WTI (May) $79.74 -96c, Brent (June) $84.18 -94c, Diff -$4.44 +6c
USNG (May) $2.17 +2c UKNG (May) 99.0p -9.12p, TTF (May) €43.425 -€-0.58

Oil price

Oil gained nicely last week and looks set fair to me at the moment with a good 2H on both supply and demand beckoning. All three agencies will report this week so we can see what the outlook is from them. Fridays jobs report at +236/- didnt spook the market and the Fed’s next move may just be a 25 bp rise.

Retail gasoline prices are up again, another 10 cents this week to $3.69 a gallon is well off the bottom but still 50 cents off this time last year.

Exxon/Pioneer

ExxonMobil has held early informal talks about potentially acquiring the largest pure-play shale producer, Pioneer Natural Resources, The Wall Street Journal has reported, quoting sources with knowledge of the matter.

Pioneer Natural Resources, whose market capitalization was $49 billion as of market close on Thursday, is the biggest oil producer in the Permian and the largest pure-shale player in the United States.

Contacts between Exxon and Pioneer have been informal only at this stage, and there is no guarantee that the informal talks could turn into formal negotiations, the Journal’s sources said. Exxon could also decide to pursue an acquisition of another company, and the U.S. supermajor has talked about a deal with at least one other firm, the sources added.

I add this as I think that should it be true, and I personally would think it to be a perfectly reasonable move by Exxon, they would take a giant chunk of the Permian, one of their targeted plays, in one hit. For investors in the sector it would validate that move and as one of my own favourites, along with Devon shareholders would benefit. 

Zephyr Energy

Zephyr has provided an update on operations on the State 36-2 LNW-CC well at the Company’s flagship project in the Paradox Basin, Utah, U.S.

On 19 January 2023 the Company announced that it had intersected a major, highly-pressured, natural fracture network while drilling the well. This resulted in a significant influx of hydrocarbons into the wellbore. The well was subsequently stabilised, and on 20 March 2023 the Company announced that workover and subsequent production test operations were set to commence.

On 7 April 2023, as workover operations were being completed, what appears to be a failure in a safety valve led to a significant well control incident despite multiple attempts to secure the well by the rig crew. As a result, hydrocarbons were released from the well in an uncontrolled manner.

In keeping with safety procedures, all personnel were safely evacuated without injury. All relevant authorities were notified and a specialist well control team (recommended by the Company’s insurers) was deployed in order to bring the well under control as quickly as possible.

The Company can now report that well control efforts have proved successful. While the well pad has been impacted by hydrocarbon residue, efforts are already under way to remove impacted soil as well as to clean the service rig and ancillary equipment. Although it is unclear at this time as to the total volume of gas and condensate released, surface impacts appear to be limited to an immediate area around the pad, and the Company plans to conduct a confirmatory environmental survey in the near term.

Regarding progression and timing of the planned well test, the Company will provide a further update in due course once it has had the opportunity to comprehensively assess the situation and complete any necessary additional well work prior to testing.

Obviously the most important thing about this is that there were no injuries and that the site was evacuated swiftly and safely. With Zephyr’s experienced crew and ‘alpha mentality towards HSE issues’ I understand that even the environmental people and the State officials were happy that no corners had been cut and the well control team indicated that it had been done by the book. 

With the high API and gas and condensate levels there was little damage on the ground as a great deal of the hydrocarbons evaporated, the clean up is apparently going well and with every chance that the well can be preserved with the ability to re-enter before long. 

So, the correct procedures are taking place, the authorities have been very supportive and at no stage has there been any blame attached to Zephyr and I really dont envisage any negative impact from a licence operating perspective. The insurance company were in straight away and with their preferred well control team almost immediately on site again I think that cover is satisfactory. 

There is clearly a bit of a double edged sword about this, an unfortunate incident yes and a hold up in the well and the testing of the hydrocarbons of course but as and when the testing restarts my feeling is that there will be plenty to test, at 4.35p down just under 15% it looks like a gift horse to me, fill your cowboy boots…

Diversified Energy Company

Diversified has published its 2022 Sustainability Report, which details successes that include lower methane intensity, safety wins, and investment in local communities. The 4th annual report, titled Decarbonizing While Delivering and available on the Company’s website (div.energy/sustainability), presents a comprehensive review of Diversified’s ongoing commitment to and significant performance improvements on material environmental, social and governance issues which are important to our stakeholders. Diversified remains a sustainability leader for existing producing and midstream assets, providing transparency through enhanced disclosures of greenhouse gas and air emissions, cyber security, state economic impact analysis across our operating footprint, and a variety of climate-related financial disclosures.

Responsibly managing our environmental footprint:

• Reduced methane intensity to 1.2 MT CO2e/ MMcfe(a), representing a 20% reduction vs 2021 and 25% vs 2020(b)
• Represents substantial progress towards stated goal of 30% intensity reduction by 2026
• Achieved Gold Standard Pathway from the Oil and Gas Methane Partnership (OGMP 2.0)
• Sustainability-linked 70% of the Company’s total borrowings:
• Completed four sustainability-linked asset-backed security or ABS transactions in 2022 totalling $1.2 billion
• Amended the Company’s Credit Facility to include sustainability-linked features
• Delivered significant progress on 2022 emissions reduction plan, including:
• Surveyed 100% of operated Appalachian wells for fugitive emissions
• Surveyed by air ~11,000 miles of owned Appalachia midstream system
• Converted pneumatic devices to compressed air, representing >35% of 5-year target
• Significantly expanded the Company’s vertical integration of Asset Retirement capabilities
• Established Diversified’s wholly-owned retirement subsidiary, Next LVL Energy
• Retired 200 Diversified wells in Appalachia, representing a 47% increase vs 2021
• Advanced Diversified’s Marginal Abatement Cost Curve (“MACC”) analysis for use in progressing the Company’s climate strategy

Safeguarding our people and communities:

• Expanded “OneDEC” culture programme delivered improved key safety metrics, including:
• Total Recordable Incidence Rate (“TRIR”) of 0.73, a 50% improvement vs 2021
• Motor Vehicle Accident (“MVA”) of 0.69, a 4% improvement vs 2021
• State economic analysis affirms the significance of our direct and indirect impact across our ten-state operating area
• Distributed $507 million in royalty payments to mineral interest owners
• Contributed $105 million in state and local taxes
• Initiated data-driven diversity, equity and inclusion (“DEI”) tracking and recruiting initiatives to improve recruitment, retention and promotion
• Provided community support through charitable giving and emergency/disaster relief programs
• Contributed $2.5 million in funding through Diversified’s Community Giving and Engagement Programme and other outreach efforts
• Established a company-matching program of employees’ charitable donations
• Deployed financial and physical support to community flood relief efforts in Appalachia

Focused oversight and risk management:

• Increased weighting of methane reduction targets in executive leadership’s long-term incentive compensation
• Completed Board of Directors (the “Board) climate training to increase climate literacy, aid in assessing and managing climate-related risks and opportunities
• Board-designated Non-Executive Director Employee Representative personally engaged with a diverse group of employees to inform the Board’s efforts and ensure alignment with the Company’s operations

Commenting on the report, CEO Rusty Hutson, Jr. said:
“Diversified continues to demonstrate its leadership across a broad spectrum of environmental, social, and governance policies and disclosures. We proudly discuss our many accomplishments within our 2022 Sustainability Report. Stewardship underpins our differentiated business model and Smarter Asset Management activities to deeply embed sustainability in every aspect of our operations. Accordingly, we will play an increasingly critical role in a lower-carbon energy economy.

While environmental discipline is at the core of our business strategy, so too is our commitment to socio-economic development and community engagement. We are proud to have formalised our Community Giving and Engagement Programme to support our commitment to contribute up to $2 million per year to this purpose. Building on past successes, we’ve positioned ourselves to deliver another year of substantial progress for our stakeholders, made possible by our focused team who are committed to safety and operational integrity.”

Vice President of ESG & Sustainability, Teresa Odom, also commented:
“Diversified has built a track record of trust by delivering on our commitment to responsible operations and transparently reporting on the same. Our team of approximately 1,600 employees remain committed to driving and delivering meaningful progress through responsible stewardship, focused operations, and community engagement.”

Diversified’s 2022 Sustainability Report was developed in reference to the following sustainability reporting standards and frameworks:

• Global Reporting Initiative (“GRI”) Core Standards
• Sustainability Accounting Standards Board (“SASB”)
• United Nations’ Sustainable Development Goals (“UN SDG”)
• Task Force for Climate Related Financial Disclosures (“TCFD”)
• Independent third-party, ISOS Group, Inc. (“ISOS”), has provided a Level 2 moderate assurance of the Company’s  2022 Scope 1 and 2 greenhouse gas emissions, as reflected in ISOS’ assurance statement included in the Appendix of the 2022 Sustainability Report.

Footnotes:
(a) Diversified’s methane intensity metrics utilise a global warming potential (100-year GWP) of 28 in line with IPCC’s Fifth Assessment Report (AR5), and reflect metric tonnes (“MT”) of carbon dioxide equivalent (“CO2e”) per million cubic feet equivalent (“MMcfe”) of gross production
(b) Percent reductions in relation to Diversified’s baseline methane intensity metric of 1.6 MT CO2e per MMcfe, as previously reported for the 2020 measurement year.

For Company-specific items, refer also to the Glossary of Terms and/or Alternative Performance Measures found in the Company’s 2022 Annual Report.

Whilst I wouldnt normally include sustainability reports, per se, these are not normal times and in general these reports are becoming more important and more specifically for DEC, as a market leader in an area that is so important to them.

 So as the energy market gets prepared for what will inevitably become the standard across the board it is clear that CEO Rusty Hutson and his team are to ‘play an increasingly critical role in a lower-carbon energy economy’. This I believe will continue to differentiate DEC from the rest in an increasingly important part of investors tick list…

Beacon Energy

Beacon has announced the completion of its acquisition of Rhein Petroleum and the Company’s re-admission to trading on AIM, with the re-commencement of dealings in its Ordinary Shares expected to take place at 8:00 a.m. today, 11 April 2023. 

Key Highlights:

• The Acquisition provides Beacon with a beneficial interest in a proven and producing oil field with material existing resources and a platform with potential to achieve production of up to 4000 bopd in the coming years.
• Beacon now has independently certified 2P net reserves of 3.85 mmbbl and a 2C net contingent resource base of 22.96 mmbbl, located across four core assets in Germany.
• Beacon has a full-cycle portfolio of largely operated production, development, appraisal and exploration assets in a proven, mature hydrocarbon basin.
• Onshore Germany presents compelling market dynamics with an advantageous fiscal and regulatory regime, predictable permitting processes and supportive regional authorities with a focus on domestic energy security.
• The transaction provides Beacon with a near-term active work programme designed to enhance production and cash flow, and a well understood existing production base which will generate immediate revenue.
• Highly experienced Board and management team, with significant combined regional, technical and capital markets experience, enhanced through addition of Stewart MacDonald as CFO and Leo Koot as NED.
• Beacon successfully raised gross proceeds of approximately £6 million pursuant to the Fundraise, the proceeds of which will be used to fund the drilling of the SCHB-2 development well which is scheduled to spud in June.

Admission and Total Voting Rights
The Existing Ordinary Shares will be cancelled from trading on AIM and the new Ordinary Shares, including the Placing Shares, the Consideration Shares, the Primary Bid Shares, the TOH Subscription Shares, the Director Subscription Shares, the Director Fee Shares and the Adviser Fee Shares are expected to be admitted to trading on AIM with effect from 8.00 a.m. on 11 April 2023 under the ISIN of IM00BKSCP798 with SEDOL number BKSCP79.

On Admission, the Company will have a total of 10,507,679,620 Ordinary Shares with voting rights in issue. There are no Ordinary Shares held in treasury. The figure of 10,507,679,620 may be used by shareholders, following Admission, as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.

Larry Bottomley, Chief Executive Officer of Beacon Energy, commented :
“Following completion of the transformative acquisition of Rhein Petroleum, we are delighted to announce the recommencement of trading of Beacon’s shares on AIM.  The transaction is highly value accretive and provides Beacon with a solid growth platform, underpinned by proven reserves, current production, and an exciting work programme commencing with the important Schwarzbach-2 (“SCHB-2”) development well in the coming months. 

“This transaction is the first step in Beacon’s clearly defined strategy to build a self-funding business, with cash flows from activities directed into further value enhancing organic growth.  We thank shareholders for their patience and support through the RTO process and look forward to rewarding them all as we deliver the corporate and operational plan.”

Advance has returned as Beacon and with an RTO has acquired Rhein Petroleum and Tulip has retained a 40% holding in the ‘new Beacon’ as it has demonstrated in other recent asset sales, it also brings Leo Koot to the BCE board which makes up for the rather odd presence of an Aussie director. 

Now, in my near 44 years in the industry I have never once heard anyone say that they would like to buy a German E&P business so this deal must have taken some selling to the other new shareholders on the raise which was £6m at 0.11p and will be the final raise for the foreseeable future as one of the key selling points of Beacon is that it will be entirely self-funding from cash flow from production. 

Given that this production is currently just 50 b/d and the target is to develop what is a ‘proven and producing oil field with material existing resources and a platform with potential to achieve production of up to 4000 bopd in the coming years’ then those are significant targets but with an independently certified 2P net reserves of 3.85 mmbbl and a 2C net contingent resource base of 22.96 mmbbl all is definitely possible.

The company has also announced that it has contracted a rig for the important Schwarzbach-2 development well which is expected to spud in mid-June and have a 25 day drill plus 12 days of testing before tie-back. I have seen pictures of the facilities and they are certainly fantastic for the current 15 b/d but have the capability to handle 2,000 b/d should things start to work.

KeyFacts Energy Industry Directory: Malcy's Blog