WTI (July) $79.83 +$2.11, Brent (July) $84.22 +$1.12, Diff -$4.39 -1c
USNG (June) $2.59 +7c, UKNG (June) 81.84p -2.71p, TTF (July)* €34.3 -€0.08
*Denotes TTF June contract expiry

Oil price

A decent rally from in particular WTI as another attack in the Red Sea created a bit of a bullish atmosphere which even negated the hawkish words of Minneapolis Fed President Neel Kashkeri on CNBC.

With a decent bounce the stocks picked up sharply and technical traders were most impressed with them rising above the 200 day moving averages.

ConocoPhillips almost surprised the market by agreeing a bid for Marathon Oil worth some $17bn.

Zephyr Energy

Zephyr has announce the receipt of additional grant funding from the U.S. Department of Energy for upcoming operations on the State 36-2R LNW-CC well  at its project in the Paradox Basin, Utah. The Company also provides a further update on current drilling operations on the State 36-2R well.

Grant Funding from U.S. Department of EnergyFollowing similar U.S. government grants awarded to the Company in the past, Zephyr has obtained an incremental US$250,000 non-dilutive research grant from the DOE to support well testing activity on the State 36-2R well. This brings the total DOE grant funding made available to the Company to US$3.65 million in recent years.

The grant is administered by the University of Utah’s Energy & Geoscience Institute (“EGI”). Zephyr’s technical team continues to work closely with the EGI, the Utah Geological Survey (the “UGS”) and other Utah-based partners in utilising DOE research funds to fully evaluate the potential overall productivity of the Paradox Basin.

The objective of the incremental grant is to fund a detailed evaluation of the State 36-2R production data from the forthcoming State 36-2R well production test.

State 36-2R well drilling operations update

Drilling operations continue to proceed safely and in line with management’s expectations. The 8 ½ inch section is currently drilled to a depth of 9,940 feet, with the planned section total depth of 10,075 feet to be reached imminently.  After reaching the section total depth, a casing string will be set and cemented in place, just above the final Cane Creek reservoir target.

After casing and cementing, drilling will re-commence on the final reservoir section of the State 36-2R well.  The objective for this short section is to safely and successfully land the well within the Cane Creek reservoir (the “Cane Creek”) and drill approximately 270 feet horizontally to intersect the productive natural fracture system encountered in the original well. After reaching planned final total depth and setting a production liner, the drilling rig will be demobilised, and the well will be prepared for production testing.

Across current operations on the 8 ½ inch section of the State 36-2R well, Zephyr’s team has utilised sophisticated MagTraC ranging equipment to ensure that the State 36-2R well intersects the Cane Creek reservoir as close as possible to the State 36-2 LNW-CC well (the “original well”). At the most recent range measurement taken at 9,800 feet measured depth, the State 36-2R well was only seventeen feet from the original wellbore, with ultimate intersection on track for less than ten feet of range between the wells. While this ranging and steering process resulted in slower drilling over the last ten days, Zephyr’s operations team is pleased with the precision of the targeting of the upcoming intersection with the reservoir.

Colin Harrington, Zephyr’s Chief Executive, said: 
“We are incredibly grateful to the DOE and our Utah research partners for their ongoing support, both financially and in terms of our broader collaboration as we jointly seek to understand and optimise the full potential of the Paradox project.

“I would like to thank the DOE, the EGI and the UGS for their continued focus and investment in the Paradox, and we are excited to be even further aligned with their respective organisations. We feel their involvement is a strong endorsement of the Paradox project and of the professional. detailed way in which we are operating in Utah.

“I am also highly pleased to report that drilling operations on the State 36-2R well continue safely and with such precision. We will continue to keep our stakeholders fully informed about ongoing drilling operations and the subsequent production test.”

So Zephyr has secured an additional grant for the Paradox Basin worth around $250/- which will make $3.65m in total and whilst the insurance is paying for most of the current well it is clearly most welcome. 

On the operating front the well is now at c.10,000 feet nearly time to case and cement and then enter the Cane Creek reservoir so at least still on schedule and it is very close indeed to the previous drill…!

Longboat Energy

Longboat has announced the following corporate and operational update.

Norway

Although there were good grounds to believe that the production ramp up from the Equinor operated Statfjord Satellites (comprised of a 4.80% unitised interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Sygna Unit) would be delivered, actual performance has been disappointing to date despite an increase in production from 2023.

Production has averaged approximately 544 barrels of oil equivalent per day (“boepd”) during the prior four weeks and 401 boepd for the period from January to April this year, significantly below both Longboat’s internal and operator forecasts. 

The underperformance relates to operational issues associated with well completions on Statfjord Øst, leaving two out of the five redevelopment wells drilled in 2023 still off-line. The operator, Equinor, is working to rectify these multiple issues utilising an offshore vessel during Q2 and Q3 2024.

The Sygna asset continues to perform in-line with expectations, albeit at relatively low levels.

Owing to these delays and uncertainty regarding the commissioning of the final two wells on Statfjord Øst, Longboat now anticipates average production of between 575- 625 boepd for the full year 2024 net to the Longboat Japex Norge AS (“LJN”) joint venture (in which Longboat is a 50.1% owner).

In addition to lower-than-forecast production, as a result of these ongoing operational issues LJN has now been informed by the operator that the Statfjord Øst 2024 gross capex budget has almost doubled to 685 million Norwegian Kroner (~$64 million) having already suffered a 25% gross capex budget increase of 586 million Norwegian Kroner (~$55 million) in 2023.

Progress has been frustratingly slow on moving the Kveikje discovery (LJN, 10%) towards development due to diverging views from partners in the wider area on the best offtake solution. As has been reported in the press, the Norwegian regulator SoDir (previously NPD) has now become involved in the situation in an attempt to unlock the development plans for the significant resources (~350 mmboe) already identified in Kveikje and the surrounding fields.

Based on the value of discoveries which have traded hands in the area over the past few years, Longboat believes that Kveikje continues to hold significant value for shareholders but recognises that this is likely to take longer to realise than previously anticipated.

On the exploration front, the Kjøttkake (aka Lotus) exploration well (LJN, 15%) is anticipated to spud in Q4 2024. Based on the internal estimates at the time of the original licence application, the prospect contains gross mean prospective resources of 27 mmboe with a chance of success of 54% with the key risk being hydrocarbon retention.

Following a farm-out announced in late 2023, LJN is fully carried on the Kjøttkake well costs up to cap greater than the currently forecast dry hole budget. Kjøttkake is located directly to the south of Kveikje and could potentially form part of an integrated development once the area-wide issues are resolved.

Malaysia

Progress continues to be made on the Company’s Block 2A (52.5%, op) located offshore Sarawak in eastern Malaysia.

Detailed mapping of the giant Kertang prospect is nearly complete to support the of identification of an optimal well location to safely test the multiple horizons with hydrocarbon potential. It is anticipated that a final well decision will be made in late 2024 or early 2025.

Due to its importance to Longboat, the Company has recently commissioned ERCE to undertake a competent persons report to confirm the potential size and risk associated with the giant Kertang prospect, which is believed to be one of the largest undrilled structures in Malaysia. Longboat intends to publish the results of the CPR when available in the next few months.

In addition to Kertang, Longboat has recently completed a key exploration review gate with PETRONAS where additional, significant prospectivity on Block 2A has been identified. Two areas of interest have been delineated: firstly surrounding the Kertang structure, where several large structural closures analogous to Kertang have been mapped and secondly in shallow water, in the southwest of the block, where the continuation of a play that has seen several notable recent gas discoveries made in younger, shallower horizons to the south of 2A.

Following recent increased interest levels in exploration for world-scale fields, multiple large companies have approached Longboat regarding Block 2A and the Company is currently planning on running a farm-out process later in 2024 to identify potential partners for the block.

In addition to its exploration efforts in Malaysia, earlier this year, Longboat executed an Area of Mutual Interest agreement with another E&P company active in Malaysia to pursue discovered resource opportunities (“DROs”) being offered by PETRONAS. The companies subsequently made an application for acreage in shallow water offshore Sarawak and should the partnership be successful, the DROs are anticipated to add significant hydrocarbon resources capable of near-term development to Longboat’s growing Asian portfolio.

Finance

As reported in the Company’s full year accounts for the period to 31 December 2023, production performance issues and the related cost overruns at the Statfjord Satellites have had a significant negative impact on LJN’s working capital position. To date, this shortfall has been funded through a total of $17 million drawdown on the $100 million Acquisition Finance Facility  provided to the joint venture by Japan Petroleum Exploration Co. Ltd.  

As detailed in the original LJN joint venture announcement in May 2023, the Acquisition Facility is available to LJN for the sole purpose of financing acquisitions and associated development costs and Longboat’s partner has reiterated that the Acquisition Facility is not available to finance working capital shortfalls post-acquisition completion.

In the event Longboat cannot meet its share of additional working capital shortfalls at LJN in a timely fashion, the terms of the Shareholder Agreement and Acquisition Facility could result in Longboat forfeiting some-or-all of its shares in LJN.

Despite these financial challenges, due to its existing asset base in Norway and strong market positioning of LJN, Longboat strongly believes that the joint venture has significant remaining value and is currently exploring all options available to fully realise that value for shareholders.

In order to preserve liquidity, Longboat has begun a detailed review of its cost base and is already taking measures to ensure its overheads are in-line with the current size and scale of the business and ensure its capital is being directed towards the areas with the greatest value-creation potential.

It is anticipated that Longboat will give a further update to the market around the time of its AGM at the end of June.

Related Party Transaction

Pursuant to its joint venture arrangements in Norway, JAPEX provides LJN with the Acquisition Facility out of which an amount of $10 million was made available for the Statfjord Satellites acquisition.

Due to adverse working capital movements in the period between signing and completion of the transaction, the Company required drawing $17 million to fund the acquisition. As a result, LJN required an amendment to the Acquisition Facility which was entered into on 19 January 2024 (the “Amended Acquisition Facility”).

The Amended Acquisition Facility, which replaced the Acquisition Facility, was on materially similar terms as regards to:

• Total facility size: $100 million;
• Term: five-years;
• Purpose: finance LJN acquisitions and associated development costs.
• Interest: all-in cost over the term of <10%

The Amended Acquisition Facility had several additional features including:

• Increase in availability totalling $17 million (retaining a $100 million maximum); and
• A flat interest rate of 10% for the drawn amounts over $10 million
• Final repayment: 31 December 2024

At the time of the entry into the Amended Acquisition Facility, JAPEX was a Related Party of the Company and therefore the entry into the amended facility is deemed a Related Party Transaction under Rule 13 of the AIM Rules. The Company’s directors consider, having consulted with Stifel, the Company’s Nominated Adviser, that the terms of Amended Acquisition Facility are fair and reasonable insofar as shareholders are concerned.

Nick Ingrassia, CEO of Longboat commented:
“While Longboat faces a series of near-term financial challenges, I am confident that the steps we are currently taking will allow the slimmed down business to create significant shareholder value from our high-quality positioning in Norway and our emerging portfolio in Malaysia.”  

I am not going to write much about this update because I have not yet spoken to either IR agency or more importantly the company today. What looks like major league problems in Norway may take more than a little sorting but fortunately the SE Asia portfolio is in the excellent hands of James Menzies. 

We can now tell why the previous management changes were made, it seems that this was apparent some time ago and whilst there may be substantial upside in Norway the cost base is one for a much larger company, something that new CEO Nick Ingrassia will have to get to grips with pdq. As they say, it lives a champagne life on a beer income…

I am hoping the phone rings tomorrow and I can hear from the horses mouth exactly what is going on, hopefully before it is too late…

Petro Matad

Petro Matad has provided the following operational update.

Key Company Updates

• The Company has received the remaining approvals necessary from Matad District to allow the 2024 operational programme to commence. Land use certificates have been issued for the three areas of operation selected by the Company.
• Discussions on timing of mobilisation to re-enter and complete the Heron 1 well for production are ongoing with service provider DQE.
• Petro Matad continues to push the central government to complete the certification process and confirm Block XX as State Special Purpose land to streamline the permitting process in future years. MRPAM has written to the Provincial authorities telling them to revise the coordinates of the area which overlaps with Petro Matad’s Exploitation Licence.
• The Company’s renewable energy joint venture is progressing its two high-graded projects and has a number of new opportunities including a potential export to China initiative.

Operational Update

Block XX land access and Heron 1 completion

Following the approval of land access from the Matad Citizens’ Representatives Committee in late February, the Company has now secured the Matad Governor’s follow up resolution and the land use agreement for the three areas chosen for operations in 2024. The land access granted is valid for five years, and this local level approval allows work to go ahead whilst the central government’s process to certify the Block XX Exploitation Area as State Special Purpose Land is completed.

As part of the local level approval, with the support of the Land Agency and industry regulator the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), Petro Matad paid compensation to the herders whose registered pastures will be impacted by the Block XX Exploitation Area.

With the local land use approval in place, Petro Matad is in discussion with service provider DQE to agree the timing of mobilisation of the completion crew to Heron 1. If possible, it is hoped to have the crew at site before Mongolia’s parliamentary elections on 28th June, although campaigning tends to have a disruptive influence on logistics in the country. If not possible before, mobilisation shortly after the election will be targeted.

Discussions with PetroChina on oil processing, export and sale are waiting on feedback promised at a constructive meeting held in early May. Even if the oil offtake is not finalised, Petro Matad will prioritise getting the Heron 1 well ready to produce as soon as possible since we are aware that DQE expects to be busy with PetroChina and other operators from early Q3 2024.

Certification of Block XX as State Special Purpose Land

This process is moving slowly and the central government’s focus on the parliamentary elections is a further hinderance. MRPAM has written to the Provincial authorities instructing them to revise the coordinates of their overlapping area which impinges on the Block XX Exploitation Area. Meanwhile, the Ministry for Economic Development has advised that its preparation for a submission to Cabinet to attempt to remove the obstacles to completing the certification process is progressing. The Company does not expect substantive progress until after the June elections but will continue to push for progress before the elections. With the District level approvals in hand, work can now be done, but special purpose certification represents the long-term solution and is still required to mitigate any delays to operational activities that may arise in future years.

Renewable Energy Projects

SunSteppe Renewable Energy (SRE)’s project to provide green hydrogen to Mongolia’s major Oyu Tolgoi copper and gold mine is progressing. Wood Group is undertaking the detailed technical and commercial evaluation which is scheduled to be completed in Q3 2024 and multilateral and commercial banks are showing interest in this project. Meanwhile, on the Choir 50MW Battery Energy Storage System project, environmental studies have begun as part of the preparations to submit the application for the licence to construct.

A third project involving renewable electricity export from Mongolia to China is under discussion following the signing of an exclusive cooperation agreement with a major, state-owned Chinese utility. The agreement envisages a 1.5GW project.

SRE continues to pursue a number of other initiatives.

Mike Buck, CEO of Petro Matad, said:
“We are delighted to have finally secured land access on Block XX and are looking forward to getting back on to the Heron 1 site and completing the well for production. The special purpose certification process remains a frustration but at least now we can work in parallel.

SRE is making good progress on its two high-graded projects and the power export initiative offers exciting potential. It is very pleasing to see that numerous new opportunities are being generated by the team.”

I’m delighted that at long last that Petro Matad has received approvals to start its 2024 operational programme in three areas of operation. The share price has reacted accordingly, just imagine what will happen when the remaining areas that it is working in with plans to develop also receive there approvals. 

KeyFacts Energy Industry Directory: Malcy's Blog