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Oil price

Oil is unchanged today after last week’s worries about economic data which almost everywhere indicated recessionary pressures growing. The rig count fell by 5 overall and by 6 in oil showing a lack of confidence domestically in the US oil patch.

But Russia is the focus after activity at the weekend and confusion reigns about Wagner and whether or not we have seen the last of them and Mr Prigozhin. With Putin looking remarkably under pressure one Russian expert said to me today that he would resort to form, ie a purge and to make it work it would have to be one that would make Stalin blush.

Today’s blog is a bit of a catch up, I was away at the end of the week so apologies for a pot pourri…

IOG

IOG has provided an update on the Blythe H2 well wireline intervention and the drilling contract with the Shelf Drilling Perseverance jack-up rig.   

Rupert Newall, CEO, commented:
“We have successfully completed the wireline intervention at Blythe H2 well, which has now flowed at a maximum stabilised rate around 42 mmscf/d, slightly above our original 30-40 mmscf/d guidance. Production will now be managed up from 20 mmscf/d towards the maximum rate to further dewater the pipeline. The team has worked very well to identify the issue and remediate it safely and efficiently. The significant improvement in our operating team performance is also demonstrated by Blythe operating efficiency increasing from 59% in 2022 to 93% over 1H23 to date.

In parallel with the remediation work on H2, we have been assessing next steps for the business very carefully. Mindful of current gas market and balance sheet risks, we have decided to pause drilling activity for now in order to maximise near-term cash flow.”

This is a well deserved good drilling result for IOG and the new management will be extremely happy with the clear improvement in operational performance since the change in management. As production picks up so will revenues and despite the fall in natural gas prices they appear to have settled around these levels. 

But the problems that the drilling programme has thrown up have showed that the team has the ability to efficiently solve these challenges such as well control and downhole restriction incidents which must be pleasing for CEO Rupert Newall. 

Finally, right now they are exercising a highly prudent approach of maximising cash flow while working on longer-term capital strategy, shown by the decision to ‘pause’ drilling. 

H2 intervention

• During well testing prior to H2 First Gas on 12th June, gas flow appeared to be choked back below expected levels by a restriction above the reservoir. Equipment was mobilised to the rig to test whether this was caused by a partially activated downhole valve  
• Over the weekend, the downhole blockage was duly verified at the expected depth. The valve was then fully opened with suitable equipment and the anticipated change in downhole pressure was observed
• The well was handed back to the Operations team in the early hours of Sunday 25th June and subsequently flowed at a maximum stabilised rate of 41.9 mmscf/d
• Production is now initially set at 20 mmscf/d and will be steadily built up to full rate over the coming week as the Saturn Banks Pipeline System is further dewatered
• The absence of formation water production from H2 is expected to significantly reduce aqueous liquid arrivals at Bacton, which should in turn reduce unit operating expenditure
• The plan remains to produce from H2 only over the next few months; once water levels have re-equilibrated at the H1 location, periodic production is planned from H1 at lower rates to minimise water production

SDP Drilling contract 

• The SDP has been contracted to the IOG-CalEnergy Resources JV ("the JV") since the Elgood well was spudded in April 2021 
• One of two priced contract extension options was previously exercised with a view to drilling one of the two planned appraisal wells at Kelham North/Central and Goddard 
• At the current time, having overcome both the Blythe H2 well control event and downhole blockage, and in the context of continued gas market volatility, maximising production and rebuilding cash balances are key priorities
• The decision has been taken to defer the drilling of the Kelham and Goddard appraisal wells at this time and the SDP will therefore be released after completion of Blythe H2 operations
• The JV will continue to assess the best options to drill the two appraisal wells by 31 March 2024 as per the respective licence terms 
• The JV is offering potential farm-in partners up to 50% of the Goddard licence (P2438) via the previously announced farm-out process

Zephyr Energy

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

Highlights
Over the 2022 financial year, and in the period since, Zephyr has continued to make sustained progress with its primary goal of opening up the next prolific onshore U.S. oil and gas play.

The Company’s key goals for 2023 are to move its project in the Paradox Basin, Utah, U.S. (the “Paradox project”) into full commercial production while continuing to grow its highly-profitable, cash generating non-operated asset portfolio.

The Company’s Board of Directors remains firmly committed to delivering long-term value to our Shareholders, while upholding our core values of being responsible stewards of our shareholders’ capital and of the environment in which we operate.

Financial
·      Near seven-fold increase in revenues from prior year to US$41.1 million (2021: US$6 million), and a profit before tax of US$22.6 million (2021: US$1 million), highlighting the extent of the Group’s growth during the period.
·      Net profit after tax of US$19.3 million, equating to a profit of 1.26 cents per Ordinary Share for the year ended 31 December 2022 (2021: US$0.8 million or 0.08 cents per Ordinary Share).
·      At 31 December 2022, the Group had cash and cash equivalents of US$9 million (2021: US$1.8 million).
·      Total investment in the Group’s exploration and evaluation assets as at 31 December 2022 was US$38 million (2021: US$22.8 million) reflecting the ongoing investment in the Paradox project.
·      Total investment in property, plant, and equipment as at 31 December 2022 was US$51.8 million (2021: US$11.2 million) reflecting the further acquisition of non-operated assets in the Williston Basin, recurring capital expenditure and decommissioning obligations on the non-operated assets.

Paradox Project, Utah, U.S. (operated asset)
·      First flowing hydrocarbons from the Company’s State 16-2 LN-CC well (the “State 16-2 well”) and the drilling of the State 36-2 LNW-CC well (the “State 36-2 well”), a major milestone for the project.
·      Working- interest in the project increased to 100% across approximately 45,000 acres.
·      Competent Persons Report which highlighted the scale and resource potential of the project. Based on the Company’s 100% working interest Sproule reported:

o  2P Reserves: Maiden Paradox project Proved Reserves of 2.57 million barrels of oil equivalent (“boe”)
o  2C Contingent Resources: 34 million boe
o  2U Prospective Resources from overlying reservoirs: 270 million net unrisked boe.

·      Acquisition of assets and infrastructure during the period including 21 miles of natural gas gathering lines, a gas processing plant (not currently in operation), and rights of way for additional gathering lines to help facilitate moving the project into the production phase with less upfront cost.

Williston Basin, North Dakota, U.S. (non-operated assets)
·      Zephyr now has a portfolio of interests in more than 220 wells operated by top-tier operators in the Williston Basin, one of the most prolific basins in the U.S.
·      FY 2022 revenues from the non-operated assets of US$41.1 million (from production of over 500,000 boe) a circa 585% increase from revenues of US$6 million in FY 2021.
·      FY 2022 sales volumes from the portfolio averaged 1,410 barrels of oil equivalent per day (“boepd”) (2021: 263 boepd).
·      Portfolio has generated high margin cashflows, providing funding for the Paradox project and further investment in the non-operated portfolio.
·      Implemented inaugural hedging programme with BP Energy Company, locking-in over US$30 million of forecasted Williston Basin revenue over a two-year period.

Corporate
·      In line with the Company’s ESG objectives, Zephyr continued to achieve Scope 1 carbon-neutrality across its operational footprint during the period under review.
·      There were no reported health or safety incidents on Zephyr operated assets. 

Rick Grant, Zephyr’s Non-Executive Chairman, said: 
“I am pleased to report that the 2022 financial year was a period of excellent environmental, financial and operational performance for the Company.

“Zephyr continues to be well positioned as a profitable, cash generating exploration and production group and our balanced portfolio of operated and non-operated assets is expected to continue to yield strong results for Zephyr.  Cash flows generated from our non-operated portfolio will continue to be primarily used for the ongoing development of our flagship Paradox project.

“Looking ahead, with a diverse portfolio of cash flowing assets, potential for substantial future organic growth, a solid financial footing and a talented and dedicated team of employees, we continue to be extremely optimistic about Zephyr’s future.

“Our key goals for 2023 are to move the Paradox project into full commercial production while continuing to grow our non-operated asset portfolio.

“I would like to thank our employees and contractors for their hard work in 2022, especially those on site who worked tirelessly through historically difficult conditions last winter. I also wish to express gratitude to our Shareholders, lenders, advisers and other stakeholders for their ongoing support to the Group.

“The Board is looking to the future with a high degree of confidence as we continue in our pursuit of building a group of which all our stakeholders can be proud.”

This is only the finals announcement so all history and there is nothing new in the RNS. But it is worth reading Chairman Rick Grant’s comments which encapsulate the position at Zephyr and show just how the company is set fair to grow substantially in the future.

Combine a first rate board with an exciting portfolio of assets which exhibit different risk profiles enabling cash flow and huge exploration upside and you get Zephyr which in my view is poised for substantial growth. 

Trinity Exploration & Production

Trinity has announced an update on its Jacobin well, which spudded on 15 May 2023, being drilled onshore Trinidad.

Highlights

• The Jacobin well has now completed two of three planned sections and has successfully intersected the Forest and Upper Cruse secondary targets encountering good quality oil-bearing reservoirs.  An intermediate logging programme has been completed and initial analysis shows good quality reservoirs and pay zones which have exceeded pre-drill estimates.
• The rig is setting casing and is preparing to drill ahead into the third section, during which it is expected to encounter the primary well targets in the deeper Lower Cruse reservoir formations (TS-6, TS-7 and TS-8), through to prognosed Total Depth (“TD”), which we expect to achieve in approximately two weeks’ time.

The drilling schedule has been extended due to the Company’s decision to accelerate the changeover to synthetic oil-based mud in the second section (which had been planned for the third section) in response to challenging drilling conditions.  Once initiated, this saw a rapid and material improvement in drilling progress. Due to the nature of the turnkey contract, no significant cost impact is anticipated.

The Company expects to provide a further update on progress on the Jacobin well after reaching TD.

Jeremy Bridglalsingh, Chief Executive Officer of Trinity, commented:
“Initial indications confirm that the Jacobin well has, so far, encountered oil in the shallow secondary formations, which is encouraging.  We keenly await progress as drilling recommences to the deeper TS-6, TS-7 and TS-8 Lower Cruse formations.

The data provided from Jacobin will help to de-risk further Lower Cruse drilling across the Hummingbird prospects, including the Buenos Ayres block, where we announced the success of our application in the 2022 Onshore and Nearshore Competitive Bid Round earlier this month.  In a success case, Jacobin will require further development drilling expected to demonstrate strong payback and cash-on-cash metrics.”

This is good news from Trinity but it is early days indeed, not yet at the key formation and until flow rates etc are announced we have no idea of the full impact of Jacobin.

Chariot

Chariot last week announced its audited final results for the year ended 31 December 2022.

Adonis Pouroulis, CEO commented:
“As the importance of a successful energy transition builds across the world, Chariot continues to develop a business that spans key elements of the spectrum – natural gas, renewables and green hydrogen – each of which is likely to be a critical energy source of the future. Over the past year we have delivered on a number of the core objectives we set for ourselves across our three pillars, bringing new, exciting and value accretive opportunities into the business. Each of our projects are scalable, focused on delivering accessible, reliable and sustainable sources of power and each has the potential to become an important part of the supply chain within the countries in which we operate. We are proud of our unique position within this sector and the part we are playing in the global energy revolution.”

As elsewhere these are only final results but it does show that things are moving fast at Chariot and I can still see massive upside for the company that is doing all that I have wanted them to do.

Outwith the results themselves the real draw of the announcement is that Chariot is clearly in receipt of ‘multiple’ offers as they continue the partnership route. Indeed the company say that they have seen a number of significantly larger E&P’s in the process which adds to the excitement and also that they are all well funded enough to self-fund the development. 

Indeed, if the farm-in goes as well as I am hoping for it could be an old fashioned ‘cash and carry’ in which Chariot recovers a good deal of its costs and remains with a big interest in Anchois, a highly desirable outcome in one of the best geographies in world E&P. 

Key Highlights Throughout 2022 and Post Period End
Transitional Gas – fast tracking the Anchois development project and unlocking a new gas province in Morocco

·      Significant gas discovery and drilling operations successfully completed on the Anchois Gas Development (“Anchois”) project, located in the Lixus licence, (“Lixus”) offshore Morocco.
·      Post-well analysis confirmed excellent, consistent gas, delivered a material increase in resources totalling 1.4Tcf in total remaining recoverable resources (2C and 2U) and de-risked a number of high potential future targets.
·      Award of Rissana Offshore licence (“Rissana”) located around Lixus captured basin scale opportunity with 2U prospective resource estimates of 7Tcf.
·      Front end engineering design (“FEED”) initiated on Anchois alongside Subsea Integration Alliance (“SIA”) in June 2022 and materially completed post period end.
·      Societe Generale appointed as financial advisor to project – keen interest received from a number of Moroccan, African and European banks in providing future project finance.
·      Gas sales principles agreed with ONEE for up to 0.6 BCM per year (c. 60 mmscf per day) on a take or pay basis for a minimum of 10 years – discussions are ongoing with other offtake parties and negotiations progressing well.
·      Pipeline tie-in agreement for the Maghreb-Europe Gas Pipeline (“GME”) signed, underlining strategic proximity of Anchois to domestic and international market.
·      Partnership agreed with Vivo Energy to develop a gas-to-industry market in Morocco – further commercialises future production.
·      Competitive partnering process well advanced on Anchois.

Transitional Power – providing reliable renewable energy solutions across Africa

·      Partnership with Total Eren extended from January 2022 with Chariot having the right to invest up to 49% into the co-developed mining projects.
·      Over 500 MW added to the mining pipeline over the past year in partnership with Total Eren:

o  Development of a 40 MW photovoltaic solar project at the Tharisa platinum mine in South Africa,
o  Partnership with First Quantum to develop a 430 MW solar and wind project in Zambia.
o  Development of a 30 MW solar plant at Karo Mining’s platinum mine in Zimbabwe.

·      Diversification through shareholding in Etana Energy (Pty) Ltd (“Etana”) – an active joint venture company (“JV”) which holds one of only three electricity trading licences in South Africa. The JV provides access to transmit, trade and re-trade energy through national grid and unlocks future participation in further renewable projects.
·      Acquisition of renewable water production business, owned by ENEO Water PTE Limited (“ENEO”), in response to increasing water scarcity in Africa and as a complementary fit for both the Transitional Power and Green Hydrogen pillars; first project in Djibouti has now been commissioned.

Green Hydrogen – developing a critical energy source of the future
·      Pre-Feasibility study completed on Project Nour in Mauritania confirms project’s world class potential.
·      Total Eren announced as partner to co-develop Nour and progress offtake and feasibility studies.
·      Memorandum of understanding signed with the Port of Rotterdam to establish early import supply chains into the European market.
·      Pilot projects signed in Morocco with Mohammed VI Polytechnic (“UM6P”) and Oort Energy to evaluate large scale green hydrogen production in country.
·      Other green hydrogen projects under evaluation with plans to further expand portfolio in Africa.

Corporate
·      Placing and oversubscribed open offer successfully raised $29.5m in June 2022.
·      Cash of $12.1 million as at 31 December 2022 with no debt and minimal remaining work commitments.

Sound Energy

Sound last week announced the receipt of court papers confirming the withdrawal of cases between the Company and the Moroccan Tax authority.

Subsequent to the Company having previously confirmed that it had entered into a full and final settlement of its tax disputes with the Moroccan Tax Authorities, on terms set out in the Company’s announcement of 4 May 2023 and regarding cases of Sound Energy Morocco East and Sound Energy Morocco SARL AU, the Company is pleased to announce that the court has now confirmed in writing its judgement – with both remaining court cases now formally closed.

This is good news for Sound, the formal completion of the tax settlement should now open the door for further, larger and more formal institutions to engage with the company as it continues developing its portfolio in the Tendrara.

Jersey Oil & Gas

Jersey Oil & Gas last week announced that it has completed the farm-out transaction with NEO Energy (“NEO”).  The companies each now hold a 50% interest in the licences that comprise the Greater Buchan Area (“GBA”), being P2498 (“Buchan”) and P2170 (“Verbier”), with NEO set to become the operator as part of the transaction.

The Company is also pleased to report that the GBA partners are well advanced with selection of the Buchan re-development solution and it expects to be able to provide an update on this shortly.

Farm-Out Transaction Summary

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

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

Andrew Benitz, CEO of Jersey Oil & Gas, commented:
“We are delighted to have completed the farm-out transaction and to be swiftly moving forwards with finalisation of the GBA development solution.  With the route and the funding secured for preparation of the Buchan Field Development Plan, our attention now turns to unlocking further value by securing an additional GBA partner ahead of FDP approval and retaining a fully carried 20-25% interest in the development programme.”

So, it is full steam ahead for JOG on what will be an exciting journey, it has done a remarkable deal on the GBA and now reap the rewards of that process. It can now press on with the ‘unlocking’ that CEO Andrew Benitz refers to above and be able to decide how to play it going forward, either way they are in an enviable situation. 

JOG must be one of the biggest stores of value that I have ever seen in the market, my target price of £10 per share could even be light, this is a long term, high added value situation which investors should look at very closely. 

KeyFacts Energy Industry Directory: Malcy's Blog