WTI (May) $82.73 +4c, Brent (June) $87.11 -18c, Diff -$4.38 -18c
USNG (May) $1.76 +5c, UKNG (May) 83.75p +5.75p, TTF (May) €32.8 +€2.265

Oil price

The Israeli attack on Iran overnight caused the oil price to rise by about $3 but after it transpired that it was a fairly innocuous event oil lost all that gain and some more. The key thing about the attack is that it sent a message, Israel managed to get to Istahan the site of a military airfield and Natanz a known nuclear enrichment facility and leave a calling card. Handbags maybe but more of a we know where you live for next time message.

SDX Energy

SDX has announced that it has executed a binding sale and purchase agreement for the disposal of the Company’s West Gharib interests in Egypt. The Company also continues to progress the binding documentation for the sale of its South Disouq assets. The Company is focused on delivering shareholder value by focusing its efforts on fully exiting Egypt, growing its Moroccan assets and executing on the energy transition strategy. The board and management will be sharing more details on the continued execution of this wider strategy soon.

The West Gharib assets subject to the SPA comprise (a) 50% of the issued share capital of Brentford Oil Tools LLC, (b) 50% interest in the Exploration and Production Sharing Agreement relating to Sub-Area (A) West Gharib Blocks G, H (including the receivables), and (c) 50% interest in the Joint Operating Agreement relating to the West Gharib Blocks (together the “Assets”). For the year ended 31 December 2023, the unaudited profits attributable to the Assets amounted to $0.9 million. The total amount of sale proceeds to be received from the buyers, New Horizons LLC and NPC Petroleum Services Ltd (together the “Purchasers”), is estimated at US$6.6 million (subject to certain working capital and other adjustments). The Company will receive the following:

(i) c. $3.5 million in USD cash, payable immediately to the Company outside of Egypt;
(ii) c. $0.9 million in USD cash, payable within 5 business days of the deposit by SDX of EGP30 million (c. $0.6 million) into an escrow account; and
(iii) c. $2.2 million in USD cash, payable within 5 business days of the earlier of:

a. the deposit by SDX of a further EGP70 million (c. $1.4 million) into an escrow account; and
b.  settlement of any tax liability (if any) in full.

SDX expects to deposit the EGP30 million into escrow immediately using existing EGP cash. The remaining EGP70 million is expected to be deposited by September 2024 using cash generated from Egyptian gas sales. Funds held in escrow will be used to cover potential Egyptian tax liabilities, with any excess being returned to the Company once the tax liability has been settled.

The sale proceeds will be received outside Egypt and will be primarily used to continue to expand SDX’s cash generative operations in Morocco, where the Company is the sole independent producer of gas. The Company is leveraging its position and pipeline infrastructure to increase gas supply and deliver other energy sources to its customers in Kenitra. SDX will also repay in full the outstanding secured EBRD reserves-based lending facility.

Daniel Gould, Chief Executive Officer, commented: 
The sale of our West Gharib assets represents a milestone in the execution of our new growth strategy in Morocco. SDX will continue to deliver shareholder value and growth – re-energising and scaling the Company’s Moroccan upstream business. We will also continue to carry out due diligence for SDX’s medium-term expansion into the vertical adjacencies of gas transportation, gas-to-power, and renewable energy generation.

SDX continue to reposition the portfolio out of Egypt and towards Morocco and also into the, wait for it, ‘vertical adjacencies’ of gas transportation, gas-to-power and renewable generation. With such silky command of the language what can go wrong? 

Touchstone Exploration

I met with Paul Baay, CEO and James Shipka, COO this week as they were in London meeting investors. They kindly gave me a couple of hours of their time, they knew that I was keen for an update and that I had a few questions from Blog readers to ask them and nothing was off limits. 

TXP achieved Q1 production of 33,521 Mcf/d plus some liquids giving 7,015 boe/d against the facility capacity of 21,250 boe/d so scope for an increase which is where most of my questions had appeared. It is however a significant y/y increase in production and that fed through to an increase in operating netbacks and cash flow. 

This created sufficient cash flow for an ambitious drilling campaign and further investment in Cascadura where a large number of locations have been identified and are already being drilled. The company is now a leading presence in Trinidad and its portfolio ensures a good long term supply of opportunities for the company. 

Cascadura coming onstream in September added to the legacy production and that of Coho which had also recently got underway. The wells that initially came onstream have indeed showed a bigger initial decline than originally expected although payback is still excellent and of course reserves are not affected. What it does do is mean that the company might drill as many as 10 wells against the projected 6. 

The wells in question that saw the decline have already flattened out and with such porosities and fractures exhibited a likeness to matrix formations and against expectations of 7/- b/d achieved 6/- b/d. But the good news is that having drilled these wells already they will have been drilled and thus coming on production in Q3.

I found that the map of the Cascadura development was fascinating as the CAS-2 and CAS-3 wells have been drilled further away from the facility and will pipe the hydrocarbons back to the facility. The advantage here is that they save $2m to test the wells, now they can spend that money on the pipeline and test when putting the hydrocarbons in and of course in Q3.

As for CAS-4 it will drill away from the 2 and 3 wells and head towards the Rio Claro block and the fault where 900′ of sand has been spotted and with pay likely on the other side of the fault as well could significantly add to reserves. This makes for good news and whilst the wells have not delivered quite as quickly as expected underlying value has not been affected.

Going forward, with its finances in good order TXP has a fully funded production and development programme in what is an asset portfolio laden with opportunities. The company has been working away behind the scenes getting away from the smaller, lower value ends of the portfolio and looking at new, added value and bigger plays in asset swaps and deals with the Government. Some of these have been previously drilled by the majors and some are considered to be adjacent to the play with significant success in Guyana. 

These plays, along with some of the newer blocks yet to be in the portfolio, gives TXP great opportunities in the longer term and in my view give a very rounded valuation for the company and where the shortest of term worries about production should be put firmly in context. A solid banker for the new Bucket list.

KeyFacts Energy Industry Directory: Malcy's Blog