WTI (Feb) $71.37 -87c, Brent (Mar) $76.80 -79c, Diff -$5.43 +8c
USNG (Feb) $3.04 -15c, UKNG (Feb) 77.5p -1.5p, TTF (Feb) €30.47 -€0.12

Oil price

Oil was tootling along quietly this morning until a tanker was boarded near Oman and has since apparently changed course. Oil is now around $1.50 up on the day. 

And Chesapeake confirmed the worst kept secret in the oil and gas industry as they announced a bid for Southwest Energy this morning. 

Namibia

It’s worth mentioning Namibia today as yesterday there were two interesting stories concerning one of the energy world’s most exciting post codes and Galp announced yesterday the following.

Galp (80%, operator), together with its partners NAMCOR and Custos (10% each), has drilled and logged the first exploration well (Mopane-1X) in block PEL83, offshore Namibia.

Building on the previous announcement dated January 2, Galp now confirms the discovery of a significant column of light oil in reservoir-bearing sands of high quality.

Galp will continue to analyse the acquired data and anticipates performing a Drill Stem Test (DST) in the coming weeks to assess the commerciality of this discovery.

The drilling operations at Mopane-1X will proceed to explore deeper targets. Upon completion, the rig will be relocated to the Mopane-2X location to further evaluate the extent of the Mopane discovery.

My spies tell me that this is a ‘beast’ of a discovery which has truly blown the model, for those in the Orange Basin a bit of ‘nearology’ never did any harm and for the likes of Eco Atlantic must have been music to their ears. 

There are two interesting features for investors to bear in mind, one is that Sintana Energy, quoted on the TSX-V is carried by Galp and has a 5% indirect interest in this find. The second is that yesterday saw this from Impact Oil.

Impact Oil  announced the signing of a farmout transaction related to its interests in Blocks 2912 and 2913B offshore Namibia with TotalEnergies EP Namibia B.V. The transaction includes a full carry on Impact’s retained interest, for all joint venture costs, with no cap, through to receipt of the first sales proceeds from first oil production.

Impact, through its wholly owned subsidiary, Impact Oil and Gas Namibia (Pty) Ltd, has signed a farmout agreement with TotalEnergies EP Namibia B.V., a wholly-owned subsidiary of TotalEnergies S.E., for the sale of a 9.39% undivided participating interest in Block 2912, Petroleum Exploration Licence 91, and a 10.5% undivided participating interest in Block 2913B, Petroleum Exploration Licence 56. On completion of this transaction, Impact will hold a 9.5% interest in each of Blocks 2912 and 2913B.

Impact will also be reimbursed in cash for its share of the past costs incurred on the Blocks, net to the farmout interests, which is estimated to be approximately USD 99 million.

This Agreement provides Impact with a carry loan for all of Impact’s remaining development, appraisal and exploration costs on the Blocks from January 1st, 2024, until the First Oil Date.

The carry is repayable to TotalEnergies from Impact’s after-tax cash flow and net of all joint venture costs, including capital expenditures, from production on the Blocks post the First Oil Date. During the repayment of the carry, Impact will pool its entitlement barrels with those of TotalEnergies for more regular off-takes and a more stable cashflow profile, and will also benefit from TotalEnergies’ marketing and sales capabilities.

Completion of the transaction will be subject to customary third party approvals from the Namibian authorities and joint venture parties.

Siraj Ahmed, Chief Executive Officer of Impact, commented:
“This is a pivotal transaction for Impact that paves the way for its transition from an exploration company to a hydrocarbon producing company, through its participation in the development of the world class Venus discovery. This transaction also enables Impact to participate in further significant exploration opportunities in the Blocks, offering the potential to significantly grow the existing discovered resource base. We are delighted to be able to continue in this exciting journey with TotalEnergies.

We thank our Shareholders for their steadfast support that has enabled us to reach this position.”

Trinity Exploration & Production

Trinity has provide an update on operations for the three-month period ended 31 December 2023.  The information contained herein has not been audited and may be subject to further review and amendment.

Jacobin-1 Operations

Trinity safely perforated two Lower Cruse 1 (LC-1) zones on 28 November 2023. As previously announced on 18 December 2023, initial flowrates were encouraging given the very small choke size, however the flowrates and Wellhead Flowing Pressures have progressively declined over the intervening period whereby in early January the rates were materially below expectations at approximately 20bfpd split 50/50 oil and water. There continues to be a high volume of gas produced from the well and some traces of sand. A pressure survey has been conducted to assess, inter alia, the reservoir pressures and this data showed that a significant reduction in reservoir pressure had occurred over the period. The inference from this is that the volumes of hydrocarbons connected to the wellbore are lower than originally anticipated.

The forward plan is to convert the well to pumped production and monitor the performance of the LC-1 zones. We will assess the potential in the uphole zones and see if a recompletion of either the Upper Cruse, Lower Forest or Upper Forest zones is justified. Daily production is being collected and sold to Heritage. The data gathered to date on Jacobin will also be of immense value in finessing Trinity’s subsurface models for the other Palo Seco “Hummingbird” prospects and elsewhere in the basin, including Buenos Ayres.

As announced on 18 December 2023, Trinity estimates that the undisputed costs incurred to date thus far to be USD 8.3 million, of which USD 6.2 million (unaudited) has already been paid up to the end of the period. As previously reported, Trinity expects to settle the total cost of this well without recourse to any external finance.

Fiscal Reforms

As announced on 4 January 2024, the Trinidad and Tobago Finance Act 2023 (“The Act”) was assented to on 20 December 2023. The Act includes reforms to the to the Supplemental Petroleum Tax (“SPT”) regime which are of material benefit to Trinity’s ongoing and prospective growth opportunities. The reforms will positively affect the Company’s cashflow throughout 2024 and be beneficial to Trinity’s ongoing projects, in particular the Trintes and wider Galeota developments.   

SPT liability for Trinity’s offshore production is estimated at USD 4-5m for 2023 and we expect a similar amount, adjusted for production, to be additional operating cash flow in 2024 and the future, at current long term oil price forecasts, which suggest that the realised price will be below USD 75/bbl.

Q4 2023 Operational Highlights

• Q4 2023 sales volumes averaged 2,736 bopd (Q3 2023: 2,705 bopd).
• Full year 2023 sales volumes averaged 2,790 bopd (2022: 2,975 bopd), marginally below the lower end of previous guidance.

Averaged Annual and Quarterly Sales by Region

During Q4 2023:

• 33 workovers (Q3 2023: 37; Q4 2022: 27) were completed.
• There were 3 recompletions (“RCPs”) in the Period (Q3 2023: 0; Q4 2022: 1).
• A total of 6 RCPs and 117 workovers were completed during 2023 (2022: 17 RCPs and 120 workovers).
• Swabbing operations continued across onshore and West Coast assets.

Q4 2023 Financial Highlights

The Group reports its consolidated financial information half yearly, in its Annual Report & Accounts and Interim Results, in accordance with UK adopted International Accounting Standards and the London Stock Exchange’s AIM Rules for Companies.  Quarterly, the Company provides unaudited information for guidance.

• Average realisation of USD 71.6/bbl for Q4 2023 (Q3 2023: USD 72.5/bbl, Q4 2022: USD 75.4/bbl).
• EBITDA, pre-hedging1, in Q4 2023 of USD 4.1 million (unaudited) (Q3 2023: USD 4.6 million (unaudited); Q4 2022 USD 7.0 million).
• Operating break-even2, pre-hedging1, Q4 2023 of USD 39.79/bbl (Q3 2023: 42.27bbl and USD 38.61 /bbl (unaudited) for the full year 2023 (2022: USD 32.1/bbl). 

1. The Company had no hedging in place in 2023.
2. Operating break-even is the realised price/bbl where the adjusted EBITDA/bbl for the Group is equal to zero.

• Cash balance of USD 9.8 million (unaudited) at 31 December 2023 versus USD 11.3 million (unaudited) at 30 June 2023 and USD 8.4 million (unaudited) at 30 September 2023.
• The Group had drawn borrowings (overdraft) of USD 4.0 million at 31 December 2023 (USD 2.0 million at 30 September 2023), which reflect the value of outstanding VAT refunds due. 
• Completion of first dividend payment on 26 October 2023, consistent with our Capital Allocation Policy.

Jeremy Bridglalsingh, Chief Executive Officer of Trinity, commented:
“During the period, we continued to progress our work at the Jacobin well. Our ongoing data collection work is important for us to develop our understanding of the area and its potential for the Buenos Ayres licence. We also continue to invest in our wider asset base to offset natural decline and underpin its strong cash generation potential.

“We welcomed the Government’s fiscal reforms to the SPT regime in Trinidad and Tobago which should have a significant impact on our 2024 cashflow and facilitate strengthening of the balance sheet. 

“I look forward to updating shareholders on our progress throughout the upcoming quarter.”

This is a highly disappointing update but no less bearish for the fact that it was somewhat to be expected. The Jacobin well is clearly highly disappointing, materially below expectations after a reduction in reservoir pressure proved the last straw. The result of 10 b/d of oil even with some gas makes the well sub-commercial and at a cost of $8.3m.  

As for production that too leaves something to be desired, 4Q was 2,736 bopd (2,705) and the year turned out to be 2,790 bopd (2,975) so down on the year and more importantly missed the bottom end of the guidance issued by the company.

Trinity has talked a lot about advantageous fiscal policy in Trinidad but at present they don’t have enough barrels to take advantage of the situation.

Molecular Energies

Molecular Energies has provided a corporate and business update.

Highlights:

• Tapir x-1, the Paraguay exploration well, has been successfully spudded;
• First monies received to the UK from former Argentine business; and
• Green House Capital IPO approved by directors and continuing to progress towards Admission to trading on AIM.

Tapir x-1, Paraguay

Molecular is pleased to confirm that the Tapir x-1 exploration well at the Pirity Concession in the Chaco, Paraguay has been spudded. Molecular has a 50% interest in the Concession with OPIC, ultimately beneficially owned by CPC, the state energy company of Taiwan, being the other 50% holder. Molecular is the operator.

Target depth is approximately 3,800 metres with an estimated drilling time of 45 days. The prospect and the adjacent complex of prospects being drilled are covered by good quality 3D seismic data from a survey conducted for Molecular in 2013/14.

The data suggests a clear structural feature being a four-way dip closure with seal and target formations of volcaniclastic sedimentary rocks and lecho sands. The prospect is located approximately 40km in an easterly direction from the formerly prolific Palmar Largo oil field in Formosa Province, Argentina where a major producing formation is from volcanic rocks. If successful, the well would unlock a complex of adjacent prospects estimated by the Company to hold over 260 million barrels of oil of Pmean unrisked resources.

Molecular estimates the main geological risk is that of migration from the source rock which, in the absence of other data, the Company believes is from the same or similar source to that which filled the reservoir in Palmar Largo. Whilst migration paths are capable of being postulated on available data, the overall distance and other migration features mean that, despite the suggested availability of good quality reservoir rocks, the chances of success are assessed at 17%. A success would then prove up the main risk of migration thereby unlocking the complex of prospects as above.  

Even with a conservative recovery factor of 5% and an oil price of US$70 per barrel with incentivised fiscal tax rates of 10-14% royalty and a tax on profit limited to 10% the prize therefore makes the well compelling to drill. Oil is the more likely hydrocarbon if a commercial discovery is made. Paraguay currently imports all its oil over 1000km upriver from the South Atlantic.

The Company expects that its next announcement in relation to this well will be the achievement of target depth in approximately 45 days.

Argentina monies

The Company’s sale of its Argentine business in September 2023 provided for inter alia repayment to Molecular over time and subject to certain conditions of the inter-company loan of approximately US$13 million.

Molecular is any event pleased to announce that a first installment of monies comprising approximately US$500,000 has been received by Molecular in the UK within the last month after the change of President and Government in Argentina.

Green House Capital IPO

Work on the AIM IPO of the Company’s 75% owned alternative energy development division, Green House Capital Group plc (“Green House”) is progressing and the IPO is expected to take place in Q1 2024.

The IPO will be subject to a separate substantive announcement anticipated to be made later this month. Excellent progress is continuing to be made by Green House’s subsidiaries with particular progress being made by Duel Fuel Limited, whose innovative and proprietary hydrogen injection technology was the subject of a separate announcement made on 18 December 2023.

Other projects

Molecular has live potential leads regarding aviation and other energy related projects. In Q1 2024 the Company intends to prioritise its attention on the drilling of Tapir x-1 and the AIM IPO of Green House Capital, and thereafter will focus on these additional business opportunities.

It is good to see the Paraguay well finally being spudded and in 45 days we shall find out after all this time. Also it is good to see progress from Argentina.

KeyFacts Energy Industry Directory: Malcy's Blog