WTI (June) $78.26 -$1.00, Brent (July) $82.79 -$1.09, Diff -$4.53 -9c
USNG (June) $2.25 -5c, UKNG (June) 72.0p -2.91p, TTF (June) €29.655 -€1.58

Oil price

Not surprising that oil was almost unchanged last week, WTI up 18 cents and Brent down 17c. As discussed there are differences, last week was quiet in the Middle East and economic data slightly better. This week it is the turn of the US inflation data on Wednesday after mixed data from China in the last few days. Finally Opec will spend the next two weeks crunching the numbers ahead of the Ministerial meeting on June 1st, expect the usual uninformed gossip which has already started with Iraq allegedly going for higher quotas. 

Jersey Oil & Gas

Jersey Oil & Gas has announced its audited financial results for the year ended 31 December 2023 and the date of its forthcoming Annual General Meeting.

Highlights

• Successful completion of two significant Greater Buchan Area (“GBA”) farm-out transactions ensured the Company delivered on its core strategic objectives during 2023
• The selected Buchan redevelopment plan delivers the lowest full-cycle carbon footprint solution for the field
• The Buchan redevelopment project benefits from the key “R3” components that underpin a quality solution for the development of homegrown resources – Redeveloping an existing, known oil field, through Re-use of infrastructure that is to be made Ready for electrification
• Financial outlook transformed, with the business securing a path to monetising its GBA interests without the need for additional equity from shareholders

Ambition Backed by Actions

2023 was a pivotal year for the Company.  Having successfully aggregated the GBA resource base and progressed the necessary development planning activities, two farm-out transactions were executed, bringing in two credible industry partners and the funding required to monetise the area.

Securing the means and the finance to move the GBA project forward into the development phase of activities has been the key ambition of the Company since taking over sole ownership of the licence area in 2021.  The farm-out transactions with NEO Energy (“NEO”) and Serica Energy (“Serica”) do just that and have transformed the outlook for the business. 

By bringing in leading industry partners, closing out the selection of the GBA development solution and securing a high-quality floating production, storage and offloading vessel (“FPSO”), the Company has set the path to delivering a material long-term income stream from the Buchan redevelopment project.   Importantly, the structure of the farm-out transactions ensures that the Company has secured a series of cash payments, which comfortably finance the on-going operations of the business, as well as funding for its remaining 20% interest in the Buchan project.

Buchan – Moving Forward

The Buchan redevelopment project continues to make good progress.  Completion of the necessary pre-sanction Front-End Engineering and Design work is on track and the first offshore survey vessel mobilisation occurred earlier this month to obtain the geophysical and geotechnical data required to finalise the subsea and drilling rig contract tendering process and inform the FPSO mooring design.

In line with the strategy for the future connection of the FPSO to one of the anticipated floating wind power developments in the area, engagement is on-going with the companies that were awarded acreage in the INTOG licencing round conducted by Crown Estate Scotland in 2023.  Securing a source of green power feeds into the post start-up electrification plan for the FPSO and does not defer the target date for first oil.

The draft Buchan Field Development Plan was submitted to the North Sea Transition Authority in December 2023 and the Environmental Statement was submitted to the Offshore Petroleum Regulator for the Environment and Decommissioning at the beginning of 2024.  Subject to project sanction from the joint venture partners, these submissions pave the way for obtaining the necessary regulatory approvals for the Buchan redevelopment project in the second half of 2024.

The UK oil and gas industry as a whole is currently being frustrated in its efforts to maximise the production of homegrown resources by fiscal uncertainty.  Through the work of the industry trade body, Offshore Energies UK, a significant amount of effort is going into engaging with the leaders of all parties to make sure the benefits of domestic energy production are understood and realised.

Solid Outlook

The Company’s vision is centred on successfully growing the business in a smart and sustainable way. The business is focused on unlocking the organic value of its existing GBA assets, combined with the pursuit of accretive asset acquisitions that bring cash flow, diversity and quality investment opportunities into the portfolio. Such opportunities are thoroughly assessed in terms of their potential strategic fit, being mindful of the quality and unencumbered strengths of our existing portfolio.

The Company is well positioned to deliver on its strategic objectives. With a cash balance following completion of the Serica farm-out in late February 2024 of over £15 million, the business is financially secure and funded for the planned Buchan redevelopment programme.  During 2023 the underlying annual cash costs of the business were trimmed from forecast levels of £4.0 million to £3.5 million. Following the transfer of operatorship of the GBA licences to NEO and completion of the farm-outs, the Company has moved swiftly to further prune underlying forecast cash costs to under £3.0 million per annum. This backdrop provides an attractive springboard from which to realise the full potential and ambitions of the business to deliver long-term shareholder value.

Annual General Meeting

The Company also announces that its 2023 Annual Report and Financial Statements together with the AGM Notice and associated Form of Proxy are now available on the Company’s website (www.jerseyoilandgas.com) and will be posted today to those shareholders who have elected to receive hardcopy shareholder communications from the Company.

The Company will hold its AGM in respect of its financial year ended 31 December 2023 on 5 June 2024 at 12.00 noon at the offices of Strand Hanson Limited, 26 Mount Row, London W1K 3SQ. 

Corporate Website

The Company is pleased to report that it has today launched a new version of its corporate website (www.jerseyoilandgas.com).

Andrew Benitz, Chief Executive Officer, commented:
“JOG had an exceptional 2023 and we are delighted to have NEO and Serica as our partners on the Greater Buchan Area, which is one of the largest and most exciting developments of homegrown energy in the UK North Sea. Together with our joint venture partners and support from our shareholders we have delivered an investment opportunity that is expected to support over 1,000 jobs across many parts of the UK supply chain, provide private investment of around £900 million into the UK economy and generate hundreds of millions in forecast UK tax receipts. 

The project is progressing well, with the Front-End Engineering and Design work that needs to be completed ahead of project sanction remaining on track, along with execution of the offshore geotechnical survey campaign that commenced earlier this month. 

Multiple recent fiscal hikes, compounded by potentially further fiscal uncertainty associated with the forthcoming election, are weighing heavily on UK oil and gas industry. With hydrocarbon imports into the UK at a record high last year, the spotlight will inevitably refocus on domestic supply from the North Sea. We remain confident that any new government will realise that the industry is truly its best partner and enabler of the energy transition and that it must support private sector investment into all forms of homegrown energy.  Whilst demand for oil and gas remains, homegrown energy provides the most effective, lowest carbon option and provides an economic bridge to the future.”

A good set of results out this morning on the back of the successful farm outs to NEO and Serica, with funding secured to take Buchan forward. NEO has hit the ground running with a first-class project team in place moving through the FEED work, with survey work currently underway.  JOG is financially secure with receipt of farm out cash payments and have trimmed their underlying cash costs of running the business. 

Fiscal and political uncertainty continues to weigh heavily on the industry, threatening domestic energy and economic security at this time and JOG along with its partners need to navigate its way through this area very carefully. All members of this JV have bent over backwards to create the most efficient, lowest full-cycle carbon footprint solution for the GBA development possible. 

The company should also be applauded for its redevelopment using the “R3” components that underpin a quality solution for the development of homegrown resources – Redeveloping an existing, known oil field, through Re-use of infrastructure that is to be made Ready for electrification. 

There is a need for a genuine, sensible compromise with no political dogma that puts common sense ahead of any pre-existing views that consider what is right for the economy and the planet. All the better if that acknowledges that there is a need for oil and gas and that it can be better produced using a lower carbon option than from imported hydrocarbons and that contributes to the UK Treasury instead of elsewhere. 

The best way that I can express it is that economics ought to prevail over ideology and that compromise provides benefits that all parties can sign up to. This is a project that looked at independently is a beacon that industry will look to as a city on a hill in our industry we can all be proud of. 

Kistos

Kistos has provided a summary of its audited full-year results for the year ended 31 December 2023. A copy of the Company’s full audited annual report and accounts will be made available shortly on the Company’s website at www.kistosplc.com. 

2023 Highlights

• On a pro forma basis, Group production averaged 8.8 kboe/d (2022: 10.9 kboe/d), reflecting natural production decline from our UK and Dutch assets, unplanned production interruptions relating to third-party infrastructure in the Netherlands, partially offset by the inclusion of production from the Balder and Ringhorne areas in Norway.
• Adjusted pro forma EBITDA was €122 million (2022: €517 million), reflecting the fall in the gas price from exceptionally high levels in 2022.
• Completed the acquisition of Mime Petroleum AS (“Mime”), adding 24 mmboe of 2P reserves (as of 1 January 2023) and in excess of 2,000 boe/d of production with material future production upside from the Balder Future development (Kistos 10%).
• Year-end 2P reserves of 27.9 mmboe, up from 12.7 mmboe on 31 December 2022 following the completion of the Mime Acquisition.

12 months ended 31 December 2023

1. Pro forma figures for 2023 include Kistos Norway as if it had been acquired on 1 January 2023. The acquisition completed on 23 May 2023. Pro forma figures for 2022 include GLA as if it had been acquired on 1 January 2022. The acquisition completed in July 2022 and is therefore not included in the actual results to 30 June 2022. Minor adjustments have been made to comparative pro forma information following receipt of additional information after completion of the GLA acquisition and to align with the Group’s accounting policies and methodology as used in the 2022 Annual Report and Accounts.
2. Average production rate includes gas, oil and natural gas liquids, and is rounded to the nearest 100 barrels of oil equivalent per day. The actual average production rate reflects the number of days during the year businesses were controlled by the Group. Sales and production volumes are converted to estimated barrels of oil equivalent (boe) using the conversion factors in Appendix C to the Financial Statements.
3. Non-IFRS measure. Refer to the definition within the glossary and reconciliation in Appendix B3 to the Financial Statements.
4. Non-IFRS measure. Refer to the definition within the glossary and reconciliation in note 2.2.2 and Appendix B1 to the Financial Statements.

Financial

Strong operating cash flow performance and balance sheet with improved flexibility

• Statutory loss after tax of €25 million (2022: €26 million profit after tax) including €59 million of impairment charges, primarily relating to write-offs in the UK Exploration segment.
• Strong operating cash flow generation of €203 million (2022: €291 million) despite weaker commodity price environment
• Cash balances on 31 December 2023 of €195 million (31 December 2021: €212 million) and net debt of €24 million following the assumption of $225 million of bonds issued by Mime, with tax repayment of €80 million to be received in December 2024.
• Retired all the outstanding bonds (€82 million) originally issued by Kistos NL2 as part of the acquisition of Tulip Oil, in December 2023. This will save €15 million on future interest costs and has improved our financial flexibility.
• Capital expenditure on a cash basis was €119 million (2022: €20 million), primarily representing the significant planned ongoing investment in Norway to progress the Balder Future project to production.

Operational

Increasing the Group’s reserve base and production profile  

• Year-end 2P reserves of 27.9 mmboe, up from 12.7 mmboe on 31 December 2022 following the completion of the Mime acquisition.
• Production from newly acquired Norway assets increased 50% through the year from 312 kboe in H1 2023 to 478 kboe in H2 2023 as new wells came onstream at the Ringhorne platform.
• Estimated Scope 1 CO2e emissions from our operated activities offshore were less than 0.01 kg/boe in 2023 (excluding necessary flaring during drilling campaigns).

Outlook

Establishing a diversified geographic portfolio with exposure across the energy value chain

• Completion of UK gas storage assets acquisition from EDF in April 2024, diversifying the Company’s asset portfolio into a stable marketplace that offers significant growth potential.
• On the Balder Future project in Norway, targeting c.140 mmboe gross (c.14 mmboe net), 11 out of 14 new production wells have been completed, ready for start-up when the Jotun FPSO is installed (scheduled by the operator to be in Q4 2024).
• Net debt on 30 April 2024 of €148 million, following cash consideration paid for UK gas storage assets, ongoing Balder Future Project funding and UK tax payments made in Q1 2024.
• Tax repayment (primarily in respect of capital expenditure incurred during 2023 on Balder Future) of €80 million (excluding accrued interest) due to be received in December 2024.
• Continue to explore value-accretive opportunities in the traditional energy sector, despite challenging fiscal environments, and also in the energy transition space.

Andrew Austin, Executive Chairman of Kistos, commented:
“2023 saw significant changes to the operating environment with commodity prices sharply down on the previous year and an increasingly restrictive fiscal regime in the UK. However, the Group continued to maintain a strong balance sheet, paying down historic debt and generating meaningful cash flow.

Kistos has made significant progress in diversifying its asset base to mitigate against the barriers to further investment in the UK North Sea imposed by the UK Government. The acquisition of UK onshore gas storage assets is a demonstration of the Group’s ability to identify opportunities outside of its offshore production portfolio and broaden its sources of revenue.

As a management team fully aligned with shareholders, we remain focussed on seeking value for our investments which complement our existing portfolio and offer value-accretive upside.”

Nothing in these historic results that we don’t already know about, as Andrew Austen states above they too are being forced out of the UKCS due to the ‘increasingly restrictive fiscal regime’ in the UK. So the Mime Petroleum acquisition takes them into Norway with the inclusion of production from the Balder and Ringhorne areas in Norway.

The Balder Future project in Norway, targeting c.140 mmboe gross (c.14 mmboe net), 11 out of 14 new production wells have been completed, ready for start-up when the Jotun FPSO is installed, all being well it will give first production in 4Q 24.

Finally the company has made an investment into onshore UK gas storage which could be very profitable in coming years and outside the energy tax in the UK. With its strong balance sheet and first class management Kistos is in a very strong position despite having been delayed thanks to UK fiscal policy. 

Gulf Keystone Petroleum

Gulf Keystone, a leading independent operator and producer in the Kurdistan Region of Iraq, today provides an operational update and is pleased to announce the launch of a share buyback programme of the Company’s Common Shares for up to a maximum aggregate consideration of $10 million.

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:
“Local sales have continued to be robust in recent weeks, with gross average sales in 2024 year to date of c.37,000 bopd and realised prices recently increasing to c.$27/bbl. As a result, our liquidity position has continued to improve. While we remain focused on retaining sufficient liquidity in the current operating environment and ensuring we are able to unlock significant potential value from the restart of Kurdistan exports, we recognise the importance of distributing excess cash to shareholders. Given GKP’s weak share price, which the Board believes trades at a significant discount to the intrinsic value of the Shaikan Field and does not adequately reflect the near-term cash flow generation potential from local sales, the Board has decided to initiate a share buyback programme of up to $10 million.”

This buy-back from GKP  whilst being somewhat of a drop in the ocean, does if anything, tell shareholders that management are alert to any policy that might keep the share price on the move and that pipeline or none there is still money coming in. But GKP shareholders are aware that the pipeline is crucial for the longer term outlook in Kurdistan…

• Local sales of Shaikan Field crude continue to be robust with gross average sales in 2024 year to 11 May of c.37,000 bopd

• Following strong sales in March of c.44,100 bopd, April sales were down slightly to c.38,900 bopd due to the temporary impact of Eid celebrations on truck availability. Volumes have since recovered, with sales in May to date averaging c.48,300 bopd
• Realised prices have recently increased from c.$25/bbl to c.$27/bbl, reflecting continued strong local market demand

• GKP’s liquidity position has continued to improve and the Company’s cash balance was $98 million as at 10 May 2024
• Looking ahead, while local market demand is expected to remain variable in 2024, the Company sees strong local sales demand in the near term, enabling continued free cash flow generation

• Cash flow is supported by the Company’s minimal 2024 work programme and expected monthly aggregate net capex, operating costs and other G&A of c.$6 million
• At current realised prices and 36% net entitlement, the Company’s free cash flow breakeven is at gross sales of c.20,500 bopd

• Subject to local sales demand and considering the Company’s limited capital programme, gross production potential is currently between 45,000 – 48,000 bopd following recent optimisations to well performance

Buyback Programme launch

• The Company remains focused on conserving sufficient liquidity to manage the current operating environment and ensure it is able to unlock significant potential value from the restart of Kurdistan exports, which it continues to push for in its engagement with government stakeholders
• The Board recognises that the distribution of excess cash is important to reward shareholders, in line with the Company’s track record of shareholder distributions
• The Board believes that GKP’s current share price trades at a significant discount to the intrinsic value of the Shaikan Field and does not adequately reflect the near-term free cash flow generation potential from local sales
• The Board has decided to initiate a share buyback programme (the “Buyback Programme”) of the Company’s Common Shares of $1.00 each (“Shares”) for up to a maximum aggregate consideration of $10 million (the “Maximum Amount”)
• The Board will keep under review the Company’s capability to distribute excess cash by way of dividends or additional buybacks, considering the operating environment and the Company’s liquidity position

Buyback Programme execution

The Buyback Programme will be executed in accordance with the Company’s authority to make on-market purchases of Shares which was approved by shareholders at the Company’s AGM on 16 June 2023. The Company expects to propose the renewal of the shareholder authority to carry out on-market purchases at the 2024 AGM so that this option remains available to the board as part of the future overall shareholder return strategy.

The Company has entered into an agreement with its brokers, Canaccord Genuity Limited (“Canaccord Genuity”) and Peel Hunt LLP (“Peel Hunt”) (together the “Brokers”), to carry out on-market purchases of Shares up to the Maximum Amount within agreed parameters on an irrevocable and non-discretionary basis. Purchases of Shares will be made on the Company’s behalf in accordance with the agreement with the Brokers and may continue independently of and uninfluenced by the Company during any closed period to which the Company is subject and/or if the Company comes into possession of inside information. The Company has agreed the Buyback Programme will commence immediately and run to the earlier of its completion or the Company’s 2024 AGM on 21 June 2024.

So long as the Company is not in a closed period to which it is subject nor in possession of inside information (an “Open Period”) the Company may elect to terminate the non-discretionary nature of the mandate. The Company may subsequently choose to reinstate the non-discretionary mandate of the Buyback Programme provided that the Company is in an Open Period at that time.

The Buyback Programme will be carried out on the London Stock Exchange and will be implemented within certain agreed parameters, including the price parameters under the relevant shareholder authority and, except as disclosed in this announcement, the safe harbour provisions set out in the Market Abuse Regulation (EU) 596/2014 (as it forms part of UK law pursuant to the European Union (Withdrawal) Act 2018) (the “Regulations”) and the applicable laws and regulations of the London Stock Exchange.

A buyback of Shares on any trading day may represent a significant portion of the daily trading volumes in the Shares and may exceed 25% of the average daily trading volume specified in the safe harbour provisions of the Regulations dealing with buyback programmes and accordingly the Company may not benefit from the exemption in Article 5(1) of that regulation.

The sole purpose of the Buyback Programme is to reduce the capital of the Company. As such, all Shares purchased under the Buyback Programme will be cancelled.

The Company will make announcements and publish on its website details of any Share repurchases.

KeyFacts Energy Industry Directory: Malcy's Blog