WTI (Sep) $79.49 -$1.88, Brent (Oct) $83.20 -$1.71, Diff -$3.71 +17c
USNG (Sep) $2.47 -9c, UKNG (Sep) 72.9p +4.4p, TTF (Sep) €30.83 +€3.33

Oil price

The knock on effect of Fitch cutting its rating on the USA was seeing all markets fall sharply but almost all commentators agreed with me that it was a publicity stroke by the firm and served no purpose. Indeed Warren Buffet even said that their action would make no difference to his investing and of course it’s funny that they can downgrade the USA but not other economies..

The EIA inventory stats, even though they were the best since records began, failed to support the oil price but that bearish stance was short-lived as oil has rallied today. The 17 million draw was huge and came as the Asian crude imports hit a record high in July of 27.92m b/d.

IOG

IOG yesterday confirmed that a further waiver in respect of certain terms of its €100 million senior secured bond is being proposed to bondholders, having been agreed in principle with key bondholders. 

The Waiver Agreement is intended to provide a further period of stability for the Company to address balance sheet challenges, with certain items under the Bond Terms to be waived or deferred for the period to 29 September 2023, including inter alia:

• the payment date for the interest payments due to be made on 31 July 2023 and 20 September 2023 is deferred to 29 September 2023
• the obligation to fund the Debt Service Reserve Account is waived until 29 September 2023 (however existing funds shall remain in that account)
• the minimum Liquidity covenant and minimum Interest Cover Ratio requirement are waived until 29 September 2023
• certain other technical potential events of default   

Subject to approval of the proposal, the repayment price of the Bonds will be increased to 105% of par value and the Call Option and early redemption prices increased by 5 percentage points. It has also been agreed to appoint a Board Observer to attend IOG board meetings and advise the Company on short and medium-term financial measures.

As these measures have now been agreed in principle with key bondholders, a summons for a written resolution (“the Proposed Resolution”) reflecting the above is being issued to bondholders seeking approval of these amendments. The Company has received voting undertakings of support to vote in favour of the Proposed Resolution from bondholders controlling more than 60% of the Voting Bonds.

Rupert Newall, CEO, commented:
“This proposed waiver to the end of September has been agreed in principle with major bondholders. Upon execution, it will enable us to continue our dedicated efforts to address the challenges facing the business and deliver an outcome in the best interests of all stakeholders. As ever, further progress will be announced at the appropriate times.”

And just this afternoon another RNS

IOG confirms that bondholders controlling 70% of the Voting Bonds (representing 100% of the votes cast) have now voted in favour of the Bond Waiver Agreement described in the RNS of 2 August 2023, meaning this has now been formally approved.

Rupert Newall, CEO, commented:
“We appreciate the bondholders’ approval of this waiver, which applies to the end of September. This will enable us to continue our dedicated efforts to address the challenges facing the business and deliver an outcome in the best interests of all stakeholders. We will keep the market updated on further progress in subsequent announcements at the appropriate times.”

An important step this for IOG as they receive approval of the waiver agreement from the bondholders. The company continue to make solid progress and I think we know that there is a good business underlying all these discussions.

This is a practical way forward and I am sure that the bond holders want to see the business succeed. It has a high quality position in the Southern North Sea, an important area for the UK to harvest its gas. 

Egdon/Union Jack/ Europa Oil & Gas

Egdon has provided an update on the Wressle well and expected timing of publication of the Competent Person’s Report currently being undertaken by ERC Equipoise Ltd.

• Cumulative production from the Wressle-1 well totalled 492,876 barrels of oil through to the end of July 2023 
• The well continues to produce under natural flow
• Limited volumes of water have been observed, with water cut averaging 3.72% of total field production during July 2023
• The start of water production is significantly later than originally anticipated, providing further evidence that the expected recoverable volumes from the Ashover Grit will be at the higher end of the estimates detailed in the independent Competent Person’s Report prepared by ERCE and announced on 26 September 2016. The 2016 CPR forecast gross volumes from the Ashover Grit of 2P 0.54 MMstb and 3P 1.12 MMstb.
• The advent of water is now being incorporated into ERCE’s reservoir modelling and resource assessment work streams, which will be reflected in the new Competent Person’s Report
• A more detailed update will be provided when the Competent Person’s Report has been completed

Union Jack added:

Union Jack has announced that material landmark net revenues in excess of US$17,000,000 have been achieved from the Wressle hydrocarbon development, located within licences PEDL180 and PEDL182 in North Lincolnshire on the western margin of the Humber Basin.

This RNS also provides a Wressle-1 well update.

Union Jack holds a 40% economic interest in this development.

Financial

• Landmark US$17,000,000 revenues generated to Union Jack since re-commencement of production at Wressle in August 2021
• Union Jack continues to be cash flow positive covering all G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months
• Over £2,995,000 has been returned to shareholders via dividends and share buy backs since October 2022
• Cash and investments at 2 August 2023 in excess of £10,800,000
• Debt free and remains highly cash generative

Executive Chairman of Union Jack, David Bramhill, commented:
“The US$17,000,000 net revenues achieved to date from Wressle (UJO 40%) has been transformational and continues to bolster the Company’s Balance Sheet, complemented by additional cash-flow from the Keddington oilfield (UJO 55%).

“Water breakthrough is not uncommon in any reservoir and following the minor water cut observed, producing operations are actively being managed to effectively optimise oil production.

“Evaluations are continuing in order to deliver a full field development plan that maximises hydrocarbon recoveries from the Ashover Grit, Wingfield Flags, Penistone Flags and other nearby prospects.

“Over the past two years, Wressle-1 production has transformed Union Jack`s financial position, allowing the Company to post a maiden profit and make significant distributions to shareholders.  We continue to believe that when this important conventional onshore hydrocarbon producing asset is fully appraised and developed it will assist to fund the growth of Union Jack for many years to come.”

And Europa commented thus:

Europa announced that the Wressle 1 well has begun to produce a small amount of water, which accounted for an average of 3.72% of the total production fluid during July 2023. The well continues to free flow without the need for artificial lift and as of the end of July 2023 the cumulative production from the W1 well totalled 492,876 bbls of oil.

With water production starting at this late stage, it provides further evidence that the expected recoverable volumes from the Ashover Grit will be at the top end of the estimates detailed in the independent Competent Person’s Report prepared by ERC Equipoise Ltd and announced on 26 September 2016. The 2016 CPR forecast gross volumes from the Ashover Grit of 2P 0.54 MMstb and 3P 1.12 MMstb.

As announced on 17 January 2023, a new CPR has been commissioned and the work, which is being undertaken by ERCE, continues. With the advent of water production, ERCE is revisiting the reservoir modelling and incorporating the event into the various work streams. This has delayed the completion of the report but the results of the ERCE work will be announced in due course when available.

Will Holland, Chief Executive Officer of Europa, said:
“The contribution of formation water has been long expected at the W1 well and we are prepared to handle the water. The size of the oil accumulation within the Ashover Grit formation is still expected to be at the top end of the original CPR estimate and I look forward to updating the market with the updated reserves once the new production data has been incorporated into the dynamic reservoir model. This will ensure that the second development well is drilled in the optimal location and that the recovery rate is maximised.”

So, looking at the overall comments from the companies it is clear that the reservoir is behaving as expected, indeed having produced some 492,876 barrels of oil already the fact that it hasn’t already produced water is in itself more interesting. 

The amount collected of 3.72% isn’t therefore unusual and to be expected and more importantly the partners are ‘prepared to handle it’. The recovered volumes from the Ashover Grit are at the higher end of the current CPR of 2P 0.54 MMstb and 3P of 1.12 MMstb and with that in mind the preparation of a new one is underway at the moment.

With this new information that will be slightly delayed, but it will surely be able to give an idea of how much the full field recovery will yield given that there will be more oil in the Ashover Grit, Wingfield Flags, Penistone Flags and other nearby prospects. 

Having said all this I would contend that actually Wressle has actually well outperformed expectations and  indeed I would never have guessed that it would be doing this much now. And what is more that if I had predicted such an amount I would have undoubtedly expected some water. 

Water or none Wressle has been and will clearly continue to be, an important and extremely profitable asset not only to the companies involved but to the country as it adds the most highly efficient energy that is at all possible to our mix. 

Europa Oil & Gas

Just to recap, I promised to update on EOG after speaking to the company, earlier in the week CEO Will Holland kindly spent some time with me for background purposes. 

Europa recently announced that it has assumed operatorship of licence PEDL343, which holds the Cloughton gas discovery.

Operatorship of the licence was transferred from Egdon Resources U.K. Limited to Europa and approved by the North Sea Transition Authority, the industry regulator, with effect from 27 July 2023. The partners in PEDL343 are Europa (40 per cent), Egdon (40 per cent) and Petrichor (20 per cent).

The Cloughton field was discovered in 1986 and encountered gas throughout the Carboniferous section. The well tested at rates of up to 40,000 scf/day on natural flow, however with the right completion and production optimisation techniques, the Company believes that a well could flow at 6 mmscf/day. The gas is good quality sweet gas with >98% methane and ethane.

The discovery well encountered 60 metres of Carboniferous net sandstone reservoir with high gas saturations. Given the large areal closure and net sand present within the well there is a large volume of gas in place that has already been discovered. Cloughton is therefore a gas appraisal opportunity with the critical challenge being to obtain commercial flowrates from future production testing operations. A location for an appraisal well pad has been identified and following successful testing operations, the field would be monetised by connecting to the nearby gas grid. Such developments remain subject to securing necessary permits and approvals.

Will Holland, Chief Executive Officer of Europa, said:
“We are very pleased to be assuming the operatorship of what we believe to be a material licence and plan to progress the asset to appraisal drilling operations as quickly as possible. This initially involves engaging with the various stakeholders to secure the necessary permits and approvals.

The Europa technical team is now working through the subsurface data to calculate a range of probabilistic recoverable gas volumes and will produce a conceptual development plan for the field, which we believe will demonstrate the material potential value of the licence. There is undoubtedly a significant volume of gas within the structure, which could be brought online relatively quickly and would displace imported gas volumes. Domestically produced gas generates employment, local and national tax revenues and has a lower carbon footprint than imported gas. As such development of Cloughton is fully aligned with the UK Governments British Energy Security Strategy and Net Zero 2050 goals.

I look forward to updating shareholders of our progress as we work through the asset data, refine our estimates for the gas volumes and establish a conceptual development plan.”

It transpires that Cloughton is a somewhat overlooked asset, it was in the portfolio gathering dust as a potentially tight gas play and historically with gas at 30p/Therm had marginal economics at best. At 50p or even higher Cloughton looks ‘very, very interesting’ according to Holland.

With Egdon agreeing to transfer the operatorship and letting the EOG team take it on means that whilst the subsurface team will be able to shoot some seismic and identify a well location for a potential drilling programme the above ground team may have to work somewhat harder.

“This is because there will be plenty of stakeholders judging the site location for the pad and given that it is an onshore UK greenfield development, engaging with the planners, landowners and of course coming up with a plan which will include all permitted activities. The deal is helped by the approval of the NSTA and of course any gas eventually produced would not only displace imported volumes but would enjoy a lower carbon footprint.

In addition to that, and especially after the recent Government announcement on hydrocarbon policy, the development would create local employment, contribute to the Exchequer both locally and nationally as well as meeting the UK Governments British Energy Security Strategy and Net Zero 2050 goals.

Although the company has not given any volumes in the RNS there does appear to be a possible economic amount, partly based on the 1968 well data but on it being labelled a favourable appraisal opportunity.

So, Europa has opened up what is clearly a sleeper and they would dearly love to land this with a well that demonstrates the reservoir can deliver commercial rates of gas, but it should be realised that the above ground process will be hard work and the team will have to carefully navigate the various stakeholders involved in approving the appraisal drilling for it to get the appropriate green lights.

Coro Energy

Coro has announced that it has received an indicative funding proposal from and is now in advanced talks with Capton Energy regarding possible co-investment solutions for Coro’s Vietnamese rooftop solar projects. Capton Energy, based in Dubai, is a joint venture between Siemens Financial Services and Desert Technologies. The platform is focused on Energy Transition infrastructure in Africa, the Middle East, and Asia. The funding proposal received is for Capton to buy into Coro’s current Vietnamese solar projects and provide investment into Coro’s project pipeline of up to 50 megawatts. Coro has committed to a four-month period of exclusivity for the parties to conclude the transaction.

Michael Carrington, Managing Director of Coro Renewables, commented:
“We are delighted to be working with Capton Energy, who have both a substantial balance sheet and strong experience in renewables deployment. We look forward to finalising the arrangements.”

Umer Ahmad, Chief Executive & Chief Investment Officer of Capton Energy, commented:
“Through its collaboration with Coro Renewables, Capton Energy is looking to leverage both parties’ capabilities and experience to support underserved sectors of the market with their energy needs, by utilizing renewable technologies to positively impact communities and industries. “

This is more good news from Coro who will be massively benefited by this co-investment as it will not only complete the current solar projects but also add investment into the pipeline.

Coro shares have nearly doubled from the recent base but still well off historic highs, this news should be very good news for shareholders, bring it on…

Gran Tierra Energy

Gran Tierra yesterday announced the Company’s 2023 mid-year reserves as evaluated by the Company’s independent qualified reserves evaluator McDaniel & Associates Consultants Ltd. in a report with an effective date of June 30, 2023.

All dollar amounts are in United States dollars and all reserves and production volumes are on a working interest before royalties basis. Production is expressed in barrels  of oil per day, while reserves are expressed in bbl, bbl of oil equivalent or million boe, unless otherwise indicated. The following reserves categories are discussed in this press release: Proved Developed Producing, Proved, 1P plus Probable and 2P plus Possible.

Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented:
“Gran Tierra continues to build on its five year track record of adding reserves through its successful development campaigns and enhanced oil recovery optimization programs. Our 2023 mid-year reserves update illustrates how the Company has achieved meaningful oil reserves additions through the strong results of its 2023 development drilling campaign and the Suroriente Block Continuation Agreement*. Furthermore, the reserves update is a testament to Gran Tierra’s ability to operate as a full-cycle exploration and production company which offers value to our stakeholders via the success we have achieved through the drill bit.

Gran Tierra’s first half 2023 development drilling program at the Costayaco field in the Chaza Block has resulted in the identification of new future potential well locations due to the success of the CYC-54 well, which was the most northern well drilled to date. In Acordionero, the enhanced oil recovery program via waterflood continues to produce as expected. Looking forward to the second half of 2023, we plan to build upon our successful exploration results in 2022 in Ecuador with further exploration drilling planned in both the Chanangue and Charapa Blocks in the Oriente Basin.

Despite a decrease in the Brent price forecast used in the mid-year 2023 McDaniel Reserves Report relative to the 2022 year-end McDaniel Reserves Report for the first 2.5 years of the evaluation, the combination of our successful development drilling campaign, the Suroriente Continuation Agreement*, our focus on maintaining low operating costs and our share buyback program that expired in May 2023 allowed Gran Tierra to achieve increases relative to 2022 year-end in net asset values per share** before tax of $49.54 (1P) (up 7%), and $84.39 (2P) (up 15%). With this significant growth in our net asset values per share** in the first six months of 2023, we look forward to finishing off 2023 strongly.”

I mentioned it yesterday and the reserves report makes very good reading for Gran Tierra. A ‘meaningful’ oil reserves addition and from the great recent drilling campaign. They will add serious value to the company which is not yet in the price.

*See the section below titled “GTE McDaniel Reserves Report” for a description of the Suroriente Continuation Agreement.
**See the below tables for the definitions of net asset values per share.

Highlights

2023 Mid-Year Reserves and Values

• During the first half of 2023, Gran Tierra achieved:
  • Increases in Before Tax NAV to $1.6 billion (1P), $2.8 billion (2P), and $4.0 billion (3P)
  • Increases in After Tax NAV to $0.9 billion (1P), $1.5 billion (2P), and $2.1 billion (3P)
  • Strong reserves replacement ratios of:
    • 270% 1P, with 1P reserves additions of 16 MMBOE.
    • 433% 2P, with 2P reserves additions of 26 MMBOE.
    • 599% 3P, with 3P reserves additions of 35 MMBOE.
  • Meaningful 1P, 2P and 3P reserves additions largely driven by success with development drilling and waterflooding results in the Chaza Block and the Suroriente Continuation Agreement*.
  • Finding and development costs (“F&D”), including change in future development costs (“FDC”), on a per boe basis of $15.39 (1P), $12.65 (2P) and $11.18 (3P).
  • F&D costs excluding change in FDC, on a per boe basis of $8.55 (1P), $5.33 (2P) and $3.86 (3P).
  • F&D recycle ratios**, including change in FDC, of 2.2 times (1P), 2.7 times (2P) and 3.1 times (3P).
• Gran Tierra’s four major oil assets, Acordionero, Costayaco, Moqueta and Suroriente (all on waterflood) represent 84% of the Company’s 1P reserves and 74% of its 2P reserves.
• The Company’s PDP reserves account for 53% of 1P reserves and 1P reserves account for 63% of 2P reserves, which demonstrate the strength of Gran Tierra’s reserves base via the potential future conversion of Probable reserves into 1P reserves and Proved Undeveloped reserves into PDP reserves.
• FDC are forecast to be $512 million for 1P reserves and $864 million for 2P reserves. Gran Tierra’s 2023 base case mid-point guidance for cash flow*** of $295 million is equivalent to 58% of 1P FDC and 34% of 2P FDC, which highlights the Company’s potential ability to fund future development capital. Increases in FDC relative to 2022 year-end reflect that the GTE McDaniel Reserves Report now assigns Gran Tierra 90 Proved Undeveloped future drilling locations (up from 78 at 2022 year-end and 61 at 2021 year-end) and 141 Proved plus Probable Undeveloped future drilling locations (up from 115 at 2022 year-end and 94 at 2021 year-end).

*See the section below titled “GTE McDaniel Reserves Report” for a description of the Suroriente Continuation Agreement.

**F&D recycle ratio is defined as second quarter 2023 operating netback per WI sales volume boe divided by the appropriate F&D costs on a per boe basis. Operating netback does not have a standardized meaning under generally accepted accounting principles in the United States of America (“GAAP”) and is a non-GAAP measure. Operating netback is defined as oil sales less operating and transportation expenses. See “Non-GAAP Measures” in this press release.

*** “Cash flow” refers to GAAP line item “net cash provided by operating activities”. Gran Tierra’s 2023 base case guidance is based on a forecast 2023 average Brent oil price of $85/bbl. This forecast price used in Gran Tierra’s forecast is higher than the 2023 McDaniel Brent price forecast.

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