WTI (June) $78.95 -5c, Brent (July) $83.67 +23c, Diff -$4.72 +28c
USNG (June) $2.04 +11c, UKNG (June) 76.0p +6.0p, TTF (June) €30.915 +€1.45

Oil price

It will be a sick week for the oil price as the Middle East remains quiet and economies jittery, the US non-farm payrolls were actually better than expected and the Street is racing.

Chariot

Chariot yesterday announced that drilling operations have commenced at the Loukos Onshore licence onshore Morocco (Chariot, Operator 75%, ONHYM, 25%) with the spud of the RZK-1 well on the Gaufrette prospect.

• Gaufrette Main target has Best Estimate recoverable prospective resources of 10 Bcf
• Option to penetrate a deeper target identified on newly reprocessed 3D seismic data
• Strong read through for other geologically linked prospects in the Gaufrette area with success potentially unlocking combined Best Estimate recoverable prospective resources of 26 Bcf
• Results will be announced on completion of drilling

Duncan Wallace, Technical Director of Chariot commented:
“We are very pleased to commence this onshore campaign, kicking off the first of our exciting drilling operations for Chariot this year. We also continue to work up the prospectivity across this acreage as we see significant upside both in the vicinity of our high graded well locations and beyond. I would like to thank our operational team for their hard work and efforts in getting this drilling underway within ten months of licence award and ONHYM for their ongoing support and partnership. We look forward to providing an update on the results in due course.”

It’s always good when a plan comes together and this news that the RZK-1 well at the Gaufrette prospect has spudded is part of the Chariot strategy to drill the Loukos onshore licence. Looking for 10 bcf as an initial target and with deeper targets already identified on 3D seismic giving the hope of 26 bcf the prospect could also re-risk a number of other prospects. 

The plan has always been for Loukos onshore to balance the huge development at Anchois which itself  is so big that it may come onstream after Loukos which looks like it may bring the relatively  cheap, quick and shallow wells which are economically very attractive given excellent fiscal terms and current high gas prices in Morocco. 

Chariot are in a very strong position right now, the shares look particularly attractive with these two areas of Morocco coming good I am confident that patience is about to be rewarded. 

Zephyr Energy

Zephyr has announced that the Company has retired US$3.88 million (£3.11 million) of existing debt (“Repayment Amount”) through the issuance of US$3.88 million (£3.11 million) of equity comprised of  64,045,768 new ordinary shares of 0.1 pence each in the Company (“Repayment Shares”), at a price of 4.85p per Repayment Share.

The Issue Price of the Repayment Shares is the undiscounted mid-market closing price of the Company’s shares on 2 May 2024.

The Repayment Shares are being issued to SGR Investments, LLC (“SGRI”), a US-based institutional investor with a 50-year investment track record.  In December 2022, SGRI provided debt funding (the “SGRI loan note”) to Zephyr Williston LLC, a subsidiary of the Company, to enable Zephyr’s group to acquire a portfolio of Williston Basin wells operated by Slawson Exploration. The obligation to repay the Repayment Amount was novated to the Company prior to the allotment of the Repayment Shares.

The Repayment Shares are being issued using existing share authorities granted to the Board at the Company’s annual general meeting held on 26 July 2023.

The residual portion of the SGRI loan note is in the process of being refinanced through the Company’s existing commercial banking facilities as part of its regularly scheduled semi-annual redetermination process which is expected to be concluded in May 2024. Post-redetermination, Zephyr’s forecast gross debt is expected to be circa US$30 million.

The Repayment Shares represent approximately 3.7 per cent of the enlarged share capital of the Company as enlarged by the issue of the Repayment Shares and will rank pari passu with the existing ordinary shares of 0.1 p each in the Company (“Ordinary Shares”).  Accordingly, from Admission (as defined below), SGRI will be a shareholder of approximately 3.7 per cent of the Company’s shares.

Application will be made to London Stock Exchange plc for the Repayment Shares to be admitted to trading on AIM. It is anticipated that Admission will become effective at 8.00 a.m. on or around 9 May 2024. 

On Admission, the Company will have 1,750,547,591 Ordinary Shares in issue, each with one voting right. There are no shares held in treasury. Therefore, the Company’s total number of Ordinary Shares in issue and voting rights will be 1,750,547,591 and this figure may be used by shareholders from Admission as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA’s Disclosure Guidance and Transparency Rules. 

State 36-2R well update

Following its announcement on 25 April 2024 that the State 36-2 LNW-CC-R well  had spud, the Company is pleased to report that operations are progressing as expected. On 26 April, the 17-½ inch surface section of the well was completed at a total depth at 1,570 feet, at which point casing was set and cemented prior to the installation of the blowout preventor. Drilling operations have since commenced on the 12-¼ inch intermediate section, with a current hole depth of 3,238 feet.   Drilling is planned to a total depth of 10,362 feet measured depth (9,600 feet true vertical depth) and will incorporate a short, 270-foot horizontal reservoir section.   

Colin Harrington, Chief Executive of Zephyr, said:
“We continue to make good progress on the drilling of the State 36-2R well and remain on track to complete the well within our forecast thirty-day period.” 

“In the meantime, the debt for equity exchange will further strengthen our balance sheet, with no ancillary fees and at no discount to the current market price, while increasing future cash flows for reinvestment into our growing asset portfolio.  I’m thrilled to welcome SGRI as a cornerstone equity investor as we work to deliver the next phase of Zephyr’s growth.”

I am particularly pleased with this piece of news from Zephyr today as it does a number of things in one go. Firstly the well is drilling ahead according to plan, box ticked, secondly the debt swap for equity reveals real quality management at work. 

At the time of the Williston acquisition the company needed some safe production to be the backbone of the company just in case anything went wrong with the E in E&P, even if it was an accidental well blowout. Debt came from SGRI to buy the production, it has done the trick and Zephyr live to fight another day. 

With Zephyr now coming out of the process with a great deal of confidence, SGRI are exhibiting a real show of strength by slipping across the sofa and becoming a perfect cornerstone investor. With no discount for an effective raise and a stronger balance sheet as a result Zephyr are set fair which just leaves us the small matter of the Paradox…

Europa Oil & Gas

Europa has announced that it was contacted by the North Sea Transition Authority regarding the Company’s application for a licence as part of the 33rd UK Offshore Licensing Round that closed on 12 January 2023, therein the NSTA proposed a marriage between Europa and another party for the Licence. After careful consideration, the Company has decided not to accept the proposed marriage and it has also decided to notify the NSTA that, if the NSTA subsequently decide to award the Licence, in its entirety, to the Company as the sole owner, Europa would decline the offer.

As part of its original application for the Licence, Europa spent some time during Q4 2022 analysing the available sub-surface data, the monetisation options and subsequent economics of a development of the resources within the Licence. Since this analysis, various aspects of the operating conditions and the fiscal environment have changed and remain uncertain, this has reduced the economic and strategic attractiveness of the Licence. As such, the Company believes that its resources are better deployed on its existing assets and looking for new opportunities within its core areas of focus. 

Will Holland, Chief Executive Officer of Europa, said:
“I’d like to thank the NSTA for suggesting this marriage and giving Europa the opportunity to participate in the licence that we applied for in the 33rd Round. Since making the application we have acquired an interest in the EG-08 licence in Equatorial Guinea, which we believe is very material. Given the size of the Company and our limited resources it is essential that we focus on where we see the best risk/reward proposition that can generate significant value for our shareholders. Any new asset needs to be considered carefully against other opportunities that are under evaluation to ensure that we are deploying our capital on assets that have the best potential of returning value to our shareholders.”

 It is great to see managements really sticking it to the authorities and the Government who have behaved very poorly as both the current lot and those yet to come continue to behave like DickTurpin except without a mask. It’s not enough to pay tax for everybody else and in a crucial industry the short term nature of such fiscal defenestration will come home to roost, before or after the election.

Back to the RNS, EOG are quite correctly concentrating on the EG-08 licence in Equatorial Guinea which does look very exciting, it and not what I have written above should be the headliner…

SDX Energy

The Company has announced that is has completed drilling operations on the BMK-2 well, located in the Rharb Basin, Morocco. At 1,265 metres in the Guebbas formation, the well encountered a 9-metre interval, believed to be equivalent to the well’s primary target, with strong gas shows up to approximately 100 times background gas readings. The well was drilled to its total depth of 1,412 metres, and has been left temporarily suspended with a plug set to allow the well to be sidetracked, to the target formation at 1,265 metres, once the required equipment has been mobilised.

SDX is taking brief reports to the market and its shareholders about current trading etc to the extreme. 

As and when the market has enough data to work on and its IR is prepared to give detailed flow rates etc I think it is best to hold off from any further comment. The new management team is a riddle wrapped in a mystery inside an enigma…I can’t wait to meet him!

Prospex Energy

Prospex has provided an update from the Selva Malvezzi production concession in Italy following the publication by Po Valley Energy Limited of its Q1 2024 activity report.  Po Valley Operations Pty Limited, a wholly owned subsidiary of PVE is the operator of the Selva Malvezzi production concession, which has a 63% working interest, while Prospex has the remaining 37% working interest.

Highlights

• The Podere Maiar-1 well at Selva has continued to perform consistently during Q1 2024.
• Average daily production for the quarter was in the order of ~80,000 scm/d.
• A standard slickline operation in March 2024 confirmed strong pressure build up confirming the average daily production rate for the foreseeable future.
• PM-1 is supplying the gas to BP Gas Marketing under an 18-month offtake agreement.
• The weighted average gas sales price for the quarter was €0.30/scm (~€29/MWh).
• Gross Quarterly production was 6,385,255 scm of gas (2,362,544 scm net to Prospex) and gross revenue for the quarter was €1,906,891 (€705,549 net to Prospex).
• The operator is progressing the permitting process with the regulatory authorities on the other projects in the Selva Malvezzi production concession.
• Following a successful project of reprocessing the existing 2D seismic lines in the production concession, the Joint Venture is now evaluating the potential for a new seismic acquisition programme over the licence area in order to optimise the drilling programmes of the identified contingent resources at Selva North, Selva South and the East Selva and Riccardina prospects.

Gas production at the PM-1 gas facility in the Selva Malvezzi Production Concession for the quarter is shown in the table below:

Production has been consistent throughout the quarter averaging ~78,000 scm/d to ~80,000 scm/d, with exception of days during which slickline operations were undertaken.  During the quarter, the operator carried out three slickline operations.  The first was conducted in early January 2024 confirming results from December 2023, the second was conducted at end of January with the third programme completed in late March 2024.  All results of bottom hole pressure and temperature readings in static conditions were in line with expectations with ongoing monitoring for any debris undertaken to ensure no accumulation issues were present.

Mark Routh, Prospex’s CEO, commented:
“Po Valley Energy continues with safe and reliable operations at the Selva Malvezzi production concession.

“We are actively advancing  the necessary activities to facilitate development drilling programmes at Selva Malvezzi with the target of converting the contingent resources at Selva North and Selva South and the prospective resources at East Selva and Riccardina into proved, developed and producing reserves in the near term.”

Po Valley seems to be delivering pretty well for Prospex and whilst gas prices have fallen that has to be expected in the bigger picture and in the price.

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