payments and oil prices. The Company will consider adjustments to the capital programme based on how the business environment evolves

·      We remain focused on delivering 2023 gross average production of 46,000-52,000 bopd, representing a 11% increase from 2022 at the mid-point

o  Reflects anticipated contributions from SH-17 and SH-18, as well as the benefits of well workovers

o  Continue to manage natural field declines, well production rates ahead of water handling installation and higher gas production from one of our wells near the gas cap, in line with our reservoir modelling

·      Current 2023 net capital expenditure guidance of $160-$175 million:

o  $30-$35 million: Completion of SH-17, drilling and completion of SH-18 and well workover programme to optimise production

o  $45-$50 million: Long lead items and preparing well pads to enable continuous drilling

o  $85-$90 million: Continued expansion of production facilities, targeting by H2 2024 an increase in total field capacity from c.60,000 bopd currently to 85,000 bopd and installation of water handling capacity, potentially enabling the increase in production rates from constrained wells

·      2023 gross Opex guidance of $3.0-$3.4/bbl unchanged, underpinned by the Company’s continued focus on strict cost control

Serica Energy

Further to the announcement on 21 March 2023, Serica Energy plc is pleased to confirm that it has successfully completed the acquisition of Tailwind Energy Investments Ltd from Tailwind Energy Holdings LLP and that Admission of the Completion Consideration Shares to trading on AIM has occurred.

Unless otherwise defined herein, capitalised terms used in this announcement shall have the same meanings as defined in the announcements regarding the Acquisition made by the Company on 20 December 2022 and 21 March 2023.

Mitch Flegg, Chief Executive of Serica commented:
“We are delighted to have completed the acquisition of Tailwind and welcome the new members of the Serica team. This is an important and exciting moment for Serica. The transaction creates a portfolio of assets which provides both greater resilience and an increase in the range of organic growth opportunities. Moreover, this has been achieved while preserving the Company’s financial capacity to invest in its existing assets, execute further acquisitions and make sustained cash returns to shareholders.

We look forward to providing more information in the coming weeks on the progress made in exploiting the existing producing fields in recent months and the plans for future investments in the enlarged portfolio.“

Tony Craven Walker, Chairman of Serica commented:
“As a result of this transaction, Serica has a broader asset spread with interests in two North Sea hubs, one of which it operates, and better exposure to an oil/gas mix. The combined entity is uniquely placed to prosper as an important contributor to the UK’s energy security in support of energy transition.  However, this does require a more considered approach from Government to revisit the counter-productive tax levels imposed on the UK oil and gas industry and to structure a predictable and far less damaging tax regime to support the innovation and investment required, particularly in view of currently much reduced oil and gas prices.  We look forward to the opportunity and the challenge.

Today I am delighted to welcome Guillaume Vermersch and Rob Lawson to the Serica Board. Their presence adds to the breadth, depth and diversity of the expertise represented by the Board which has grown with the business during the last few years.”

Following the Acquisition, the attributes of Serica include:

• A balance of gas and oil production focused around the Bruce and Triton hubs in the UK North Sea.
• More than 80% of its production from operated fields.
• An ongoing programme of sanctioned short cycle organic investments in 2023 and 2024 including a second Light Well Intervention Vessel campaign on the Bruce field and infill wells on the Bittern, Gannet E, Guillemot North West and Evelyn fields.
• Potential ‘near infrastructure’ field developments.
• A strong financial position from which to deliver further business growth. The Company expects to announce its 2022 results, which will include detailed financial information, on 13 April 2023.

The Acquisition is expected to be immediately accretive to Serica’s reserves, production, cash flow and earnings per share. Supported by the results of the Gannet GE-04 well announced on 20 February 2023, as previously advised, Serica’s estimated pro-forma production of the combined portfolio is expected to be between 40,000 and 47,000 boe/d in 2023. Tailwind’s net debt at completion was £215 million.

As announced on 20 December 2022 and in accordance with the SPA, Serica and Mercuria Holdings (UK) Limited (“Mercuria”) have entered into the Relationship Agreement.  Under the terms of the Relationship Agreement, Mercuria have nominated two new non-executive directors, Guillaume Vermersch and Robert Lawson, who have joined the Board upon completion of the Acquisition. Associated regulatory information is provided below.

Further to the intention stated in the announcement of the Acquisition on 20 December 2022, on 22 March Serica and Mercuria agreed the terms of a revised offtake and marketing agreement which has been entered into between Tailwind Energy Limited and Mercuria Energy Trading SA (the “Offtake and Marketing Agreement”). The revisions include the deferral of the expiry of the Offtake and Marketing Agreement to the cessation of production from the fields tied back to Triton FPSO. The expiry was otherwise due to occur in October 2026. The revised Offtake and Marketing Agreement will take effect once certain third-party consents are obtained.

Although entered into prior to Admission, the directors of the Board of Serica have considered the revised Offtake and Marketing Agreement as if it was a related party transaction under the AIM Rules for Companies (“AIM Rules”) due to Mercuria becoming a Substantial Shareholder (as defined by the AIM Rules) of the Company following Admission. As is customary, the Company engaged a third-party expert to advise on the terms. The directors consider, having consulted with the Company’s Nominated Adviser, Peel Hunt, that the terms of the revised Offtake and Marketing Agreement are fair and reasonable insofar as the Company’s shareholders are concerned.

As also stated on 20 December 2022, Serica’s existing oil and gas marketing arrangements are unaffected.

Nothing further to add to this, the deal is completed and the new company will be a challenging beast in the industry. 

KeyFacts Energy Industry Directory: Malcy's Blog