WTI (Feb) $72.68 +66c, Brent (Mar) $78.29 +88c, Diff -$5.61 +66c
USNG (Feb) $3.31 +21c, UKNG (Feb) 79.28p +1.53p, TTF (Feb) €30.33 -€0.935.
US Shut today for Martin Luther King Day

Oil price- Oh No it’s DAV-oh……

With no US market for the Federal Holiday, markets are quiet and the spongers of the world are headed towards Switzerland for the meeting of the WEF where world leaders in politics, business and sundry freebie takers get together for no reason than to party at other peoples expenses. I suspect that half of those recently at the COP Summit have flown halfway across the world to be seen at a cocktail party or a posh hotel bar…

Union Jack Oil

Union Jack Oil has announced that material net revenues in excess of US$18,000,000 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.

• Union Jack holds a 40% economic interest in this development.
• US$18,000,000 revenues generated to Union Jack since re-commencement of production at Wressle in August 2021
• Wressle-1 well gross production currently averaging a constrained 665 barrels of oil per day, as the Operator continues to evaluate the reservoir response to increased pump rates
• Union Jack continues to be cash flow positive covering all planned G&A, OPEX and CAPEX liabilities
• Cash, short term receivables and investments at 12 January 2024, in excess of £9.45 million
• Debt free and remains highly cash generative

Executive Chairman of Union Jack, David Bramhill, commented:
“The US$18,000,000 net revenues achieved to date from Wressle (UJO 40%) continue to bolster the Company’s Balance Sheet, complemented by additional cash-flow from the Keddington oilfield (UJO 55%). Going forward, future production and revenue updates from Wressle will be reported on a quarterly basis.

“The Wressle-1 well has responded favourably to the new jet pump rate. The engineers may decide to further increase these rates whilst the well performance is continually being optimised to maximise oil recovery volumes.

“The recently announced 263% increase in 2P reserves has led to a material upgrade in value of the Wressle development and we look forward to reporting on further progress at our flagship project.”

More good news from Wressle today as the net revenue figure jumps to $18m and along with Keddington is adding to the UJO cash reserves. Work recently has clearly been a huge success and it looks like the new jet pump has the optionality of being turned up. 

With in future the company reporting operational and financial data on a quarterly basis it looks like we will get better news from the Wressle development on a regular basis along with other key metrics from UJO.

Europa Oil & Gas

Europa has announced that the Wressle-1 well’s gross production is currently averaging 665 barrels of oil per day, as the Operator, Egdon Resources U.K. Limited, continues to evaluate the reservoir response to increased pump rates.  

Europa holds a 30% economic interest in PEDL180/182.

Further to the Company’s announcement of 11 January 2023, Europa confirms that its free cash flow (pre-capex) for 2023 is expected to be approximately £0.8 million and, as at 30 November 2023, the Company’s cash position was £4.26 million.  The lower than forecasted full year free cashflow was primarily due to delayed 2023 Wressle development activities which reduced revenue receipts for the 2023 calendar year but equally resulted in materially lower capital expenditure than originally forecasted. The Company has sufficient funds to cover its forecast capital and operational requirements for 2024.

Will Holland, Chief Executive Officer of Europa, said:
“As we announced at the end of last year, our engineers are closely monitoring the W1 well and are optimising the jet pump rate to maximise oil recovery and value from the well. This remains a dynamic process and we may decide to increase pump rates further as the well performance continues to be assessed.”

The same announcement pretty much from Europa but they, whilst appreciating the good news from Wressle, are keen to point out that there is more to the company and that they have sufficient funds to cover investment and developments in Equatorial Guinea at the end of last year. 

Expansion away from both Wressle and indeed the UK onshore is very wise policy and shareholders should appreciate what Will Holland and his team are up to. If EG works as soon as this year and I believe that it will, it will soon show signs of rewarding the investment they have made. 

Jadestone Energy

Jadestone has announced its 2024 operational and financial guidance and a corporate update. The financial and operational information in this update has not been audited and may be subject to further review and change.

Key Points: 

• 2024 production expected to average 20,000-23,000 boe/d, a c.55% increase on 2023 at the midpoint.
  • 2023 production is estimated to have averaged c.13,800 boe/d, just above the top end of the implied annual 2023 guidance range of 12,600-13,700 boe/d, driven by strong performance from PM323 (Malaysia) and Montara into year-end.
• 2024 Group operating costs expected to total US$240-290 million (excluding forecast royalties and carbon taxes totalling c.US$30 million), essentially flat year-on-year on a comparable basis and which would represent a c.30% year-on-year reduction on a unit cost basis due to increased production of lower cost barrels.
• 2024 capital expenditure expected to total US$80-110 million, with other cash expenditure expected to total c.US$77 million on a net basis, primarily reflecting the previously announced CWLH 2 acquisition abandonment funding payments.
• Net debt at 31 December 2023 estimated at c.US$5 million, based on estimated year-end cash balances of c.US$152 million and debt drawn of US$157 million. The end-2023 net debt position benefitted from timing of liftings and optimisation of working capital into the year-end.
• Akatara development project on track, with the gas processing plant c.92% complete and construction of the sales gas pipeline c.91% complete.
• The excellent results of the 2023 PM323 infill drilling campaign in Malaysia are expected to deliver strong production growth and reserve additions, with the four new wells currently producing at a combined gross rate of c.7,000 bbls/d.
• Acquisition of a further 16.67% stake in the CWLH fields is on track to close during Q1 2024, with field production continuing to perform strongly.
• Recent work has indicated that life-of-field costs at Montara and Stag will be higher than previously expected, primarily due to increases in repair and maintenance costs to maintain both facilities in an appropriate condition. As a result, the Company anticipates the potential for a non-cash impairment of Montara and Stag at year-end 2023. The updated end-2023 production and cost profiles for all of Jadestone’s assets will be incorporated into a revised borrowing base resulting from the March 2024 redetermination of the Company’s reserve-based lending (“RBL”) facility.

2024 Operational and Financial Guidance

Production and operating cost guidance for 2024 underscores the Company’s growth and diversification efforts over recent years, particularly the success of the 2023 Malaysia infill drilling campaign, additional low-cost, low-decline production at CWLH and operational start-up of the Akatara gas project onshore Indonesia, which is on track to commence gas sales during the second quarter of 2024.

• Production: Expected to average 20,000–23,000 boe/d, a c.55% increase on 2023 at the midpoint, and primarily assumes:
  • Commissioning activity at Akatara continues through the first quarter of 2024, ahead of planned deliveries under the gas sales agreement commencing during the second quarter of 2024.
  • Montara production averages approximately 5,000-6,000 bbls/d during 2024. The Skua-11 well at Montara has been offline since October 2023 and requires drilling of a side-track well to restore production, which will also target additional volumes in the vicinity of the existing location. This well is currently scheduled to commence drilling in late Q4 2024.
  • The acquisition of the additional interest in the CWLH fields (“CWLH 2”) announced in November 2023 closes in Q1 2024 (as previously guided).
  • Production growth in Malaysia associated with the successful drilling campaign in late 2023.
• Operating Costs: Expected to total US$240-290 million (excluding forecast royalties and carbon taxes totalling c.US$30 million), essentially flat year-on-year on a comparable basis, with the increase year-on-year largely due to the addition of Akatara operating costs post start-up, and the CWLH 2 acquisition.
  • The midpoints of the total operating cost and production guidance ranges imply a group opex/bbl of c.US$33.5/boe for 2024, which is a c.30% reduction on expected 2023 levels due to higher production and also lower unit cost assets which have been added to the portfolio, such as Akatara, Malaysia and CWLH, all having a positive impact on Group metrics.
• Capital expenditure: Expected to total US$80-110 million, with the main components being:
  • US$40 million at Montara (primarily FPSO mooring chain replacement and planning/long-lead items for the Skua well referenced above);
  • US$20 million for completion of the Akatara development;
  • The balance of the capex includes preparation and long-lead items for infill drilling on the operated Malaysia assets and the Stag field in 2025.
• Other cash expenditure: Expected to total c.US$77 million on a net basis, primarily reflecting the previously announced CWLH 2 acquisition abandonment funding payments. These are expected to be largely funded through revenues from the next two liftings attributable to the CWLH 2 interest, and are now expected to be a lesser amount than the US$102 million announced in November 2023.

Akatara Update

The Akatara development project continues to make good progress and is currently 92% complete. Approximately 1,700 workers are currently on site, with c.3.6 million safe manhours for the Akatara project worked to date.

The Elang-1 rig mobilised to the Akatara well site B in December 2023 and the workover of the Akatara-B2 well commenced on 5 January 2024. The workover programme on the five existing wells, which will provide the raw gas feed into the Akatara Gas Processing Facility, is expected to complete by end-March 2024.

Construction of the sales gas pipeline is approximately 91% complete.

Commissioning activities at the Akatara Gas Processing Facility have already commenced and will continue through the first quarter of 2024, with first gas and final acceptance scheduled for the second quarter of 2024.

Malaysia Operated Assets (PM 323 & 329)

The excellent results of the PM323 infill drilling campaign in Malaysia during 2023 are expected to deliver production growth and reserve additions significantly ahead of expectations.

The four wells drilled in 2023 are currently producing at a combined gross rate of c.7,000 bbls/d. The drilling results, particularly the strong evidence that the EBA-15ST2 well in the southwest of the East Belumut field has intersected a previously undrained area, have highlighted the potential for several further drilling programmes in the near-term.

Ongoing studies currently indicate that maximising recovery and value from the PM323 PSC will likely support a licence extension beyond the current term of June 2028, which, if successful, could unlock up to 8 mmbbls of gross 2P reserves through further drilling. The next infill campaign on the Malaysia operated assets is expected to commence in 2025, with drilling planned on both the East Belumut field in the PM323 PSC and East Piatu field in the PM329 PSC. Subsurface, drilling and technical studies are currently ongoing to firm up the infill well target locations.

CWLH 2 Acquisition

The acquisition of a further 16.67% stake in the Cossack, Wanaea, Lambert, and Hermes (“CWLH”) oil fields development offshore Australia, previously announced on 14 November 2023, is on track to close during the first quarter of 2024. Performance from the CWLH fields remains strong, averaging c.2,200 bbls/d during Q4 2023, net to the interest being acquired.

As referenced above, the preliminary year-end 2023 CWLH operator decommissioning cost estimate indicates that the CWLH Abandonment Trust Fund payments associated with the CWLH 2 acquisition will be lower than the US$102 million announced in November 2023.  Jadestone also believes that the CWLH field life can be extended for a further four years without any additional infill drilling, due to high uptime and low decline rates, in turn adding value and reserves.

Montara and Stag Life-of-Field Costs

The Company’s understanding of future repair and maintenance (R&M) activity at Montara and Stag has continued to evolve over recent months. In addition to general industry inflation, it has become increasingly clear that, relative to previous expectations, higher levels of long-term R&M activity and costs are required in order to maintain the assets in an appropriate condition throughout their remaining life. This may result in a non-cash impairment in the Company’s 2023 financial statements.

At Montara, alternative options of replacing or dry-docking the FPSO have been assessed through a screening exercise, with the most viable option being the continuation of the existing mode of operations with heightened long-term maintenance activity.

This, together with the unplanned redrill of the Skua-11 well and a requirement to replace the FPSO’s anchor chains in 2024, will impact Montara’s future cash flows and remaining value.

Montara operating costs in 2024 are currently estimated at c.US$120 million and are included in the overall 2024 corporate operating cost guidance above. Going forward, operating costs at Montara are expected to average c.US$95 million per annum for several years with production now expected to cease in 2030.

Stag operating costs in 2024 are currently estimated at c.US$70 million. Going forward, longer-term operating costs at Stag are expected to be c.US$60 million per annum with no significant change to end of field life, which is now expected in 2035.

Whilst disappointing, the impact of these longer-term cost profiles is mitigated by the ongoing delivery of the Company’s strategic aim of broadening its portfolio to include newer, higher-quality and higher-margin assets, with strong growth and diversification coming from the Peninsular Malaysia assets, Akatara, CWLH and Sinphuhorm – all longer life assets with a combined average unit cost in 2024 of c.US$11/boe.

RBL Facility

Further work is ongoing to assess the impact of the updated production and cost profiles on the borrowing base under the Company’s RBL facility. The next RBL facility redetermination, due by end-March 2024, will result in a revised borrowing base and borrowing capacity for Q2-Q3 2024.

The Company has commenced the March 2024 redetermination process with its RBL banks. To address the impact of revised Montara and Stag costs on the borrowing base, the Company has several options, subject to lender consent, including integrating the CWLH 2 acquisition, removing Stag as a borrowing base asset and integrating Akatara once it has passed its completion test.

Net Debt and Liquidity

Net debt at 31 December 2023 is estimated at c.US$5 million, consisting of c.US$152 million of cash and US$157 million of debt drawn under the Company’s reserve-based lending (“RBL”) facility.

The Company had total available liquidity of c.US$220 million as at 31 December 2023, consisting of c.US$145 million of unrestricted total cash balances, c.US$43 million available debt in the RBL (based on the current borrowing base of US$200 million, valid up to 31 March 2024) and c.US$32 million available under the (undrawn) working capital facility. The cash flow generation of the business is expected to increase significantly once the Akatara project is onstream. Further, the 2024 capital expenditure programme is weighted towards the second half of the year and includes several discretionary elements. The Company will continue to proactively manage its liquidity.

Chief Operating Officer Recruitment and Board Composition Update

The Company is making good progress towards the appointment of a Chief Operating Officer and expects to update further on this in the near-term. The process to appoint two replacement non-executive directors, originally announced on 30 June 2023, is also well advanced.

In line with its established reporting framework, the Company expects to publish a trading statement summarising the main operational and financial metrics for 2023 within the coming weeks.

Paul Blakeley, President and CEO commented:
“We have had a strong start to 2024, with average production over the last four weeks close to 20,000 boe/d. With the upcoming start of production at Akatara, combined with strong growth from the successful Malaysia infill drilling campaign late last year, stabilised production at Montara and the additional CWLH acquisition, we anticipate significant production growth during 2024, adding further scale, diversification and resilience to our business.

Montara and Stag have been important in building Jadestone’s operating capability and a foundation for further growth. However, the reliability of the Montara Venture FPSO in recent years has continued to disappoint, which has been recognised by the market, and we have now reflected what it will take to deliver greater reliability into the future. As we said we would, we have worked hard to successfully grow the business away from Montara and to diversify into higher quality assets, and this is reflected in this year’s guidance. However, Montara and Stag are still important to us, with safety, integrity and uptime performance being uppermost in our minds, and with higher maintenance activity than previously projected. We will continue to find ways to maximise asset value, which includes exploring how to crystallise the significant value that we see in the Montara fields’ associated gas resource.

We will  focus on balance sheet strength, managing short-term liquidity as we conclude the Akatara project and then move into heightened levels of production and cash generation in the second quarter of 2024 onwards. At the end of 2023 we also benefited from a strong unrestricted cash position of US$145 million and our working capital facility which remained undrawn, a solid foundation for the future.

While we will continue to manage the older producing assets in the portfolio, our drive to acquire newer, higher margin and higher reliability assets is paying off, improving key business metrics and creating value. This is the template for Jadestone’s future, with more emphasis on longer-term value and investment, creating room for further growth and improved shareholder returns.”

So, the skeletons in the cupboard continue to come back to haunt Jadestone, AKA Montara and Stag where, however hard the management tries to diminish their drag on the rest of the company, they remain key albeit slowing assets and the only way to lessen their effect is to grow the rest of the business. But that is what is happening, at long last. 

But as they say in this statement ‘life of field costs at Montara and Stag will be higher than expected due to increases in repair and maintenance costs to maintain both facilities in an appropriate condition’. This is therefore going to lead to a likely non-cash impairment when the 2023 year end numbers are cranked and that was all that was needed for the market to send the shares down some 15%.

But there are plenty of pluses in the statement, even taking Stag out of the RBL redetermination will leave plenty of headroom going forward. Guidance one way or another was exceeded last year and the target for this year is 20-23 boe/d which could and should be a bit conservative but nothing wrong with that after what the company has been through. It is worth remembering that Montara which once stood for 80% of company production will be 20% by the end of this year. 

Akatara is being completed and will start on time and the CWLH-2 is going to be a huge contributor and that’s on target as well for 1Q ’24. As Paul Blakely says Jadestone will be newer, higher margin and higher reliability assets in the future, I really believe that the company is on the verge of that change, indeed we are in that quarter now, let’s hope so, after the last couple of years this is no time to lose confidence…

KeyFacts Energy Industry Directory: Malcy's Blog