WTI (July) $78.45 -17c, Brent (Aug) $82.62 -13c, Diff -$4.17 +4c
USNG (July) $2.88 -8c, UKNG (July) 83.45p +0.09p, TTF (July) €34.855 -€0.395

Oil price

Last week oil had a decent rally, WTI rose by nearly three bucks and Brent was exactly that increase as markets shrugged off the worries about Opec after a determined education campaign by the cartel leaders.

Chinese data was mixed but in the US sentiment fell and the White House are considering releasing SPR stock to get gasoline prices down ahead of the election. This is a crude and usually unsuccessful attempt to manipulate markets and gasoline is weak already and refining margins are falling. 

Savannah Energy

Further to its announcement on 17 May 2024, the Company advises that its ordinary shares remain suspended from trading on AIM while it advances the various workstreams associated with completion of the proposed transaction and is working towards publishing an AIM Admission Document in Q3 2024. A further update on transaction progress, and associated matters, is expected to be made within the next six weeks.

Nothing much to add here, SAVE are ‘advancing the various workstreams’ associated with the completion of the South Sudan transaction and are hoping to get back to the market within the next six weeks. 

Southern Energy

Southern announced on Friday that it has received an extraordinary resolution from the holders (the “Debentureholders”) of its outstanding convertible unsecured subordinated debentures  approving certain amendments to the debenture indenture entered into between the Company and Computershare Trust Company of Canada dated June 14, 2019, as amended by a first supplemental indenture dated June 30, 2021, to: (a) extend the maturity date of the Debentures by one year to June 30, 2025; and (b) increase the interest on the Debentures from 8.00% to 10.00% per annum commencing on June 30, 2024 (together, the “Debenture Amendments”).

Pursuant to receipt of the extraordinary resolution from the Debentureholders, Southern will enter into a second supplemental indenture (the “Second Supplemental Indenture”) with the Trustee to effect the Debenture Amendments on or prior to June 30, 2024.  As at the date hereof, the Company has 4,286 Debentures outstanding at face value of C$1,000 each.

As a condition of the Debentureholders’ approval of the Debenture Amendments, the Company will issue a total of 1,863,478 common share purchase warrants to the Debentureholders for no additional consideration, with each Warrant entitling the Debentureholder to purchase one common share of the Company at a price of C$0.25 for a period of 12 months from the date of issuance. The Warrants, and any common shares issued upon the exercise of the Warrants, will be subject to a statutory four month and one day hold period from the date of issuance.

The completion of the Debenture Amendments and the issuance of the Warrants remain subject to final acceptance of the TSX Venture Exchange (the “TSXV”).

A copy of the Second Supplemental Indenture will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca.

For Southern this is a practical and financially sensible move to amend the convertible debentures by extending the pay date and increasing the ticket to 10%. It makes sense as the company are confident that the longer strip prices for natural gas suit them and this eases the balance sheet significantly.

Longboat Energy

Longboat has announced it has reached agreement to sell its 50.1% holding in Longboat Japex Norge AS to its joint venture partner Japan Petroleum Exploration Co. Ltd (“JAPEX”).

Transaction Highlights

• Longboat to sell its interest in LJN to JAPEX for a cash consideration of $2.5 million plus Longboat’s share of drawn debt under the JAPEX Acquisition Facility (currently $8.5 million net)
• JAPEX to assume all future financial obligations of the joint venture
• Proceeds to be used to fund Longboat’s working capital and operations in Malaysia
• Plan to pivot Longboat’s strategy to build a business in Southeast Asia

Transaction Detail

In light of the near-term financial challenges facing the business, the board and management of Longboat Energy have made the decision to exit Norway to ensure capital is being directed towards the areas with the greatest value-creation potential for an E&P company with a limited capital base.

This decision follows the continuing scarcity of acquisition opportunities suitable for Longboat, the disappointing performance of the Statfjord Satellites (comprised of a 4.80% unitised interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Sygna Unit) and slow progress on monetising the Kveikje discovery (LJN, 10%), all of which have contributed to a near-term projected working capital shortfall in LJN which could result in Longboat forfeiting some-or-all of its shares in LJN.

Following a process to explore all options available to the Company under the Shareholder Agreement to realise value for shareholders, Longboat has entered into a sale and purchase agreement to sell its 50.1% interest in LJN to its joint venture partner, JAPEX, for a cash consideration of $2.5 million payable on completion (the “Transaction”) plus the assumption of the entire debt drawn by LJN under the Acquisition Bridge Facility (“Acquisition Facility”) provided to the joint venture by JAPEX. Net drawings to Longboat under the Acquisition Facility are currently $8.5 million ($17 million gross).

As part of the Transaction, JAPEX will also assume all financial obligations associated with LJN including all staff and running costs going forward and has amended the Acquisition Facility pre-completion to allow further drawings to manage the immediate working capital needs at LJN. The Management Services Agreement providing for transitional services between LJN and the Company will remain in-place until 30 September 2024 resulting in an estimated net outflow of up to ~£20k per month until that point.

The Transaction remains subject to regulatory approvals in Norway, approval by the lenders under the Exploration Finance Facility and the transfer of any third-party contracts. In the period prior to completion, Longboat has agreed to vote in favour of certain resolutions put to the LJN board as instructed by JAPEX.

Completion of the Transaction is anticipated during Q3 2024. If the Transaction does not complete, as previously announced by the Company, Longboat is forecast to have limited liquidity during H2 2024 and will require additional funding. 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.

Impact of the Transaction

As detailed in its Report and Accounts to 31 December 2023, Longboat now equity accounts for the LJN joint venture in its financial statements and therefore the Transaction is not anticipated to have an impact on its future profitability. The loss after tax attributable to the in the year to 31 December 2023 was £5.3 million.

As at 31 December 2023, Longboat had a carrying value of £12.5 million for its investment in LJN, which made certain assumptions on the performance of LJN’s asset base, which will be significantly impaired at the next reporting date to reflect the sales price. The reduction in value in Longboat’s investment into LJN is directly attributable to the performance of the underlying assets and certain restrictive provisions in the Shareholder Agreement which limit the marketability of the LJN shares.

Due to the equity accounting of the joint venture, Longboat does not book oil & gas reserves related to LJN and the previous production guidance range detailed on 29 May 2024 should now be disregarded.

Use of Proceeds

Longboat intends to use the proceeds from the Transaction to fund its working capital requirements and ongoing operations in Malaysia as part of the Company’s plan to pivot its efforts to building a business in Southeast Asia. The Transaction consideration, along with ongoing efforts to cut Longboat’s cost base, are forecast to provide capital to run the Company through the end of Q1-25.

The change in geographic focus is detailed in a separate press release made by the Company today.

Nick Ingrassia, CEO of Longboat commented:
“I am proud of what Longboat and its team has achieved in the three years since it became active in Norway. In this short period, the business safely drilled nine exploration wells resulting in six hydrocarbon discoveries, was awarded two APA licenses in the highly prolific Norwegian North Sea, executed a total of seven transactions and welcomed JAPEX as an active participant into the Norwegian Continental Shelf through the creation of an innovative joint venture.

While we leave Norway with mixed emotions, I am pleased that the transaction delivers JAPEX a full-cycle business with an exceptional team, providing an excellent platform for a large company with access to significant capital to build long-term success.”

Longboat Energy

Longboat Energy, an emerging E&P company, announces the strategic pivot of the business to focus on Southeast Asia following the sale of its 50.1% holding in Longboat JAPEX Norge AS (“LJN”), announced separately today. 

Highlights

• Longboat to pivot its strategy to build its business in Southeast Asia
• Significant industry interest in Malaysian Block 2A, farm-out process to be launched H2-24
• Provisional award of a cluster of material, undeveloped gas fields capable of near-term development offshore Sarawak
• LJN sale proceeds to provide working capital to run the Company through the end of Q1-25
• Cost savings in excess of $1.25 million achieved with a streamlined board and management team

Rationale

Following a detailed review of its areas of geographic operation, the board and management of Longboat Energy have made the decision to exit Norway and to focus on building a full-cycle E&P business in Southeast Asia, where it sees significantly more potential for a small company than Norway and believes its existing positioning and access to opportunities provide excellent value-creation potential for the Company.

Recent structural changes to the Norwegian upstream industry have favoured an increasingly small group of very large companies with long-term investment horizons and access to low cost of capital. This has left the Company at a significant competitive disadvantage and, despite enormous effort and attempts to secure opportunities with shareholder value upside, Longboat has been unable to establish a meaningful growth platform in Norway.

In contrast, Longboat’s entry into Malaysia last year coincided with a proliferation of opportunities across Southeast Asia and a positive and supportive attitude of the host governments towards small-and-medium sized companies which are now viewed as crucial to maximizing value from their maturing basins. Further, this positive industry sentiment is set against a macro backdrop of growing economies with increasing energy demands, benign operating environments, a structurally lower cost base and an opportunity to help reduce carbon emissions through the development of indigenous gas resources to displace coal fired power generation.

Longboat has competitive advantages in the region, including an experienced team with excellent long-term relationships and networks established across Southeast Asia. In addition, its growing portfolio already includes sought-after acreage and operatorship in one of the most exciting basins in the region, as well as visibility on accessing many additional opportunities to diversify and grow materially its asset position.

Norway Exit and Cost Reductions

As announced separately today, Longboat has agreed the sale of its interest in LJN to JAPEX for $2.5 million in cash, providing working capital to allow Longboat to progress with its near-term plans in Southeast Asia without shareholder dilution. In addition, JAPEX will assume all future financial obligations associated with LJN, including $8.5 million of debt net to Longboat in the LJN subsidiary.

The strategic pivot also allows Longboat the opportunity to streamline and reduce its cost base, including a smaller and lower cost board. The cost reduction measures taken will result in annual savings in excess of $1.25 million from the start of 2025. These savings, together with the cash proceeds from the LJN sale, are forecast to provide sufficient capital through to the end of Q1-25.

With its smaller organisation after exiting Norway, Longboat will continue to ensure its cost base is streamlined to maximise the capital directed towards value-accretive growth opportunities.

Longboat Board

Subject to confirmation at its upcoming AGM, Longboat has reduced the Company’s board to four members made up of:

• Chief Executive: Nick Ingrassia
• Executive Chairman: James Menzies
• Non-Executive Director: Graham Stewart
• Independent Non-Executive Director: Geraldine Murphy

The reshaped board has been designed to reduce costs whilst adding deep regional relationships and bringing strong transactional experience to the Company.

Graham Stewart, a founder of Longboat and its current Chairman and previous founder/CEO of Faroe Petroleum, will continue to play a crucial role as a Non-Executive Director providing continuity and support to the new directors. 

Southeast Asia: Near-term Focus 

Longboat’s focus in the near-term will remain on its Malaysian activities, offshore Sarawak, including:

• Block 2A (52.5%, op) located offshore Sarawak in eastern Malaysia which contains the giant Kertang prospect.

The Company has recently commissioned ERCE to undertake a competent persons report to confirm the potential size and risk associated with Kertang, believed to be one of the largest undrilled structures in Malaysia. It is anticipated the CPR will be published at the end of June.

Following recent increased interest levels in exploration for world-scale fields, multiple large companies have approached Longboat regarding Block 2A. Having consulted with PETRONAS, the Company now intends to run a farm-out process during H2-24 to identify a suitable partner.

• An Area of Mutual Interest in Shallow Water Sarawak was signed earlier this year, between Longboat and another international E&P company active in Malaysia to pursue discovered resource opportunities (“DROs”) being offered by PETRONAS.

Longboat is pleased to announce that it has provisionally been granted an award, subject to the successful negotiation of certain key contractual terms, for acreage in shallow water offshore Sarawak containing several material, undeveloped gas fields capable of near-term development. These resources are an important addition to Longboat’s growing Asian portfolio.

Investor Meet Company

Immediately following its AGM, Nick Ingrassia (CEO) and James Menzies (Executive Chairman) will host a live presentation for investors via Investor Meet Company on 27 June 2024, 11:30 BST.

Investors can sign up to the presentation via: https://www.investormeetcompany.com/longboat-energy-plc/register-investor

Nick Ingrassia, CEO of Longboat, commented:
“In Southeast Asia we are finding co-operative and welcoming governments plus a supportive regulatory environment which in combination is creating lots of interesting opportunities. The reshaped board and management team have been active in the region for many years and, importantly, we understand what is expected of us by our hosts. 

We have a small but exciting initial portfolio and now have the chance to showcase what independents do best; find, develop, produce and bring hydrocarbons to market for the benefit of all stakeholders.  

It was a tough decision for the Board and management to exit Norway, but Western Europe is proving to be an increasingly difficult region to thrive for independent E&P companies. 

I’m grateful to the Longboat shareholders for their continuing support as we make this material change of focus and look forward to taking full advantage of the great opportunity in front of us.”

So pick the bones out of those two announcements this morning as Longboat, remarkably quickly after the recent news that Norway was proving to be somewhat less than profitable, and that its South East Asia portfolio was the future. The way that it has been done is pleasing, the company could not find any reason to stay in Norway and if they had stayed in what was a deteriorating situation there was no guaranty that they could have got out so cleanly.

Longboat has sold its 50.1% interest in the JAPEX JV for $2.5m in cash but importantly taking with it the share of the debt which adds $8.5m to the total making an $11m exit purse. As a result in one fell swoop the board has wiped the slate clean in Norway and is now preparing for life as a South East Asia focused hydrocarbon play.

And what now, well the good news is that there are the makings of a pretty handy portfolio of assets tucked away under the watchful eye of James Menzies who is somewhat of a legend in the area and has the optionality to make something really rather good out of what he starts with. 

The jewel in the crown is obviously Block 2A where they have a 52.5% operated interest in this offshore Sarawak located area in eastern Malaysia and in which the ‘giant Kertang prospect’ is located. And this is indeed a jewel, we are told that ‘multiple large companies have approached Longboat’ with interest, accordingly a farm-out process will take place in H2 2024.

In addition to this, Longboat has also potentially an interest in shallow water Sarawak ‘containing several material, undeveloped gas fields capable of near-term development’. These, added to 2A are really excellent starting blocks for the company and as they have said, an important addition to the Asian portfolio.

The speed with which Longboat has got to grips with the Norwegian problem, cut a deal to sell and move forward has been very impressive. Fortunate maybe, in having 2A and Mr Menzies to call upon but I can’t think of anything or anyone better to lead the company going forward. 

I have said twice now that investors should not hang around in reassessing and deciding to invest in what we should call ‘New Longboat’, with a CPR imminent I have a feeling that there is lots of upside here and maybe quite quickly too. 

Rockhopper Exploration

Rockhopper Exploration plc is pleased to provide the following update in relation to the monetisation of its Ombrina Mare Arbitration Award announced on 20 December 2023.

All required precedent conditions to the Transaction have now been satisfied.  Under the terms of the Transaction, the Tranche 1 payment is due within 5 business days.

Further updates will be provided in due course.

This is a very good deal for Rockhopper and with the shares nearly 50% off their low and with a great deal to look forward to I remain confident as they move forward collecting payments and developing Sea Lion. 

Sound Energy

Sound announced on Friday the entry into a binding Sale and Purchase agreement for the partial divestment of the Company’s Moroccan assets by way of the disposal by the Company of the entire issued share capital of Sound Energy Morocco East Limited (“SEME”) to Managem SA  for a total value to Sound Energy of up to US$45.2 million.

Key Highlights

• Pursuant to the SPA, Sound Energy will continue to hold an interest of 20% in the Tendrara Production Concession, and 27.5% working interests in each of the Grand Tendrara Exploration Concession and the Anoual Exploration Permit (the “Anoual Permit” and together with the Grand Tendrara Permit, the “Permits”).
• Managem will provide funding for Phase 2 development of the Concession, funding for two exploration wells in satisfying the work programmes under the Permits, a contingent production payment and recovery of past expenditures.
• Sale of the entire share capital of SEME with an effective date of 1 January 2022, pursuant to which Managem will acquire the following interests in the Group’s Moroccan assets:
• • 55.0% of the Concession (Sound Energy to retain 20% interest)
  • 47.5% of the Grand Tendrara Permit (Sound Energy to retain 27.5% interest)
  • 47.5% of the Anoual Exploration Permit (Sound Energy to retain 27.5% interest)
• SPA consideration payable to and on behalf of the Group includes:
• US$12.0 million in Concession Phase 1 development back costs through to July 2024 net to a 55% interest in the Concession and payable to the Group in cash on completion.
• US$1.0 million in back costs in respect of Concession Phase 2 development and Permits back costs payable to the Company in cash on completion.
• Up to US$24.5 million net carry through Managem funding of the Group’s remaining 20% interest in future Concession Phase 2 development.
• Contingent consideration of US$1.5 million payable to the Group no later than one year after first gas from Concession Phase 2 development.
• US$3.6 million net carry through funding the Group’s remaining 27.5% Grand Tendrara Permit interest in drilling exploration well SBK-1.
• US$2.6 million net carry through funding the Group’s remaining 27.5% Anoual Permit interest in drilling exploration well M5.

Background to and further details of the Farm-Out

The Company announced on 9 August 2022 that it had initiated a formal farm-out process to identify a partner for the Concession and the surrounding Permits. With the Company holding its assets in Morocco through various subsidiaries, the SPA, which remains conditional upon certain conditions precedent, will see the Company dispose of the entire share capital of SEME (the “Sale Shares”), a UK company holding the Operating licence position and equity in Morocco as below, for a sum of US$1:

• • 55.0% of the Concession
  • 47.5% of the Grand Tendrara Permit
  • 47.5% of the Anoual Permit

Under the SPA, the Company has provided customary warranties and undertakings to Managem and, whilst the terms of the SPA are binding on the parties, the SPA remains conditional upon, inter alia:

• Approvals by ONHYM and the Moroccan Minister of Energy of the Company continuing as the Operator of record of the Concession and the Permits notwithstanding the sale of the Sale Shares at completion;
• Antitrust clearances being received;
• Receipt of the written authorisation of the Foreign Exchange Office (Office des Changes) relating to Managem’s payment obligations;
• Confirmation in writing by the Seller to the Buyer that no Material Adverse Change has occurred;
• Approval of ONEE of the change of control of the Company pursuant to the ONEE GSA;
• Removal of Sound Energy Morocco SARL AU as dormant subsidiary of SEME;
• Approval by Schlumberger in accordance with the terms of Schlumberger’s profit-sharing deed in respect of the Concession or Managem negotiating and entering into an agreement with Schlumberger for the cancellation of the profit-sharing deed;
• Extension of the Start Date/Deemed Start Date as defined in the LNG GSA;
• Delivery of Completion accounts and Assurance Release Conditions; and
• The approval of Managem’s board of directors by 12 July 2024.

In the year to 31 December 2023, SEME recorded a Profit before tax of £1,301,000 on no revenues and, at 31 December 2023, had total assets of £56,976,000. 

Commenting, Graham Lyon (Executive Chairman of Sound Energy) said:
“We are very pleased to have entered into this binding Share sale to an excellent counterparty Managem SA.  The share sale transaction of our UK company subsidiary, the Permits Owner, is structured to allow a smooth transition to Managem whilst bringing Sound Energy two new exciting exploration drills, substantial funding for the phase 2 development and past costs. There is also a production bonus once Phase two gas is delivered”.

I’m looking forward to catching up with Graham Lyon as this is a smart deal that ‘significantly de-risks’ phase 2 of the deal. As you can see from above the deal brings with it cash in return for back costs expended as well as the carry. Add to that the two exciting exploration wells giving additional upside and the rise in the share price is fully justified. 

About Managem 

Managem is an international mining group with resolutely African roots, with a presence in 7 countries across the continent. Initially present in metals such as cobalt, copper and zinc, it has since diversified into precious metals, with silver and gold. Today, Managem employs 5,009 people of 22 nationalities in 13 mining operations and 22 industrial units, all on the African continent.

Board Change

Following the signature by the Company of the binding SPA between Sound and Managem Simon Ashby-Rudd, a non-executive director of the Company, has informed the Board that he does not intend to put himself forward for re-election as a director of the Company at the Company’s AGM to be held on 28 June 2024 (“AGM”). As a result, and with the transaction announced today providing the financial and operational security for the next stage of Sound Energy’s development, Simon Ashby-Rudd will step down as a director of the Company at the Company’s AGM to pursue other interests.

Commenting, Graham Lyon (Executive Chairman of Sound Energy) said:
“Simon has provided invaluable advice and guidance since his appointment to the Board and throughout the process which has led to today’s announcement. I and the rest of the Board thank him for his service to the Company over the last year.”

Corcel 

Corcel has announced that it has raised gross proceeds of £500,000 from the issue of 500,000,000 new ordinary shares of £0.0001 at £0.001  per Ordinary Share with high-net-worth investors. 

The Company intends to use the funds primarily to continue to build a stable financial foundation well into the second half of the year, financing its ongoing working capital requirements and operations, including geological and geophysical (“G&G”) work in Angola and implementation of its business development initiatives in Brazil.

Further to the announcement of an equity placing on 15 April 2024 (the “Placing”) and the announcements of 13 May 2024 and 7 June 2024, Extraction Srl, a subscriber to Tranche II of the Placing, and a third-party subscriber to Tranche I (together the “Subscribers”) were unable to meet their obligations to provide the funds in the specified timeframe, as a result, the Directors of the Company deemed it necessary to complete the fundraise announced today. Therefore, the 180,000,000 Ordinary Shares and 180,000,000 warrants which were due to be issued to the Subscribers in the Placing will no longer be issued.

Corcel Interim Chief Executive, Scott Gilbert, commented: 
“Today’s fundraise will enable us to continue to pursue our strategy, where Angola and Brazil remain at its core. Further details of the Company’s strategy will be communicated to the market shortly.”

Whilst I haven’t fully taken up coverage of Corcel I am interested in the company, I will add further comment when I get a chance to speak to the management about the ongoing strategy. 

KeyFacts Energy Industry Directory: Malcy's Blog