WTI (Nov) $86.24 -42c, Brent (Dec) $89.37 -28c, Diff -$3.13 +14c
USNG (Nov) $3.08 -3c, UKNG (Nov) 123.0p u/c, TTF (Nov) €48.86 +€1.16

Oil price

Oil is up another dollar and a half today as markets have the jitters as Sleepy Joe arrives in Israel, the lull before the storm? The Jordan Summit has been called off after the overnight hit on the hospital.

And the API stats showed a draw of 4.383m barrels of crude against a market whisper of a 1.267m draw.

Arrow Exploration

Arrow has announced the exercise of warrants in exchange for Common Shares in the Company by its largest shareholders and management. The warrants were issued in conjunction with the Q4 2021 financing and had an exercise price of GBP 0.09 per Common Share.

Canacol Exercise
The Company’s largest shareholder, Canacol Energy Ltd, has exercised 18,357,602 warrants and is accordingly being issued the corresponding 1,8357,602 Common Shares.  As a result of this exercise Canacol will hold a total of 60,072,807 Common Shares which represents 21.2% of the current issued share capital of the Company.

As per Canacol’s press release dated October 16, 2023, Canacol intends to hold their current interest in the Company.

Tim Leslie Exercise
Another of the Company’s largest shareholders, Tim Leslie, has exercised 10,204,082 warrants and is accordingly being issued the corresponding 10,204,082 Common Shares.  As a result of this exercise, Tim Leslie will hold a total of 17,812,245 Common Shares which represents 6.3 % of the current issued share capital of the Company.

Management Exercise
The Company’s management have also exercised all warrants belonging to them as set out in the table below.

At this time the Company’s Management team plans to hold their current position in the Company.

Current Issued Share Capital
Following the issue of the new Common Shares described above, and pursuant to 3,600,000 Common Shares that have been issued under the Company’s current blocklisting in the month of October to date, the issued share capital of the Company will be comprised by 283,408,275 Common Shares with one vote per share. 

This figure of 283,408,275 has been used in the calculations above and may be used as the denominator for the calculation 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 and Transparency Rules.

The Company expects to have further warrants exercised at the end of the October under its Blocklisting and will therefore provide a revised Total Voting Rights figure at the end of the October once remaining warrants have either been exercised or expired.

Advance to Management
The Board of Directors have determined to provide loans to each of Messrs. Jull, Abbott and McFarlane.  The amount to be advanced to each Executive is $225,000 which will be repaid from future remuneration or other sources.  The loans are due on demand, or when the Executive ceases to be employed by the Company, or when the Executive sells any Common Shares.

The Executives will execute loan agreements in respect of the advances and have agreed to provide security acceptable to the Company.  The advances will bear interest at the Bank of Canada prime rate.  Terms of the loans were reviewed and approved by the independent directors of the Company.  Under Canadian Securities law the advances are subject to Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions) but are exempt from the requirement for formal valuation or minority shareholder approval as the Company is not listed on a specified market as defined in the Instrument and the fair market value of the loans is less than 25% of the market capitalization of the Company.

Admission of Shares to trading on AIM
Save for the 28,561,684 new Common Shares to be issued to Canacol and Tim Leslie described above, all of the Common Shares issued and to be issued pursuant to the warrant exercises have already been admitted to trading on AIM pursuant to the Blocklisting as announced in the RNS dated 7 November 2022.

Accordingly, an additional application has been made for 28,561,684 new Common shares to be admitted to trading on AIM, with Admission expected to occur on or around 19 October 2023.

Operations Update
At the Rio Cravo Este (RCE) pad, the Company continues with the 2023 drilling program. The RCE-6 well spud on October 4th, and drilling operations are progressing as expected.  Once the RCE-6 well is complete the company plans to drill two further wells at the RCE pad.  Further updates will be issued once the well has been completed.

This is a huge vote of confidence from Canacol, Tim Leslie and the Arrow management team who have all traded in their options for a massive wedge of equity. As I said to Marshall Abbott in my recent interview the market has been concerned that the share price might have been weakened by sales ahead of take up of warrants and this announcement puts that concern to bed. 

The announcement also confirms that the RCE-6 well is drilling ahead and I’m sure that it won’t be long before we hear news on that front. I haven’t changed my TP for over a year and I remain that 50p is just the foothills of the journey. 

Core Finance CEO Interview: Marshall Abbott, Arrow Exploration – September 2023

Zephyr Energy

Zephyr has provided an update on the State 36-2 LNW-CC well and the Greentown Federal 28-11 well located on the Company’s acreage in the Paradox Basin, Utah, U.S.

The Company is also pleased to announce an agreement to further expand the Paradox project by farming-in to the Salt Wash Field, a previously producing asset with proven oil, gas and helium reserves located directly to the south of Zephyr’s White Sands Unit in Utah.

State 36-2 well update
As previously announced, in April 2023 Zephyr’s State 36-2 well experienced a control incident during which hydrocarbons flowed unconstrained for four days due to the failure of a safety valve. The well was brought under control with no injuries and limited environmental impact, and the Company has subsequently undertaken comprehensive well work operations to assess the future viability of the existing wellbore.

During the incident, multiple joints of the well’s 2 7/8-inch production tubing were compromised, and Zephyr’s operations team has been working methodically to remove and inspect the remaining joints while keeping the wellbore static. Operations to retrieve the damaged tubing have progressed slower than expected due to the poor condition of the tubing, as exhibited by the multiple damaged and buckled joints retrieved that led to the need for milling operations and resulted in shorter retrievals per trip.  Recent operations have not resulted in sufficient recoveries to justify the continuation of the ongoing cost of the well work versus the estimated cost to redrill the well.

As a result, the Company’s board of Directors has reviewed multiple alternatives to target the significant productivity of the reservoir at this location, and has elected to proceed with a redrill of a “twinned” well from an adjacent location on the same drilling pad.

The Company retains full well control insurance coverage and expects to recover substantially all costs associated with the well control incident, including those associated with the redrill.

Zephyr has a pre-existing approved permit for a second well on the pad, a permit which will be amended to target the same natural fracture network at the same location in the Cane Creek reservoir as the State 36-2 well.

Preparations for the redrill have commenced, focused on maximising efficiencies and leveraging knowledge learned from drilling the State 36-2 well.  Timing of the redrill will be dependent upon securing an appropriate rig contract and other ancillary services, with a current target for redrill in the first quarter of 2024.  Alternatives for nearer term tie-in of production from the State 16-2 and State 28-11 wells are being considered in parallel.

In addition to the redrill, and utilising corporate cash flows expected to be generated from the Company’s Williston Basin portfolio, Zephyr plans to drill a second well in the Paradox Basin in the first half of 2024 (“H1 2024”).  It is expected that a single rig contract may cover the drilling of both wells, providing further efficiencies and reduced overall costs. At present, the Company plans to drill the second well on the Salt Wash Field, as outlined below.

Greentown Federal 28-11 well update
The 28-11 well forms part of the Paradox Basin asset and infrastructure package acquired by Zephyr in October 2022.  Historically, the well produced over 0.36 billion cubic feet (“BCF”) of gas and 93,000 barrels of oil prior to being shut-in due to a pipeline shut-down.  Since then, pressure at the wellhead has increased due to the natural recharge of the Cane Creek reservoir.

Over the last three months, Zephyr’s operations team has restarted production of the well to reduce wellhead pressure and to produce oil in volumes suitable for sale.  The well has averaged circa 50 BO per day, with a small amount of associated natural gas being flared.  Due to tight monthly flaring limits, the well is limited to roughly ten days of production per month.

Now that the wellhead pressures have been reduced, Zephyr plans to utilise the workover rig currently at the State 36-2 well (once operations at that pad have been completed) to commence well work at the 28-11 well.  These operations will include the installation of a new pump.

After the new pump is installed, Zephyr plans to continue to produce the well within mandated flaring limits until the Company’s natural gas processing infrastructure becomes operational.  The 28-11 well has a pre-existing tie into Zephyr’s pipeline infrastructure and will be able to achieve higher uptimes when Zephyr’s gas processing facilities have been completed.

Salt Wash Field farm-in
The Board remains fully committed to growing and developing its Paradox project and unlocking its significant potential value for shareholders. As a further step in this process, in line with other recent acreage, working interest and infrastructure acquisitions, the Company is pleased to announce an agreement to farm-in to a minimum 75 per cent working interest in a 1,047-acre leasehold position in the Salt Wash Field which lies three miles to the south of the Company’s WSU.

Figure 3: Zephyr acreage in the Paradox Basin including the new Salt Wash Field

The Salt Wash Field was discovered in 1961 and consists of a four-way dipping anticline within the Leadville Formation. The field has a thin (15 feet) oil rim which was the target for most historic development drilling activity and resultant production. Above the oil rim is an inert gas cap (~500′ gas column) consisting of nitrogen (72%) with approximately 22% hydrocarbon gases and 1.4% to 1.7% helium content. The field was first produced in 1961 and was subsequently shut-in having only been partially developed, as the oil rim was produced and the market for natural gas and helium was not supportive of further development at the time.

Salt Wash Field highlights include:

• Demonstrable oil and gas potential in the Cane Creek reservoir (the same formation which underlies the WSU).
• Secondary oil and gas potential within the Upper Leadville Formation.
• Proven helium discovered resource with deep exploration prospective resource opportunities:
• Net helium discovered resource potential: 0.07 to 0.19 BCF (Company estimate*).
• Net helium un-risked, prospective resource of a further 0.04 to 0.66 BCF.
• 1.4% to 1.7% helium content.
• Close proximity to Zephyr’s other Paradox acreage and surface infrastructure.
• Historical production of 1.65 million barrels of oil and 11.7BCF of gas in total (8.26 BCF from the Lower Leadville reservoir) prior to being shut in.
• Drilling activity planned for the second quarter of 2024 with a dual-purpose Leadville Formation delineation well with deep exploration targets.

The key terms of the farm-in are as follows:

• Initial payment of US$300,000 due within 30 days of the date of the transaction, to be funded from the Company’s existing resources.
• A second payment of US$300,000 due within 60 days of the transaction, also to be funded from the Company’s existing resources.
• Zephyr to drill, log and case one vertical delineation well (the “Commitment well”), with spudding prior to 30 June 2024, to top basement rock (circa 11,000ft measured depth) to obtain a one hundred per cent share in the leasehold.
• The incumbent leaseholder (the “seller”) will have the option to back-in to the leaseholding at a 25% working interest, with no historic cost exposure, once the delineation well is drilled and a field development plan has been proposed by Zephyr.  From that point forward, the seller would become a fully paying 25% working interest partner.
• Zephyr has begun the work to integrate the well planning for the Commitment well within its wider Paradox project development. Should the Company not meet its condition to drill the Commitment well during H1 2024, it could lose its rights to the leaseholding.

It is currently forecast that the cost of the Commitment well will be up to circa US$6 million, and the Company has commenced conversations with industry participants (including infrastructure and existing helium-focused companies) to jointly fund the drilling of the Commitment well.  Alternative options include funding the Commitment well from Zephyr cash resources or not proceeding with the project. The Company does not intend to raise funds for the Commitment well by way of an issue of equity.

The farm-in enables Zephyr to increase its footprint across its primary play, the Cane Creek reservoir, in a location close to existing operations. It also grants access to the increasingly active helium play that spans south-east Utah, northern Arizona and western Colorado, which can supply the growing U.S. industrial demand for helium. This industrial helium supply requirement has resulted in recent helium prices rising up to US$1,000/mscf. As such, this farm in fits well with Zephyr’s strategy in the area, capitalises on the Company’s regional basin knowledge, and opens a series of possible future opportunities in a region becoming more active with drilling and M&A activity.

Colin Harrington, Zephyr’s CEO commented: 
“Our Board has concluded that redrilling the State 36-2 well is the optimal path forward to harness the significant discovery made by the initial well.  We are focused on both the near-term potential of the State 36-2 well location as well as the long-term potential of the Paradox project and the Board remains fully committed to its vision of opening up the next prolific onshore U.S oil and gas play.

“Benefits from a redrill include obtaining a new wellbore and utilising the learnings from the State 36-2 well operations to date, and we expect that our well control insurance coverage will cover substantially all costs associated with the redrill. Furthermore, I am confident that our operations team will be able to deliver an effective twin well and once again access the considerable productivity we observed in the original well bore.

“Next steps include securing a drilling rig.  In the interim, the workover rig currently on site will be moved to the 28-11 well pad, where it will undertake work to generate an additional source of incremental production for the Company.  The 28-11 well is a particularly liquid rich Cane Creek well and at this time of higher oil prices, this work is expected to have a rapid payback and provide a stable revenue stream going forward.

“In conjunction with the redrill and workover operations, our new Paradox farm-in is particularly exciting.  We have long studied the potential to redevelop the remaining reserves of the Salt Wash Field, which lies directly to the south of the WSU, utilises the same road network, and may ultimately sell produced hydrocarbon volumes into our recently acquired pipeline infrastructure.  While helium is a new addition to our resource exposure, many nearby Paradox Basin oil and gas operators are already producing co-mingled helium in commercial quantities, and there is an active local offtake market for produced helium. While Zephyr is not looking for helium to become a primary focus, we do expect to partner with industry participants to help appraise and fund the potential of this resource while also taking advantage of our regional knowledge, existing operations and asset platform.  I should also make clear that funding for the Commitment well will not be provided through a future Zephyr equity raise.

“Overall, I am confident that we are taking the optimal course of action for the long-term value of the Company, and the next few months will be full of activity.  Upcoming efforts will focus on preparations for the next round of drilling operations, the delivery of a gas marketing agreement, construction of infrastructure and the commissioning of a Competent Persons Report for the entirety of the Paradox project.  We also plan to progress partnership conversations with upstream and infrastructure participants.

“Finally, with production from our non-operated portfolio expected to grow significantly in the fourth quarter, we are fully funded for all planned work on the existing portfolio, with room left for further acquisition opportunities and additional drilling in 2024.”

So, Zephyr has decided to redrill the 36-2 well as a ‘twinned’ and presumably appraisal well and it is being paid for by the insurance company. Hopefully a rig can be procured swiftly and this long and drawn out process can be concluded, the company has suggested that it is effectively permitted and will hopefully spud in 1Q 2024.

In the meantime there will be another well on the Paradox in 1H 2024 probably using that same rig and likely on the Salt Wash Field. The company have restarted the 28-11 well at the Paradox using the existing workover rig and will be a producer albeit a modest one but any contribution as they say and it will go into the adjacent pipe. 

Finally a nice little farm-into redevelop the remaining reserves of the Salt Wash Field, which lies directly to the south of the WSU, and with it comes access to a helium play, not what you might expect but with prices at $1,000/mscf not to be sniffed at. 

As always Zephyr management challenge the industry norm and here, despite the operational problems at 36-2 they are getting with that redrill and adding more interesting projects to the portfolio, patience may be needed but Zephyr is a keeper…

Union Jack Oil/Europa Oil & Gas

Union Jack has announced that workover operations on the Wressle-1 well to install a downhole jet pump and recomplete the well have been successfully concluded. The workover rig has been demobilised from the Wressle site.

A new surface Triplex pump has been purchased and has been installed and connected.  The final stages of the surface facilities upgrades are nearing completion.  The re-instatement of production operations at Wressle-1 well is currently expected during the week commencing 23 October 2023.

Union Jack hold a 40% economic interest in PEDL180/182.

David Bramhill, Executive Chairman of Union Jack commented: 
“I am pleased with the operations being progressed at Wressle.

“The capital expenditure incurred in the completion of these works is comfortably funded from existing cash balances and will be offset against the Energy Profit Levy Tax at a rate of 129%.

“I look forward to updating the market once stabilised production has been achieved.”

And from Europa the same RNS but with this comment.

Will Holland, Chief Executive Officer of Europa, said:
“Operations to install a jet pump at our core Wressle oilfield are progressing well, with production from the field expected to restart next week. We are pleased that the work has gone so smoothly and I look forward to updating the market on resumption of production”.

This is welcome news for the Wressle partners and it will soon resume production and that very welcome cash flow.

KeyFacts Energy Industry Directory: Malcy's Blog