WTI (Aug) $81.74 +84c, Brent (Aug) $86.39 +$1.14, Diff -$4.65 +30c
USNG (Aug) $2.69 -6c, UKNG (Aug)* 81.02p +1.5p, TTF (Aug) €34.285 +€0.07

Oil price

As we come to the end of the week, month, quarter and half year oil remains robust, up again today and the week despite indifferent inventory stats. Its election time, Iran today, France at the weekend and the UK on Thursday which is probably easier to predict than in Tehran. 

Talking about elections, last night saw the first and likely last debate between Trump and Sleepy Joe as after his dismal performance Biden is facing the wrath of the Democratic party. Whilst it may not be the night of the long knives over there it may be that the Democratic elders may be taking him ‘to the woodshed’ for a bit of a reality check. 

Oh and the PCE figures were better than expected, specifically, the core rose just 0.08 points from May–the smallest monthly gain in nearly four years. The headline was also flat. 

Finally after many analysts have had their say about the Labour party and its attitude to the oil and gas industry (and a particularly good article in the Daily Telegraph) BP has announced a hiring freeze and a pause on all offshore wind projects as it renews its emphasis on oil & gas, wind they say, won’t generate cash ‘for years’. 

Kistos

Kistos has announced the positive results of a soft cycling relaxation trial completed at its Hill Top Farm gas storage facility. The trial, conducted at the start of May, and overseen by independent geotechnical experts, has confirmed the ability to increase ‘working gas’ capacity by 24% from 17.8 million to 22 million therms, an increase of 4.2 million therms, which is expected to significantly increase the revenue from both intrinsic seasonal trades and extrinsic trading.

This conversion of 4.2 million therms from cushion gas to working gas brings the Hill Top facility in line with original design parameters and will allow for the gas to be sold by Kistos at an optimal time in order to maximise intrinsic revenues, whilst our trading partner will aim to capture additional upside from market-driven price volatility.

Whilst this is the first study undertaken since the acquisition of the Hill Top Farm and Hole House Farm facilities from EDF Energy (Gas Storage) Limited earlier this year, the trial represents the fifth phase of a project which was initiated under EDF ownership, and  demonstrates the opportunity to realise significant near and medium term upside from the assets.

Kistos is now evaluating the economics of recommissioning the Hole House facility. Hole House was developed specifically for gas storage and was operational from 2001 through to 2018 when a period of re-brining the caverns commenced. Three out of the total four caverns are now brine filled, with cushion gas sold to market. Hole House requires approximately one-third as much cushion gas as Hill Top for the same amount of working gas. This study is due to complete during H2 2024.

Commenting on the acquisition, Andrew Austin, Kistos’ Executive Chairman, said:
“Our entry into the gas storage market is providing immediate returns and what we believe to be significant near-term upside for the Group. This study has quickly demonstrated the ability to increase capacity and revenue from Hill Top and further increases its importance as one of the most flexible “batteries” in the UK.

As we seek to further maximise the value of the assets, we are undertaking an economic review of the opportunity to recommission the Hole House caverns, which operated up to 2018 with 17.8mm therms of working gas. The results of this, if positive, could offer the potential for another material increase in revenue from these facilities.”

I’m most impressed by this but in no way surprised that Andrew Austin has pulled a rabbit out of the hat marked gas storage. At Hill Top the idea that Kistos can increase working gas capacity by c.24% to 22m therms via the conversion of 4.2m therms is exceptionally good and ‘which is expected to significantly increase the revenue from both intrinsic seasonal trades and extrinsic trading’.

And it may be the same for Hole House which requires a third less as much cushion gas as Hill Top for the same amount of working gas, the study continues and will be completed 2H 2024. Unsurprisingly Kistos shares have rallied modestly today, and whilst political worries persist I feel that deals like this can only remind us of the quality of its management and ability to bring accretive deals to shareholders.

Arrow Exploration 

Malcy’s visit update, Horizontal well result, interview with CEO.

Arrow has a recent but highly successful history in London having been put together from ‘old Arrow’ in April 2020 when the current management team effectively took over ‘new Arrow’ and announced an Aim Listing and a private placement. The highly experienced management team of Marshall Abbott, Gage Jull and Joe McFarlane along with a Promissory note (Since paid off) with Canacol provided support and on 25th October 2020 announced a raise of £8.8m in which management and new and existing shareholders took place and Canacol participated resulting a 19.9% shareholding plus warrants. In my view Arrow is all about the share price mirroring production so this chart is important to think about and in my view endorses significant growth.

I recently had the wonderful opportunity to visit Arrow in Colombia and see how the operation works at all levels, from a buzzing new office to fast-paced operational work on the ground in a back-to-back drilling programme. I was offered access all areas and in a week of incredible opportunities met with the directors, including local NED’s, staff at all levels and a number of partners and shareholders in the company.

Arriving at the hotel in Bogota at around 03.15 am and a quick wash and brush up took me downstairs for my first meeting, 0800 breakfast with the board ahead of a day in the office to meet the team. Arriving at said office found a newly fitted out open-plan operation with what I guessed to be around 35 or so highly professional members of the Arrow team. (There are a dozen fully qualified in Calgary too)

The Arrow board convenes at least quarterly in the Bogota offices, and I was invited to sit in as an observer. There is a full analysis of the current situation from the finance function as well as presentations from the senior operational executives in health and safety and field engineering. After the board meeting as is usual, the head of the Bogota office made a detailed presentation at which the board attends and answers questions from the entire team.

It is interesting to note that the corporate presentation used at the board, the town hall meeting as well as used in meetings all week in partner discussions, and with NED’s is the one used for shareholders and is constantly updated on the website. It should be noted that the high quality of the team across the board in the Bogota office was amongst the best I have seen and was replicated when I visited the well sites and pads later in the week.

With one specific occasion, for a good reason I was given under the circumstances, I was invited to every meeting that the board had during the week in Bogota. I met with two Arrow NED’s, one the representative of Canacol and another who both gave me a great deal of time and showed significant confidence in the company. I know that sounds odd, well they would, wouldn’t they but as they say, ‘there are no secrets in Bogota’ and we spent all week with friends and rivals all who opened more than I had hoped.  The Canacol guy even joked with me that Arrow had managed to secure Andrew Jones from them, he has recently joined as SVP operations and is clearly adding to the in-field expertise. Overall it was a highly successful trip with a lot of good meetings and I can also say that Bogota is open and relaxed. (and with many excellent restaurants…)

I was also ready for a 0500 hrs start to go to the field; we firstly visited the Rio Cravo Este field (RCE) production facility which I was very impressed with, and I have seen a few. With 8 well heads including a water disposal well and with tanker offload facilities that were able to ensure that only 0.5% water went into the transport. The oil is 28º API and an in-house laboratory constantly checks for quality, important when the oil is sold from the well head and free of transport costs. There is a substantial diesel tank for the two generators, these have been bought outright as they were formerly expensively hired in, but this is significantly more economically viable.

After the atmosphere of industry at RCE we moved to the Carrizales Norte Field (CN) and a different type of excitement as the CN-4 well was drilling on site and had reached target depth only two days beforehand, targeting the Ubaque formation. You could smell the excitement as the drilling crews toiled in the 33ºc heat, firstly to ensure that the well flowed oil, which it did at some 758 gross barrels of fluid per day and secondly to have an early look at the formation as a potential horizontal opportunity.

Since my visit the CN-4 well has been designated as a water injection well, an interesting choice maybe but as at least two water injectors will be needed a good precautionary decision. The reason for this as I understand it is that it is a faster regulatory process if you start with a well that has been converted from an oil producer than a dedicated disposal well. Also in the shorter term conversion is cheaper even though if production increases significantly, after say, a successful horizontal campaign a number of dedicated water wells will be drilled.

The CN-4 is a good producer from the Ubaque but the field development plans and simulation show that the company will be able to recover those reserves from future horizontal wells. In other words this is a good near term sacrifice for the long term good of the field.

Technically the well was efficiently managed, even conservatively in order to deliver the best possible reservoir management and EUR. We knew that due to the specific concentration on the Ubaque, the C7 and the Gacheta potential were to be assessed after further wells and nearby facilities considered.

After the stop at the CN facility, we went across to the Mateguafa Attic Pad which despite being bare was seeing significant preparation ahead of a rig arriving and all the production facilities that will be necessary for upgrades in due course. We then flew over the CN Horizontal (CN B) pad which is in the spotlight right now and then saw the road and pad construction at Baquiano.

So, the scene was set and with the CN-4 and 5 wells being announced since I got home it was time to prepare for the horizontal well, the CNB HZ-1 well was spudded on 16th May and as we know targeting the Ubaque reservoir and potential gross production of around 2,000 b/d gross which on well costs of c.$5-7m a go makes for significantly increased economics. For details of production on the horizontal, and how much the well costs actually came in at see below.

At 2/- b/d these wells pay out more quickly, maybe within three months and over the months ahead on success here there should be more horizontals, three had been planned maybe more. Current plans I think still include coming back to CNB ‘towards the end of the year.

Also, we mustn’t forget those other pads I visited or flew over on my visit, in the next few weeks I expect drilling at the completed pad at Baquiano and Mateguafa will be drilled after that. Finally in the book at the moment at least is the initial planning stage for a 3D seismic programme in the southern end of the Tapir block where the intent is to further develop the Icaco and Macoya Este leads.

Since my return the horizontal has been completed successfully, indeed somewhat better than pre-drill estimates and has been brought onto production and group capacity is now c.3,600 b/d and with three more horizontal wells coming next on this pad. I have pointed out several times that these horizontals are of increasing value a number of times, indeed 3/- b/d at a cost of $4m per well totally change the economics but at this early stage, indeed this well pays back in one month.

Next time they will be longer, produce higher flow rates and exceed ultimate recovery and there is the Baquiano to dream about, in the interview below CEO Marshall Abbott explains that this prospect is a continuation (along the same fault with the same type of trap) as Carrizales Norte.

Since then through concentrating on those two basins in Colombia, Arrow has built up to nearly 12 Mmboe of 2P reserves, $280m worth of 2P and a mid year interim CPR is a possibility. Production at the last report was c.2,730 b/d giving a short $15m of revenue and nearly $10m of EBITDA and one of the great things about Arrow is the FCF giving $12m+ of cash in the very strong balance sheet and has no debt. This totally pays for the extensive drilling and seismic programme which makes Arrow financially very strong and it should be remembered that the Canacol note was paid off in 2023.

I have carried a Target Price of 50p for 18 months now, I now feel that this should be upgraded, and since the horizontal well results a decent upgrade is justified so I have today upgraded that number to 75p. It should be remembered that the Canacol stake of c.22% has been placed with friends of Meridian AM at a price a little lower than that of today, I would expect that to prompt a further rise in the shares before long.

Core Finance CEO Interview: Marshall Abbott, Arrow Exploration

Angus Energy

Interim Accounts for the six months ended 31 March 2024

• Gas production up year on year
• EBITDA of £6.937m
• Refinancing of existing debt with Trafigura Group PTE Ltd, providing financial stability
• Focus on organic and inorganic growth opportunities, with Brockham restart complete

Angus Energy is pleased to announce its interim accounts for the six months ended 31 March 2024 as set out below. A copy of the Interims is available on the Company’s website.

Angus are increasingly getting on the front foot as Brockham lifts and starts to get to its best, having the production in line and the Trafigura debt facility set to give them the stable future they deserve. 

Echo Energy

Echo has announced its results for the year ended 31 December 2023.

Period Highlights

• Announced on 27 June 2023 that the Company completed the sale of all but 5% of the Santa Cruz Sur (“SCS”) operations in Argentina, raising £825,000 in cash, and receiving shares to the value of £400,000 in Interoil (the operator) and a £75,000 investment in Echo by Interoil
• Focus moved to exploring potential opportunities to secure new natural resources projects
• Announced on 14 November 2023 that Stephen Birrell and Christian Yates were appointed Chief Executive Officer and Non-Executive Chairman respectively
• Announced on 19 December 2023 that the Company successfully restructured its £1.0 million loan originally provided in March 2017
• Announced on 21 December 2023 the issue of a £500,000 unsecured convertible loan note funding facility with a UK based alternative asset management and investment firm

Nothing new here, I wrote recently about the work that new CEO Stephen Birrell is up to and it looks promising and he is worth judging, more to follow. 

Beacon Energy

Beacon has provided the following corporate update.

• The SCHB-2 well continues to intermittently produce a combination of oil, gas and water using an electrical submersible pump. The continued production of water (which is likely to be completion fluid, spent acid and losses from the side track and original well bore) combined with pressure data suggests the well continues to clean-up.
• While a stabilised rate has yet to be achieved, management continue to believe that production from the SCHB-2 well is likely to stabilise in the 50 – 100 barrels of oil per day range.
• Production in this range, when combined with existing production from SCHB-1 and Lauben (approximately 30 bopd), is estimated to generate gross revenues of €2.3 – 3.7 million per annum (at US$85/bbl Brent).
• The Company has undertaken a thorough review of the Rhein Petroleum cost base in order to maximise cash generation. Cost reduction measures are anticipated to reduce Rhein Petroleum’s annual cash operating costs from approximately €2.5m currently to approximately €1.3m. Such cost reduction measures are likely to take 3 – 6 months to realise.
• The Company has also engaged with approximately 90% of the creditors of Rhein Petroleum with the aim of agreeing a reduction in liabilities and a deferred payment plan based on future cash flow generation of Rhein Petroleum. The Company expects Rhein Petroleum to enter into a formal process with its creditors shortly which provides for an up to three-month negotiation period.
• As part of the broader cost reduction measures, Larry Bottomley and Stephen Whyte have agreed to leave the Company’s board. As a result, the board will comprise Mark Rollins (Non-executive Chairman), Stewart MacDonald (CEO), Ross Warner (Independent Non-executive Director) and Leo Koot (Non-executive Director).

As previously disclosed, as a result of the current uncertainties outlined above and the uncertain impact on assets impairment and going concern in the accounts, the Company will not be in a position to finalise and publish its Annual Report for the year to 31 December 2023 (“Annual Report”) by 30 June 2024, as stipulated by Rule 19 of the AIM Rules for Companies (the “AIM Rules”). The Company is targeting the publication of the Annual Report as soon as practically possible which is likely to be during the first half of August 2024. 

As a result, trading in the Company’s ordinary shares on AIM will be suspended with effect from 07:30 a.m. on 1 July 2024 pending publication of the Annual Report. It is expected that suspension from trading will be lifted with the publication of the Annual Report.

Stewart MacDonald, CEO of the Company, said:
“We have moved quickly to identify and implement a very material cost reduction strategy aimed at maximising cash generation from Rhein Petroleum.

Discussions with the Rhein Petroleum creditors have been very constructive. We are focused on a plan which seeks to re-phase liabilities such that they can be funded from Rhein Petroleum’s future cash flow.”

Mark Rollins, Chairman of the Company, said:
“I would like to take this opportunity to thank Larry and Steve for their valuable contributions to Board deliberations. Our thanks go especially to Larry for stepping into the CEO role in early 2022 and leading the Company through the reverse takeover and subsequent re-listing of the Company in 2023.”

So, after almost all the testing is done and the stabilised rate due to come in at something between 50-100 b/d the experiment with Rhein Petroleum can clearly be seen to have not been a success. Right now, and on the big proviso that creditors take haircuts and wait for money due to them, the prospect will along with Lauben, generate gross revenues of €2.3 – 3.7m p.a.

At least should this happen the slimmed down management team will be able to go forward and use the base of Germany to build a bigger business and effectively start over again. That is of course if the medicine is taken and within a few weeks, not months. If that happens I can see a relatively positive future for new CEO Stewart MacDonald, he has experience and the skill to move on. 

KeyFacts Energy Industry Directory: Malcy's Blog