WTI (Dec) $77.17 +$1.43, Brent (Jan) $81.43 +$1.42, Diff -$4.26 -1c
USNG (Dec) $3.03 -1c, UKNG (Dec) 117.0p -5.09p, TTF (Dec) €44.755 -€2.245

Oil price

After another week of falls Bent seems to have steadied at around $80, at the moment it looks like the world economies may have to be in charge for a while…

Wentworth Resources

Wentworth has today provided an update on its operations, future capital returns strategy and the offer from Etablissements Maurel & Prom S.A.

Operational and Financial Update
The Company continues to deliver strong performance with record production levels achieved in the first half of 2023 and continuing into the second half of the year.

Average daily production year to date was 105 MMscf/d, a new record for Mnazi Bay, and ahead of the annual average guidance of 90 – 100 MMscf/d. This strong production, alongside an ongoing exemplary safety record which remains a key priority for Wentworth, highlights the quality of the Mnazi Bay asset.

The Company’s financial position underscores the robust nature of the business with cash as at 31 October 2023 of $44.6 million and zero debt. However, given that historic cost pools were fully depleted in Q2 this year, the Company is currently deriving its entitlements from profit gas with only ongoing operating costs currently replenishing the pool. As a result, revenues are substantially lower relative to production levels than in previous years and are expected to continue at a lower level throughout the remainder of 2023 and into 2024 until such time as the planned re-investment programme in the Mnazi Bay field commences.

The Government of Tanzania’s re-examination of the historic cost pool audit for the years 2013 – 2015 remains unresolved with the Operator. Wentworth’s maximum exposure is approximately $14 million.

Based on expected production, continued timely receipt of gas sales revenue and no repayment of the disputed costs, cash is expected to remain broadly flat in the near term.

2024 work programme
During Q4 2023, the Mnazi Bay partners agreed the annual Work Programme and Budget for 2024. This includes a material capital expenditure programme with the drilling of two wells and the addition of compression to the Gas Production Facility at Mnazi Bay.

Further details will be announced upon formal budget approval, which is expected to be in early 2024. This re-investment is critical for the future optimization of the Mnazi Bay field and to support Tanzania in its goal for universal access to energy for its people. 

It is anticipated that Wentworth’s share of this work programme will be funded from existing cash resources and will form a key part of the capital allocation policy for 2024. Capital costs incurred are expected to materially replenish the cost pools allowing for rapid recovery via enhanced cost gas revenues.

Offer by Etablissements Maurel & Prom S.A. 
On 5 December 2022, the boards of Wentworth and M&P announced that they had reached agreement on the terms of a recommended all cash offer by M&P for the entire issued, and to be issued, share capital of Wentworth. The Acquisition is to be implemented by means of a scheme of arrangement pursuant to Article 125 of the Jersey Companies Law. The circular in relation to the Scheme was published and made available to Wentworth Shareholders on 25 January 2023.

The Acquisition was approved by Wentworth Shareholders at the Court Meeting and the General Meeting which were held on 23 February 2023, but remains subject to the satisfaction or (where capable of being waived) waiver of the other Conditions to the Acquisition as set out in Part III (Conditions to and certain further terms of the Acquisition and the Scheme) of the Scheme Document.

These Conditions include, inter alia, (i) consent from the Minister responsible for petroleum affairs in Tanzania under the Petroleum Act 2015 and any other applicable laws; (ii) the waiver of any right of first refusal or pre-emption right to which the Tanzania Petroleum Development Corporation is entitled in respect of the Mnazi Bay asset; and (iii) approval from the Tanzanian Fair Competition Commission, in each case on terms satisfactory to M&P, acting reasonably.

On 9 June 2023, Wentworth received a letter from TPDC notifying Wentworth Gas Limited, the Company’s main operating subsidiary, of its decision purportedly to exercise its right of first refusal in respect of Wentworth’s interest in the Mnazi Bay asset pursuant to section 86(7) of the Tanzanian Petroleum Act, Cap 392, which TPDC continues to assert.

Consequently, on 11 July 2023, Wentworth was notified that the FCC had issued a decision notice that the application for FCC approval shall not be determined at this time and that this application will be marked closed by the FCC. Further, the decision included confirmation from the FCC that TPDC has the right to pre-emption of the M&P proposed transaction to acquire Wentworth.

Current Status
Following TPDC’s notification of its decision purportedly to exercise its ROFR, discussions have been ongoing between M&P and relevant Tanzanian stakeholders regarding the satisfaction of the above-mentioned Conditions. Wentworth understands that the Minister of Petroleum and the FCC are waiting to understand any agreement reached with TPDC prior to making any determination.

Wentworth also understands that these discussions have covered, inter alia, the resultant equity interest in the Mnazi Bay licence to be held by M&P and TPDC should M&P’s Acquisition complete, related matters of taxation in Tanzania, resolution of the 2013 – 2015 disputed cost pool, future capital investment in the Mnazi Bay asset and the apportionment of M&P’s transaction costs in connection with the Acquisition.

During this period of discussions between M&P and relevant Tanzanian stakeholders, Wentworth has maintained its strong and empathetic stakeholder relationships in-country with regular visits and meetings by Katherine Roe, the Company’s CEO. Wentworth has remained supportive of both assisting in the completion of the Acquisition, consistent with the Board’s recommendation to shareholders, and listening to the related concerns of Tanzanian stakeholders.

To date, these discussions have not resulted in any clear indication or certainty that the above-mentioned Conditions will be satisfied or (if capable of waiver) waived by M&P by the agreed Long Stop Date of 31 December 2023, which the Board notes is rapidly approaching. If (i) these Conditions are not satisfied or (where capable of waiver) waived by M&P prior to the Long Stop Date and (ii) the Panel agrees that they are Conditions relating to material official authorisations or regulatory clearances and the action that needs to be taken to obtain the authorisation or clearance to satisfy these Conditions is not sufficiently clear or is sufficiently clear but would give rise to circumstances which are of material significance to M&P in the context of the Acquisition, the Acquisition will lapse and will become incapable of completing.

There can be no certainty that, if the Conditions are not satisfied or (if capable of waiver) waived before the Long Stop Date, the Board will be prepared to agree to any extension of the Long Stop Date, if requested by M&P.

Dividend and Future Capital Returns
If any dividend, distribution or other return of value in respect of the Wentworth Shares is declared, paid, made or becomes payable prior to the completion of the Acquisition, M&P has the right pursuant to the agreed terms of the Acquisition to reduce the consideration payable for each Wentworth Share under the terms of the Acquisition by the amount per Wentworth Share of such dividend, distribution or other return of value.  

Further, as a result of the “no increase” statement made by M&P in its announcement on 20 February 2023, which prevents M&P from improving the financial terms of the Acquisition (other than in the specific circumstances set out in that announcement), this is a right which M&P must exercise under the Takeover Code.

As a result of this, the Board is not proposing to declare, pay or make any dividend, distribution or other return of capital in respect of Wentworth Shares unless and until the Acquisition lapses. 

As soon as practicable after the Long Stop Date or should the Acquisition lapse prior, it is the Board’s intention to consider as an immediate priority the declaration of a dividend (payable as an interim dividend so as to not require shareholder approval) representing the FY 2022 final dividend, the interim H1 2023 dividend plus an additional “special” dividend in recognition of both the strong performance of the Company and the patience and forbearance of all shareholders during the period since the announcement of the Acquisition, noting in particular, the time that has been taken up by discussions between M&P and Tanzanian stakeholders in relation to the above-mentioned Conditions.  The Board is currently undertaking a full capital allocation analysis to determine the appropriate level of any return whilst ensuring sufficient liquidity and financial flexibility to meet its future commitments. 

AGM
The Company had previously postponed its 2023 Annual General Meeting, typically held in June each year, due to the ongoing implementation of the Acquisition. The AGM will now be held in December and the Notice of AGM, containing all details of Resolutions and how to vote, is expected to be published in the coming week.

Katherine Roe, Chief Executive of Wentworth, commented:
“We thank shareholders for their patience and support during the extended period of implementation of the proposed M&P Acquisition. The Board continues to work for a positive resolution of the  Acquisition before the Long Stop Date of 31 December 2023.  In the event that the Acquisition lapses, we will consider as an immediate priority the making of significant dividend distributions with respect to FY 2022 and 2023.

“We will continue to update shareholders regularly between now, the upcoming AGM and the Long Stop Date.” 

So, where does this leave everything? The answer is remarkably complicated firstly because this as it stands in not an asset deal, M&P have bid for WEN and its shareholders have overwhelmingly agreed to the deal as it is on the table. Even the finances are complicated, with the cost pools  becoming fully depleted in Q2 2023 revenues started to take a turn down and will stay this way until the planned reinvestment continues.

Indeed, you might imagine that with average daily production year to date at 105 MMscf/d, a new record for Mnazi Bay, and ahead of the annual average guidance of 90 – 100 MMscf/d revenues would be soaring but not with the cost pools as they are. The other key problem is that during this long period of uncertainty Wentworth has not been able to pay any dividends to its shareholders because any payment they make can be offset against M&P’s consideration and therefore reduces the value of the bid to WEN holders.

It seems to me that with only six weeks to go before the deadline there needs to be a deal done between M&P and the Government, this would presumably be a formal counter offer for the company which I’m not sure is possible as you can’t in my mind pre-empt a company in a takeover situation.

Finally it should be mentioned that on a regular basis in recent years the Tanzanian Government has made a conscious effort to look good and in many different ways in order to generate incoming business and obviously money in to the country. A cack-handed and inoperable attempt to pre-empt an agreed takeover under international rules hardly makes the Government look good and it reflects badly on the regime who have been, outwardly at least, been saying that they are open for business.

To sum up, what happens if the process ends in gridlock and the timetable expires? With the economics of the Mnazi Bay up in the air and with depleted cost pools affecting revenue, profitability and hence value, the desirability of  doing business in Tanzania is lessening every day this takeover timetable runs down. If the Government really does want to at appear to be entrepreneurial and welcoming to international business and finance then this deal needs to be sorted before it’s too late…

PetroTal Corp

PetroTal has reported its operating and financial results for the three and nine months ended September 30, 2023.

Selected financial and operational information is outlined below and should be read in conjunction with the Company’s unaudited consolidated financial statements and management’s discussion and analysis for the three and nine months ended September 30, 2023, which are available on SEDAR+ at www.sedarplus.ca and on the Company’s website at www.PetroTal‐Corp.com. All amounts herein are in United States dollars unless otherwise stated.

Selected Highlights

• Average quarterly sales and production of 11,553 and 10,909 barrels of oil per day, respectively, impacted by a severe dry season and consequent low river levels that limited barge transport and tanker unloading capacity at Manaus;
• Exited the quarter in a strong cash position with $113 million in total cash ($94 million unrestricted), up 22% from the end of the second quarter of 2023;
• The Company has declared a cash dividend of $0.02 per common share that will be paid December 15, 2023, with a record date of November 30, 2023.  This represents a 15% annualized yield based on the current share price.  In addition, the Company will continue to buy back shares under its normal course issuer bid, at approximately $1 million per month during the fourth quarter of 2023;
• Completed the latest well, 15H, in early June 2023 averaging 7,203 bopd during its first 30 days online.  The well was shut-in in mid July due to production constraints caused by low river levels, and was briefly reopened last month for 10 days, averaging 5,000 bopd.  The well is expected to be fully reopened the last week of November as river levels continue to rise;
• Completed installation of the new west drilling platform (“L2 West Platform”) where the Company expects to drill future oil wells;
• Generated EBITDA and free funds flow of $42.0 million ($39.55/bbl) and $36.9 million ($34.76/bbl) respectively, compared to $70.0 million ($41.63/bbl) and $37.7 million ($22.41/bbl) in Q2 2023;
• Achieved net income of $25.4 million ($0.03/share) in Q3 2023 compared to $46.6 million ($0.05/share) in Q2 2023;
• Paid a dividend of $0.025/share and repurchased 5.6 million common shares in Q3 2023, representing a total of $26.1 million of capital returned to shareholders (~5.0% of September 30, 2023, market capitalization) due to record results in Q2 2023 financial performance; and,
• Enhanced the Board of Directors by adding two new independent directors since June 30, 2023. Mr. Felipe Arbelaez Hoyos and Ms. Emily Morris joined the Board, each bringing significant breadth and depth in commercial strategy, capital markets, ESG and M&A to the PetroTal team.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“Despite a challenging Q3 from an oil sales perspective due to extremely low river levels, the Company delivered strong cash flows for the quarter, driven by robust Brent prices and prudent spending by the management team.  This has allowed the Company to declare a cash dividend of $0.02 per common share. With river levels now rising we expect to be producing approximately 20,000 bopd consistently by the last week of November 2023.

Looking ahead to Q4 2023, management is very focused on optimizing existing logistics and unlocking new commercial sales routes, starting with our 100,000 barrel oil sales pilot through the Ecuador pipeline (“OCP”).  If successful, and with some added facilities, we estimate this route could carry up to 5,000 bopd, significantly limiting the impact of future dry seasons.  In addition, the commercial team has completed a significant Brazilian export milestone by unloading directly from barge to ship without requiring a terminal to unload the crude, bypassing that potential bottleneck.

As we contemplate future sales routes in our 2024 budget planning, including the route via Yurimaguas that should be ready next year, we are still expecting an ONP sales option in 2024 as Petroperu continues to work through their financial and operational challenges.  We will continue to support constructive discussions with Petroperu in this area.”   

PetroTal shareholders are a canny bunch and the share price hasn’t been hit to badly this year by the regular summer quarter when river levels fall and barges struggle to operate. Although production was down in the quarter including the newly producing 15H well there are new routes being prepared and in years ahead this bottleneck this year may be the last and the worst of the problem.

After all the company still has strong cash flows and ended the quarter with $113m in total cash of which $94m is unrestricted and enabled them to declare a dividend of $0.02 a share which keeps the annualised yield at around 15% which goes up by a good 2% when you add the benefits of the buy-back. 

Looking ahead the company are confident enough to predict a flow rate of some 20,000 b/d by the end of November and with the completion of the new west drilling platform, to be known as the L2 West Platform the scope for more wells is expanded. 

I remain confident that PetroTal will be amongst the best performers in the sector and my Target Price of 150p remains firmly intact. With excellent management in place and plenty of upside from existing acreage the world is indeed lucky to have such a gift from darkest Peru…

Beacon Energy

Beacon has announced an increase in the Company’s assessment of reserves in the Erfelden field incorporating the results of the recently drilled Schwarzbach-2(2.) (“SCHB-2(2.)”) well.

SUMMARY

• As previously announced, the SCHB-2(2.) well encountered a 34-metre gross interval containing 28 metres of oil-bearing net reservoirs in the Pechelbronner-Schichten ("PBS") sandstones within the Stockstadt Mitte segment of the Erfelden field.
• These oil-bearing reservoirs were encountered approximately 25 metres higher and 10 metres thicker than prognosis, with excellent porosities and no water-bearing sands in the Low Case 42m hydrocarbon column.
• In addition, following a revised well-to-seismic tie incorporating the PBS, which was encountered shallower than predicted in the SCHB-2(2.) well, re-mapping of the 3D seismic data indicates that the Stockstadt Mitte-1 well ("STKM-1") drilled by Exxon in 1986 penetrated the Meletta and Upper PBS reservoirs in the adjacent Schwarzbach South segment of the field. The Company's view is that the contingent resources associated with this segment should be re-categorised as reserves that are justified for development.
• The re-mapping also shows that there is no clear indication of a material fault offset between the Stockstadt Mitte segment and the adjacent Schwarzbach South segment. Beacon believes that there is a high likelihood that these segments are connected and share a common oil-water contact at 1616mTVDSS, which is supported by the updated mapping, the gas ratios data from the SCHB-2(2.) well, and the pressure data in the Meletta reservoir in the STKM-1 well.

The Company's updated assessment of potential reserves for these two now proven and likely connected segments of the central part of the Erfelden field are:

• Low Case: 4.72 MMbbls
• Best Estimate Case: 7.24 MMbbls
• High Case:10.20 MMbbls

These new figures are the result of the thicker and higher quality reservoirs being encountered and the inclusion of reserves in Schwarzbach South.

• The SCHB-2(2.) well has been tied-back to the wholly-owned Schwarzbach Production facility to continue well clean-up operations.
• A rod pump is currently being installed. Commercial production is expected in the second half of November aided by the rod pump which has the capacity deliver up to a maximum rate of 250 barrels of oil per day ("bopd").
• It is expected that once the well is fully cleaned up and production has been sustained for a period, the rod pump will be replaced with an Electrical Submersible Pump ("ESP") which has higher capacity. As previously announced, based on the excellent reservoir properties and the light oil recovered from the SCHB-2(2.) well, standard oil-industry analysis indicates that an initial production rate in excess of 900bopd could be achieved with the installation of an ESP.

The original Field Development Plan ("FDP") was to develop the Stockstadt Mitte segment with two producer wells and a water injector. The Company is currently undertaking a full-field review to determine how best to develop the central part of the Erfelden field to optimise the value of the additional reserves demonstrated by the SCHB-2(2.) well.

A third-party independent Competent Person's Report ("CPR") on reserves will be commissioned subject to the outcome of the seismic reprocessing trials, a decision on a seismic reprocessing campaign and the modifications made to the FDP.

FORWARD PLAN

• Commercial production from the rod pump currently being installed on the SCHB-2(2.) well is expected in the second half of November during which the reservoir is expected to continue to clean-up.
• The expectation is that the rod pump will be replaced with an ESP in the middle of the first quarter of 2024 which has the capacity to optimise initial production from the well. The actual production will determine if any future interventions are required in this well.
• Subject to the results of the full-field review, the current FDP is likely to be superseded by a development programme with more wells over the central part of the Erfelden field to optimise the value of the additional reserves demonstrated by the SCHB-2(2.) well and the de-risked Schwarzbach South segment.

An independent third-party CPR will be commissioned based on any seismic reprocessing and the update to the FDP.

The Company expects to provide a further update on the reservoir clean-up operation in the SCHB-2(2.) well after establishing a stabilised and sustained flowrate from the rod pump.

Beacon Energy Chief Executive Officer, Larry Bottomley commented:
"This internal assessment following the drilling of SCHB-2(2.) confirms the material impact the well has had on our reserve base in both the Stockstadt Mitte segment of the Erfelden field and the de-risked adjacent Schwarzbach South segment. As a result of the SCHB-2(2.) well, the Company believes that the Best Estimate reserves on the Erfelden field have increased from 3.8 mmbbls (pre-drill) to 7.2 mmbbls. The development of both segments that make up the central part of the Erfelden field will now be incorporated into a revised field development plan to realise the value from the material upgrade in the Company's assessment of reserves.

"We remain fully focused on bringing SCHB-2(2.) into optimal production as quickly as possible. We are working hard across all aspects of the subsurface evaluation and we are undertaking a comprehensive review of the drilling and completion operations to incorporate these learnings into an updated field development plan to deliver this additional value.

"We look forward to providing an update on the clean-up and production from the well in due course."

Readers know that I am a big fan of Beacon Energy and this evidence proves that there is more to it than initially meets the eye. The operational problems with the well didn’t harm the ongoing development at SCHB-2 and todays announcement gives them a significant increase in reserves in the Erfelden field with more to come. 

Jadestone Energy

Jadestone has provided the following operational update.

Group Production and Guidance
Recent production performance demonstrates the positive effect of the Group’s ongoing investment activity and recent acquisitions, delivering a more balanced and diversified portfolio. Six assets are now in production prior to the addition of the Akatara project in Indonesia, which remains firmly on schedule for first gas during H1 2024.

Since 1 April 2023, Group production has averaged c.14,400 boe/d and has averaged c.13,100 boe/d year-to-date.  Based on current expectations for the remainder of 2023, production is now expected to be towards the upper end of the April to December guidance range of 13,500 – 15,000 boe/d (equivalent to an annual 2023 guidance range of 12,600 – 13,700 boe/d), with the following highlights. 

• PM323 production in Malaysia has doubled, and is currently c.5,300 bbls/d net to Jadestone, largely from the planned infill drilling campaign on the East Belumut field which has delivered results significantly ahead of expectations (see below for further detail);
• Montara has averaged c.5,700 bbls/d in recent months, with good well performance offset by occasional brief interruptions associated with offtake arrangements, including the replacement of a short section of offload hose at the shuttle tanker;
• Production from the CWLH fields continues to exceed the Company’s expectations, averaging c.2,300 bbls/d net in recent months due to strong reservoir performance and high uptime at the Okha FPSO; and
• PM329 production in Malaysia, Sinphuhorm in Thailand and Stag in Australia are all broadly on plan showing the benefits of diversified production. 

2023 guidance for capex (US$110-125 million) and operating costs[1] are reiterated.

Akatara
The Akatara development project is currently 83% complete and remains on schedule for commissioning activities in the first quarter of 2024 and first gas before mid-2024.  Approximately 1,450 workers are currently on site, with c.2.9 million safe manhours worked to date on the Akatara project.

The Elang-1 rig is scheduled to mobilise to the Akatara development at the end of November 2023 to workover five existing wells which will provide the raw gas feed into the Akatara Gas Processing Facility.

Malaysia 

• The first well in the East Belumut infill drilling campaign on the PM323 PSC was, as previously reported, successfully drilled and brought onstream in September 2023 and is currently producing c.1,400 bbls/d.
• The third well was successfully drilled and completed in late October 2023, testing at a gross rate of c.3,100 bbls/d and was subsequently brought onstream.
• The fourth well in the programme has also been successfully drilled and has been tested at a gross rate of c.1,700 bbls/d in recent days.
• As a result, the three wells drilled to date in the 2023 drilling programme are currently producing at a gross rate of c.6,200 bbls/d, significantly exceeding the pre-drill gross rate expectation for all four wells of 3,500 bbls/d. Consequently, gross PM323 production has reached c.8,800 bbls/d in recent days, or c.5,300 bbls/d net to Jadestone.
• The Naga-2 rig will now complete the drilling of the second well in the programme, which was temporarily suspended due to fluid losses.  The well is expected to reach total depth in the second half of November.
• The capex for the 2023 East Belumut drilling campaign is now estimated at US$28 million net to Jadestone, or approximately US$7 million (net) more than pre-drill expectations, primarily due to the extension required to complete the drilling of the second infill well.  This increase is reflected in the reiterated 2023 capex guidance above. The overall cost of the drilling campaign is expected to be fully cost recovered by Q2 2024 due to the higher rates of production seen from the wells drilled to date.  

Liftings
The Company expects to lift approximately 1.6 million barrels across November and December 2023, including a c.650,000 barrel lifting from the CWLH fields and c.450,000 barrels from Montara.

Paul Blakeley, President and CEO commented:
“Production has strengthened recently, with the stabilisation of Montara, strong growth from the successful Malaysia infill drilling campaign and solid performance from all other producing assets.  The planned diversification of the portfolio is working, providing greater resilience to our business, and the addition of Akatara production next year will further enhance this.

Progress at Akatara remains on schedule and, at 83% complete, first gas has been substantially de-risked, with pre-commissioning of certain key systems expected to commence shortly.  The drilling programme at East Belumut has been very successful, supporting near-term growth, and the results provide encouragement for further drilling within the field with another four well campaign already being considered.”

The production increase is very welcome and Akatara being scheduled for 1H24 is also significant. I have put a call into the company but my turn will be tomorrow or Wednesday apparently so I will update then. 

KeyFacts Energy Industry Directory: Malcy's Blog