WTI (Jan) $71.58 +$2.11, Brent (Feb) $76.61 +$2.35, Diff -$5.03 +24c
USNG (Jan) $2.39 +5c, UKNG (Jan) 85.25p -4.48p, TTF (Jan) €34.125 -€1.205

Oil price

Anything could happen with oil rallying somewhat, it may even be up on the week. Following the Fed saying what was expected and the Bank of England and the Europeans keeping schtum on rates most markets are expecting 3/4 rate cuts next year.

Today in Europe it is PMI day, as a whole the EU December number was yet again poor but much worse in Germany and France. The UK was better than forecast and in the service sector was 52.7 up from 50.9 in November. 

It seems that the dispute between Venezuela and Guyana over the offshore area continues even after talks between the two Presidents. This is a tricky one to watch, one can’t rule it out but it would be difficult for Venezuela to enact and might have to use Brazil to get to the area and I can’t see them happy to do that. But watch this space…

I’m still travelling but will be keeping in touch and am back at the end of next week. 

Zephyr Energy

Zephyr has reported that initial flow rates from the six wells operated by Slawson Exploration Company in which the Company has working-interests have exceeded the Company’s expectations.  The acquisition of the Slawson wells was announced on 21 December 2022.

Following the flowback of completion fluids in early November 2023, the Slawson wells were sequentially brought into regular production over the course of last month.  While it is still early in the life-cycle of the Slawson wells, with a varying number of days on production for each well, production data adjusted for uptime shows an average flow rate of 897 barrels of oil equivalent per day net to Zephyr since inception.

As a result of the initial encouraging performance of the Slawson wells, the Company’s board of directors  forecasts that the year-end production run rate from its non-operated asset portfolio in the Williston Basin, North Dakota, U.S. (which includes the Slawson wells) will be between 1,450 and 1,700 boepd, a mid-range increase of 51% versus sales volumes in the third quarter of 2023 of 1,043 boepd, and a 43% increase over the 2022 year-end production rate of 1,103 boepd.

Zephyr’s working interests in the six Slawson wells ranges from 11% to 32% and the Company estimates the Slawson wells to contain 2P reserves, net to Zephyr, of circa 550,000 barrels of oil equivalent.

Paradox project update
Zephyr’s operations team continues to progress planning for the “twinned” redrill of the State 36-2 well. Over the last 45 days, Zephyr’s team has engaged in detailed internal well-planning activity, a process which has included relevant input from specialised third-party service providers in addition to extensive ongoing interaction with Zephyr’s well control insurance providers.  As previously announced, the substantial majority of the cost of the redrill is expected to be funded by Zephyr’s comprehensive well control insurance policy.

At the well site, all equipment (including the work-over rig) relating to the State 36-2 well operations was mobilised off location in October / November 2023.  More recent operational work has included:

• the completion of a full site clean-up and soil testing (pending approval from the State of Utah);
• the completion of a regrade of the drill site, with surveying and staking for the State 36-2R underway;
• completion of drilling, directional and casing design;
• commencement of independent, third-party consultation of drilling plans and procedures; and
• advancing gas marketing and infrastructure partnerships negotiations.

Next steps will include the submission of a final drilling plan to the State of Utah and the U.S. Bureau of Land Management as part of a sundry notice amendment to the existing State 36-3 LN-C9 well drilling permit.  Rig sourcing, selection and contracting workstreams are also underway, as is the planning to select other major service providers.

Colin Harrington, Zephyr’s CEO commented: 
“We are extremely pleased to report the strong initial production rates from the Slawson wells, which now form a significant portion of our non-operated Williston Basin portfolio.  The new volumes will provide a significant boost to our Q4 2023 sales and provide additional cash flows to the Company in line with our stated strategy of leveraging non-operated investments to fund the ongoing development of the Paradox project.

“As 2023 draws towards an end, this positive development will result in Zephyr ending the year at a higher production run rate than last year.  Over the last 12 months, the Company has continued to make significant progress with the Paradox project, including but not limited to, the discovery of a major and productive natural fracture network at the site of the State 36-2 well and the proposed State 36-2R well, completion of the Dominion Energy pipeline which allows for gas sales and export from our acreage, the expansion of our footprint in the Paradox Basin (including a farm in agreement for the proven Salt Wash Field which contains both oil, gas and helium), and detailed flow assurance work on the State 16-2 well which give us confidence that future production rates will meet expectations when the well is tied in. In addition, the team has made great progress developing potential gas marketing and gas processing partnerships, and we look forward to providing updates when agreements are executed.

“We have grounds for considerable optimism as we look towards 2024, which is set to be extremely active and characterised by substantial news flow.  In particular, we continue to prepare for the exciting State 36-2R well redrill, for which we believe substantially all costs will be covered through insurance, and after which we hope to utilise the same rig for a second well.  In addition to further delineating the extent of the Paradox project with the drill bit, we also look forward to delivering first regular cash flows from the Paradox project as we progress from exploration to production in the area.

“I would like to thank all of our stakeholders for their ongoing support and wish everyone a safe and peaceful festive period.”

This update from Zephyr is indeed a pleasant gift from the board, the non-0perated production has risen thanks to highly effective management of the portfolio and does the job of providing decent cash flow that can be dedicated to the Paradox Basin.

On the subject of the Paradox it is good to see that a great deal of work is going into the 36-2R as it will be known and then another well to be drilled following after the re-drill. There is much needed confidence from the management team with regard to the Paradox, we should be reminded that the Dominion Energy pipeline will be completed which gives total access for gas sales from the area including all the satellite footprints.

Despite last year’s operational difficulties Zephyr has still got the Paradox as its prime target and the way that the 36-2 well played out they are very confident that the re-drill and its follow-up well will deliver for shareholders.

Readers know that I have a very high regard for the Zephyr management team and accordingly shareholders should expect to see an exciting and rewarding time in 2024, at these levels I dont think it is extravagant to put a Target Price of 20p on the shares.

Wentworth Resources

I listened in to the Wentworth Investor Call this morning, to be honest I wasn’t expecting anything but it was post the AGM and the final agreements and correctly signalled the denouement of the company as it is now all but in the hands of Maurel&Prom

CEO Katherine Roe told investors that the recommended offer from a year ago had an extended longstop date primarily as there were a number of transactional procedures that were always going to be protracted. So whilst it seems to have been along time it looks like the takeover will happen within the due timetable.

The necessary final approvals are almost all in with one yet to come but the Court date of 19th December seems on track with the transaction likely to complete on the 21st and shareholders will get the money on the 4th of January.

Shareholders have been well served by the management, a high quality asset has paid out substantial returns, in dividends and share buy-backs can confirm that they have built long term value since 2004. The 32.5p per share offer was very good and a good deal higher than the bidders originally planned and should be put in the context of upcoming material capital investment needed at Mnazi Bay which would have put back returns from the asset in the short term.

All in all I consider that this is a very good offer indeed for Wentworth, management has delivered a great deal more than most would have and they and the company will be missed in the sector.

Challenger Energy Group

Following yesterday’s announcement I said that I would add anything I picked up in a conversation with CEO Eytan Uliel this morning. 

Whilst Eytan is slightly disappointed that he hasn’t hit his self-imposed Christmas deadline for the Uruguay farm-down he had in my view set himself a harsh date to hit. The usual technical licence paperwork is done and therefore all is ready to go. 

That still leaves the likelihood that the farm-out will complete in Q1 2024 as the potential partners are in possession of the necessary data, a timetable foe 3D seismic and where the Government stands with regard to work programmes. 

CEG has been slightly delayed but the firing gun has gone off and as I said yesterday 2024 is going to be an exciting year for shareholders as the world’s energy companies descend on Uruguay…

KeyFacts Energy Industry Directory: Malcy's Blog