WTI (July) $78.50 +60c, Brent (Aug) $82.60 +68c, Diff -$4.10 +8c
USNG (July) $3.05 -8c, UKNG (July) 84.25p, TTF (July) €36.11 +€1.31

Oil price

The Fed announced that inflation had still not got close enough to 2% to enable a rate cut, Wall Street are still thinking 1/2 cuts at the end of the year at best. The EIA stats showed a mixed picture, after the API draws the signs were reversed and it was builds of 3.73m and 2.566m in crude and gasoline respectively, primarily due to imports. 

Reabold/Union Jack Oil

Reabold has announced the results of the West Newton Gas Export Feasibility Study, conducted by independent energy consultants CNG Services Ltd.  The Study has concluded that as a precursor to the intended West Newton full field development, an initial single well development and gas export plan could accelerate production and cash flow whilst requiring limited capital expenditure.

In addition, the North Sea Transition Authority (“NSTA”) has approved a revised work programme for PEDL 183 onshore UK, which contains the West Newton field. 

The Feasibility Study:

• Confirms the technical and economic viability of a single well development plan, with:

o  Initial gas production from a single horizontal well
o  Gas processing through a modular plant, and
o  Sales gas tied in from the West Newton A site to the National Transmission System at an existing above the ground installation via a 3.5 kilometre pipeline

• Concludes a single well development has excellent project economics benefitting from:

o  Early cash flow with the ability to drill future development wells out of cash flow generated
o  Low capex for the associated project infrastructure, estimated at ca. £12m, and
o  An attractive NPV(10) of ca. £33m and an associated IRR of 29%

• First gas soon after drilling and completing a producer well, to be within 18 months from completion of drilling the next well at West Newton 

Although the early production demonstrates highly attractive standalone economics, it is envisaged that it will be a precursor to the full field conceptual development plan as previously disclosed, which, under current conditions, has an associated pre-tax NPV(10) of ca. US$179m (approximately £140m), net to Reabold.

NSTA Approved Revised Minimum Required Work Programme for PEDL 183: 

• Re-enter and recomplete or sidetrack one of the currently suspended wells on or before 30 June 2026
• Re-enter and recomplete or sidetrack one of the remaining suspended wells or drill and complete a new deviated or horizontal well on or before 30 June 2027, and
• Submit a field development plan on or before 30 June 2027

The joint venture partnership for PEDL 183 is likely to approve a forward plan, which will initially consist of the re-entry and recompletion of an existing West Newton well in order to establish sustained gas flow. The JV partnership believes this is a low risk and low cost approach to derisk the project and Reabold will update the market on the planned activity at West Newton.

The JV is fully funded for re-entry and recompletion and operational activity is anticipated to commence during 2024. Further updates will be provided in due course.

Reabold holds a ca. 56% economic interest in West Newton and PEDL 183 via its ca. 59.5% shareholding in Rathlin, which, in turn, has a 66.67% interest in PEDL 183. In addition, Reabold has a 16.665% direct licence interest in PEDL 183. 

Sachin Oza, Co-CEO of Reabold, commented: 
“The CNG Feasibility Study highlights the opportunity to unlock significant near-term value from the West Newton project through the early production plan. The study confirms that the early production plan is both technically robust and economically attractive with a low capex requirement.

“This phased development plan allows gas production to be brought to market within months of drilling, generating significant early cash flow whilst we progress the full field development plan.  With the industry currently suffering from a lack of available development capital, the ability to achieve early production with limited capex is strategically extremely valuable.

“With the necessary approval from the NSTA for the revised work programme for PEDL 183 secured, Reabold can continue to progress this important UK gas project in the most optimal manner.“

This is an excellent potentially exciting development for West Newton and the JV partners. The fact that the study has concluded that as a precursor to the intended West Newton full field development, an initial single well development, importantly via a recompletion,  and gas export plan could accelerate production and cash flow whilst requiring limited capital expenditure.

Of key importance I think is that under the revised minimum required work programme, the JV is able to re-enter and recomplete or sidetrack one of the currently suspended wells on or before 30 June 2026 or re-enter and recomplete or sidetrack one of the remaining suspended wells or drill and complete a new deviated or horizontal well on or before 30 June 2027.

This means that the joint venture partnership for PEDL 183 is likely to approve a forward plan, which will initially consist of the re-entry and recompletion of an existing West Newton well in order to establish sustained gas flow. The JV partnership believes this is a low risk and low cost approach to de-risk the project. More importantly that means that the JV is now fully funded for the recompletion work along with gaining the necessary gas flow.

The good news goes on, the study confirms that the field works with a viable, single development well and that initial gas production from a single well will work and with gas processing through a modular plant. Also the fact that the gas can be tied into the NTS via an above the ground installation makes for simplicity, speed and with early cash flow, low capex estimated at c.£12m.

Sachin Oza has put it very succinctly when he says that ‘with the industry currently suffering from a lack of available development capital, the ability to achieve early production with limited capex is strategically extremely valuable’. 

Reabold and Union Jack have taken the first steps in getting the West Newton project up and running via this early production option which means that investors now have a decent sight of the prize that has eluded them in recent years. To me this means that at least some of the potential value in West Newton can be attributed to Reabold and Union Jack in the medium term which has to be very good news for both. 

Jadestone Energy

Jadestone has provided the following corporate update in advance of the Company’s 2024 Annual General Meeting.

Year-to-date (end-May) 2024 production has averaged c.17,200 boe/d, a c.50% increase year-on-year, with production in the second half of 2024 expected to increase significantly with the onset of production at the Akatara project. As previously reported, the lower end of the 20-22,000 boe/d 2024 production guidance range remains the most likely outcome.

Also as recently reported, the Akatara Gas Processing Facility is nearing the key milestone of mechanical completion, and the project remains on schedule for first gas later this month and for commercial gas, LPG and condensate sales to follow shortly thereafter. 

Net debt at the end of May 2024 was c.US$66 million, a reduction from the last reported figure of c.US$78 million at the end of March, reflecting c.US$110 million of cash revenues received in April, ongoing operating and capital expenditures, and the second payment to the abandonment trust fund associated with the CWLH 2 acquisition. Due to the phasing of cargoes, there were no oil liftings in April 2024. May 2024 liftings generated estimated cash revenues of c.US$32 million, which are expected in June.

2024 operating cost guidance of US$240-290 million (excludes c.US$30 million of royalties and carbon taxes) and capital expenditure guidance of US$80-110 million are also reiterated.

Nothing much here in this mandatory update, little has changed and production is in line with guidance. The next real news is the announcement of first gas at Akatara which should be imminent.

Empyrean Energy

Empyrean has provided the following update on Block 29/11 offshore China.

As announced on 4 May 2022, in order to proceed with the second phase of exploration on Block 29/11 Empyrean committed to drill the Topaz project by 12 June 2024. As of that date, Empyrean has not commenced the drilling of the Topaz prospect and therefore has not met the requirements to continue the cooperation on Block 29/11 with China National Offshore Oil Company (“CNOOC”).

During 2023, Empyrean engaged LAB Energy Advisors (London) with respect to broadening the reach for possible risk sharing alternatives and farm out opportunities for the Topaz prospect. Despite strong interest in the technical merit of the Topaz prospect, no farm out deal has been reached as of today’s date.

Empyrean has put forward a submission to CNOOC for an extension on Block 29/11.

The Company will make a further announcement should its request for an extension be granted.

Empyrean’s plan is to maximise the value in its 8.5% interest in the Mako gas field discovery on the Duyung permit in Indonesia. The sell down process being coordinated by the operator of the Duyung permit through Jefferies International Bank is ongoing.

A binding Gas Sales Agreement is seen by Empyrean as being a likely requirement or precursor to the completion of any sell down transaction. Heads of Agreement have been reached for both domestic gas into Indonesia, subject to transportation pipelines being built, and for gas sales for the majority of Mako gas into Singapore (and 100% if domestic transportation pipelines are not built). Both of these HOAs are anticipated to be converted to binding GSAs in the near term.

Empyrean CEO, Tom Kelly, stated:
“Empyrean continues to enjoy a very professional and cooperative working relationship with CNOOC on Block 29/11. We will do everything within our control to continue this working relationship. Empyrean acknowledges that negotiating GSA’s involving governments and government bodies are often protracted in their negotiation timelines and these delays have impacted Empyrean’s ability to fund its objectives in China in a timely fashion. In any case, we will continue to work towards maximising the substantial value from our Mako discovery in Indonesia in order to move forward with our plans to create value for shareholders. By making the submission for an extension in China, we plan to have options in addition to the existing projects in the Sacramento Basin. We are also being proactive in identifying additional low risk/high impact opportunities that will complement our portfolio as we monetise Mako.”

Empyrean needs to get an extension on Topaz and I’m sure nobody knows what chance that is, probably between Bob Hope and no hope and Bob Hope is out of town. The relationship has been close for a long time but for how long, I could with a call with Tom. As for Mako, monetisation is on the way, slowly but surely…

KeyFacts Energy Industry Directory: Malcy's Blog