WTI (May) $80.61 -10c, Brent (June) $84.99 +5c, Diff -$4.38 +15c
USNG (May) $2.15 +5c, UKNG (May) 108.12p -2.88p, TTF (May) €44.010 -€2.32

Oil price

Along with the KSA increasing prices to Asian clients yesterday and better EIA stats, particularly on products which are tightening on good demand, oil should have been better but…

The economic picture in the US in particular got worse and with the Non-Farm-Payroll coming tomorrow in a holiday weekend few punters will want to take the risk of an open long and exposed position.

Jersey Oil & Gas

Jersey Oil & Gas has announced that it has agreed to farm-out a 50% interest in the Greater Buchan Area licences to NEO Energy.

Highlights

• Material value: The transaction delivers material value to JOG, including cash payments, funding through to Field Development Plan approval and a minimum 12.5% development expenditure carry to first oil for the 50% interest retained by the Company
• Unlocks GBA resources: Unlocks the route to finalising the GBA development solution and monetisation of resources in excess of 100 million barrels of oil equivalent
• Strong industry partner: NEO is a major UK North Sea operator producing approximately 90,000 barrels of oil equivalent per day and is backed by HitecVision, a leading private equity investor focused on Europe’s offshore energy industry with $8 billion of assets under management
• Value catalysts: Clear path to development sanction and first oil, with opportunity to create further value through additional farm-out transactions
• Low carbon development: NEO and JOG are committed to evaluating options to give the GBA development flagship status for its low carbon credentials through the use of existing infrastructure and potential low carbon electrification options

Transaction Summary

In exchange for entering into definitive agreements to divest a 50% working interest and operatorship in the GBA licences to NEO, the Company will receive:

• 12.5% carry of the Buchan field development costs included in the FDP approved by the North Sea Transition Authority (“NSTA”); equivalent to a 1.25 carry ratio
• Carry for JOG’s 50% share of the estimated $25 million cost to take the Buchan field through to FDP approval
• $2 million cash payment on completion of the transaction
• $9.4 million cash payment upon finalisation of the GBA development solution
• $12.5 million cash payment on approval of the Buchan FDP by the NSTA
• § $5 million cash payment on each FDP approval by the NSTA in respect of the J2 and Verbier oil discoveries

The primary conditions precedent to completing the transaction are receipt of the approvals from the NSTA for the transaction and the associated extension of the Company’s two GBA licences.  Following completion of the transaction, operatorship of the licences will transfer to NEO.

The Company will be working in partnership with NEO to select the preferred development solution, having confirmed a short list of attractive options for the GBA which utilise existing North Sea infrastructure. The unstable fiscal conditions resulting from the introduction and revision of the Energy Profits Levy during 2022 have been challenging.  As the joint venture moves forward towards first oil, which is targeted for 2026, it will be mindful of the future fiscal attractiveness of the UK.

The Company intends to farm-out additional equity in the GBA licences in order to ultimately retain a 20-25% carried interest in the development following FDP approval.  NEO has an option to increase its 50% interest in the Buchan licence by up to an additional 37.5% in exchange for a further cash payment should any of JOG’s equity share in the development remain unfunded ahead of FDP submission, with such payment being the pro-rated balance of future cash payments due to JOG post completion in relation to the GBA development solution and Buchan FDP as outlined above.

JOG remains well funded for its on-going and planned work programmes, with a cash balance of approximately £6.5 million as at 31 December 2022.  It is intended that the cash payments anticipated to be received from NEO following completion of the transaction will be utilised to pursue the Company’s stated growth strategy and provide additional working capital for the Company.

The Company intends to issue its financial results for the year ended 31 December 2022 in the second half of May 2023.

Andrew Benitz, CEO of Jersey Oil & Gas, commented:
“We are delighted to announce this transaction with NEO Energy, a well-funded industry heavyweight and the fifth largest producer in the UKCS.  The farm-out marks a major value creation moment for JOG, a significant de-risking of the GBA development programme, from both an operational and funding perspective, and provides the springboard from which to grow the long-term value of the business.  We are looking forward to working collaboratively with NEO Energy to select the optimal development solution for the GBA and taking the project through to sanction and on into future production.”

In my view this is an excellent deal which delivers a base case of value through development of the GBA with significant upside via farm-out opportunities if it moves from a 50% stake to 20-25% on a fully carried basis. And make no mistake, these are good terms, under the circumstances I really couldn’t have expected anything better.

That is because a 12.5% carry on a development of this scale plus cash and of course the optionality I have discussed above is monumental. Perhaps more important is the industry validation and endorsement it brings, credibility for the project that has always been there for JOG management in whom I personally have always believed. 

Overall this deal unlocks the value that the GBA has promised after all these years and that is worth a great deal in this market place in which 2026 production will in my view be worth considerably more on these metrics. Placing a value gives a significant multiple of today’s share price, the market has not assessed the numbers correctly and consequently I am putting a target price of £10 a share on JOG. 

Scirocco Energy

Scirocco has provided the following update regarding the Company’s investment in Energy Acquisitions Group Ltd.  Scirocco owns 50% in the EAG Joint Venture which wholly owns and operates Greenan Generation Limited, a 0.5MW Anaerobic Digestor plant in Northern Ireland.  

In Q4’22 GGL performed strongly, exceeding the key performance indicators of production, revenue and EBITDA achieved in Q4’21. The enhanced operational and financial performance is largely due to high operational efficiencies and strong revenue arising from NI Renewable Obligation Certificates (NIROC) in December 2022.

Key operational and financial highlights associated with this period include: 

• Greenan continued to operate at the top end of capability, with operational efficiencies of 96.35%, 98.09% and 97.57% in October, November, and December respectively
• Revenues for the period increased 26% to £423k  (£334k in Q4’21)
• EBITDA for the period increased 48.1% to £231k (£156k in Q4’21)
• Steady performance through Q1 2023 and a positive outlook underpinned by:
• consistent power pricing of around £100 and over per MW/hr; and
• the anticipated inflation linked NIROC revenue increase in March 2023
• Ongoing upgrade works designed to enhance operational and financial performance continue to be carried out funded through excess operational cashflows
• During the period the management team upgraded all fire and gas detection systems on site and constructed a new chicken litter storage facility as it continues to optimise biogas yields from lower cost feedstocks.
• GGL has also benefited from a site upgrade of new JCB ramps, digestate sumps as well as upgrading the concrete structure around the digesters and CHP container.

EAG Corporate Update

During the period EAG signed a long term lease and commercial agreement with a leading UK fresh produce company and hopes to start construction on its first biofertilizer manufacturing plant in Q2 2023. This marks the start of a roll out of multiple similar projects which are designed to recover the nutrient content of the biogas by-product. EAG Management hope to deliver their first biofertilizer product to the market in Q1 2024, having signed a commercial cooperation agreement with a major global player in the nutrients market in 2022.  Sales of this biofertilizer product will strengthen and diversify EAG’s revenue.

In addition, further to the announcement on 7 December 2022 regarding the signing of an exclusivity agreement to negotiate the purchase of the entire share capital of an industrial AD site in South West England, EAG is completing its DD process and hopes to complete this acquisition in April or May 2023. EAG has received a debt offer to support the acquisition and the equity requirement is expected to be provided by Scirocco following the completion of the Ruvuma sale. The target plant has delivered consistent operational and financial results over the past 7 years, generating an EBITDA of £567k for its last financial year. Based on the proven optimisation model implemented on GGL, it is EAG’s expectation that it can improve performance during its ownership.

In parallel, EAG continues to develop its acquisition pipeline and is close to entering additional exclusivity positions on at least 1 further Biogas operation in 2023.  EAG looks forward to providing further update on the above new ventures activities upon formalisation of firm commercial milestones.

Commenting on the update, Scirocco’s CEO Tom Reynolds said:

“We’re delighted to provide this positive trading statement regarding operational performance of EAG and GGL. GGL site has outperformed expectations across all operational and financial KPIs and demonstrates the effectiveness of EAG managements’ optimisation techniques.  This value uplift is a repeatable model that underpins the strategic focus on this asset type and will be applied to future plants added to the portfolio in due course.  We’re pleased to note EAG’s progress on business development and look forward to adding a second plant to the portfolio in the coming months.

As recently guided, Scirocco continues to make progress towards divestment of its legacy investment in the Ruvuma development.  Scirocco is in dialogue with the Tanzanian Revenue Authority in order to gain its approval for the deal. The firm consideration, as well as the contingent consideration elements associated with the accelerated first gas of that project, will provide funds that can be deployed into the compelling and profitable opportunities within EAG’s deal flow pipeline.”

The Q4 performance by GGL is a joy to behold and no surprise that CEO Tom Reynolds is ‘delighted’ as it was a cracking delivery of numbers Q4/Q4, and enhanced by ‘operational efficiencies and strong revenues arising from NIROC certificates in December 2022’. 

As I have said a number of times following conversations with Tom Reynolds, the good news about this is that the value uplift is a repeatable model that can and will be applied on future plants added to the portfolio in due course, that second plant looks like it is expected ‘in coming months’ which is further good news. 

With this and the progress at Ruvuma, I am convinced that Scirocco is making good progress on all fronts and that shareholders will be well rewarded by staying onboard this recovery situation. 

Hurricane Energy

Hurricane Energy plc, the UK based oil and gas company, provides an update on its Lancaster field operations as of 31 March 2023.

Lancaster Field Operations Update

The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 ("P6") well during March 2023.

March 2023 Lancaster Field Data

1. The 205/21a-7z ("P7z") well was not on production during March 2023
2. Expressed as total water produced divided by total fluid (oil and water) production
3. Pressure reported is the monthly minimum from well downhole gauges.

As of 2 April 2023, Lancaster was producing c.7,530 bopd from the P6 well alone with an associated water cut of c.53%. At that time the FPSO held c.335,000 barrels available for lifting. The next cargo is anticipated to be lifted in late April 2023.

Further to the announcement this morning by Hurricane Energy plc that it has posted to shareholders the Scheme Document relating to the agreement announced on 16 March 2023 with Prax Exploration & Production PLC (“Prax”) on the terms of a recommended acquisition, the Company announces that it will be holding a meeting on 18 April 2023 for shareholders, where senior management will provide a presentation relating to the recommended acquisition. This will be followed by a question and answer session where senior management will address questions that shareholders may have.

The meeting will commence at 10.00 am and will take place at The Science Suite, Royal Society of Chemistry, Burlington House, Piccadilly, London, W1J 0BA.

A recording of the presentation will be published on the Company website later that day. The Takeover Code contains restrictions on the broadcasting of unscripted meetings.  Accordingly, the Q&A element of the event will not be live-streamed or published afterwards. In order therefore that questions can be addressed from shareholders unable to attend on the day, the Company encourages shareholders to pre-submit questions which management will endeavour to address in the course of the presentation, as that will be made available on the website afterwards. Shareholders should email questions to communications@Hurricaneenergy.com by 10.00 am on 14 April 2023.

Members of Prax’s senior management team will be in attendance at the meeting where they will also be able to address shareholder questions.

What a waste…

Serica Energy

Serica yesterday announces the results of the independent estimates of oil and gas reserves for each of the Serica and Tailwind groups of companies as at 31 December 2022.

Mitch Flegg, Chief Executive of Serica commented:
"These independent estimates are a testament to the activities undertaken by both Serica and Tailwind in recent years to enhance the recovery of hydrocarbons from their respective fields, to extend the productive lives of the Bruce and Triton production hubs and to meet the objectives of the North Sea Transition Deal. All the reserves additions reported today are associated with fields that are already producing and, therefore, do not depend on new field development consents or the installation of new infrastructure.

Following the acquisition of Tailwind, Serica is a top 10 producer in the UKCS and a significant contributor to the UK’s energy security.” 

• The main features of the reserves estimates for the combined portfolios reported today are as follows:
• Pro-forma Proved plus Probable (“2P”) reserves of 130.4 mmboe(2) as at 31 December 2022 compared to 104.0 mmboe as at 31 December 2021.
• Net upward reserves revision more than three times amount produced in 2022(3).
• Near even split of reserves between oil and gas. Approximately 58% of combined production from the two portfolios in 2022 was gas.
• Upwards revisions due to maturation of contingent resources to 2P reserves following sanction of four infill wells in Triton area fields and well work on Bruce field, commencement of planning for Bruce infill drilling and extension of production from both the Bruce and Triton hubs from 2030 to 2035.
• Downward revisions in 2P reserves associated with the Columbus field (poor well performance) and the Orlando field (possible cessation of service from Ninian host facility at the end of 2026). 

(1) The reported estimates are based on independent reports prepared by RISC Advisory for Serica and ERCE for Tailwind in accordance with the reserves definitions guidelines defined in SPE Petroleum Resources Management System 2018.
(2) In the reserves report for Serica, oil equivalent values are based on a conversion of 6.0 mscf per 1 boe for reporting and comparison purposes. As the actual calorific values of gas produced vary, the amounts for each field and the total amounts reported here may not convert precisely. For consistency, Serica has applied the same conversion factor to the gas volumes reported in cubic feet by ERCE.
(3) On a combined pro-forma basis, 2022 revision / production in 2022 = 311%

Movements in 2P Reserves Estimates (all amounts in mmboe) Pro-forma Combined

This was good news for Serica and the addition of Tailwind has been a healthy acquisition. 

KeyFacts Energy Industry Directory: Malcy's Blog