WTI (Oct) $71.93 -$1.10, Brent (Oct) $76.05 -$1.15, Diff -$4.12 -5c
USNG (Sep) $2.18 -2c, UKNG (Sep) 89.25p -2.5p, TTF (Sep) €37.425 -€0.94

Oil price

With so many things affecting markets and oil prices, today’s rally in oil and fall in markets can be put down to the infamous Jackson Hole symposium where Jerome Powell is due to inform markets that a rate cut may happen.

Cue a weaker greenback and oil bounces, especially after yesterday’s inventory numbers where after a disappointing API number the EIA showed a draw of 4.649m b’s of crude and of 1.656m b’s of gasoline. With a rise in refinery runs to 92.3% that draw across the board shows healthy refined product demand. 

Kistos

Kistos noted yesterday that Var Energi, released an update for the Balder X project this morning, in which Kistos has a 10% interest. Var reported that the target production start date has been moved to the second quarter 2025.

When Kistos acquired Mime Petroleum this scenario was envisaged. In the deal structuring with the bond holders (who effectively controlled MIME at the time) we protected Kistos from such a delay and cost increase by the provision of the $45 million Hybrid Bond. This $45 million is structured such that if 500,000 bbls (gross) isn’t lifted from the Jotun FPSO before the 31st May 2025 then the full $45 million is not payable. Therefore, we as a board are confident that there will be no adverse impact from the delay. It is likely that the effect of the delay on Capex will be significantly less than the positive effects of the Hybrid Bond not being paid in full. 

In reaching the decision to delay Balder X, a key consideration was to limit as much as possible the carryover of work on the Jotun FPSO into the offshore installation and start-up phase. With all development wells completed and all subsea production systems installed, the plan now is to complete the vessel fully onshore.

The operator has reviewed its cost estimate for the project to reflect sail-away of the Jotun FPSO in the spring of 2025. The revised CAPEX forecast represents an increase of approximately US$400 million gross pre-tax (approximately $40 million net to Kistos pre-tax, of which $8.8 million is the approximate post-tax impact) of which 75% is expected to be incurred in 2025. 

As announced by Var this morning, Balder X, will secure production from the Balder Area beyond 2045. It will unlock gross proved plus probable (2P) reserves of around 150 mmboe (gross) and peak output of about 90 kboepd (gross).

Importantly, as an area host, the Jotun FPSO will enable future growth opportunities. Balder Phase V is being progressed, including the drilling of six production wells to utilise the remaining subsea template well slots to capture gross 2P reserves of over 30 mmboe. Drilling of these wells will commence in the first half of 2025 and be completed in 2026.

In addition, the Balder Phase VI project is being matured, to add new subsea facilities and wells, with an investment decision expected in the first half of 2025. Var notes there remains significant resource upside in the area and further exploration drilling and tie-back development phases are being planned.

This came out yesterday after the blog had been published but it is worth taking a look at it even if, like me I hadn’t remembered the details of the bond and how the deal was structured in order to protect Kistos from such an announcement. 

The nub of the deal is that following Var Energi, operators of the Balder X project announcing that the target production start date has been moved to the second quarter of 2025. Kistos has a 10% interest in the project and accordingly the CAPEX forecast, revised upwards by some $400m ie $40m to the company but actually only $8.8m after tax breaks, 

The revised CAPEX forecast represents an increase of approximately US$400 million gross pre-tax (approximately $40 million net to Kistos pre-tax, of which $8.8 million is the approximate post-tax impact) of which 75% is expected to be incurred in 2025. 

However, as explained by Kistos above, the contingent payment of $45m won’t be due if the production target isn’t met, now unlikely after the news of the delay and therefore the balance switches to benefit from the loss of production. And if you note that the additional capex costs get delayed as well, the note in the deal was worth making. 

As always in these complicated deal structures there can be a way of slipping in a clause that will offset a delay but not make it look like the newbie is in any way suggesting that a well established timeframe would ever slip and if it did that they would benefit, it will surprise no one that the brains at Kistos did just that, this is very positive news from them…

Petro Matad

Petro Matad has provided the following operational update.

Highlights

• The Heron-1 oil discovery well has been re-entered, stimulated and completed for production in a trouble free operation.
• Neighbouring operator PetroChina has provided oil storage tanks that will complete the surface configuration for the production well site facilities.
• DQE Drilling has been approved as the winning tenderer for the 2024 drilling programme and the rig to drill Heron-2 is expected to start mobilisation by the end of August with spud anticipated in mid-September. The smaller rig for Gobi Bear-1 well is expected to mobilise by mid-September and spud before month’s end.

Heron-1 reservoir stimulation and down-hole completion

Work on the Heron-1 discovery well has been completed with the down-hole pump installed ready for production following a successful reservoir stimulation programme. The well was found to be in good condition and the perforated zone from 2834m to 2846m in the Lower Tsagaanstav Formation from which the well flowed at 821 bopd on test was successfully isolated and hydraulically stimulated. Pressure responses observed during the stimulation were consistent with a successful operation and oil was observed during the subsequent recovery of the stimulation fluid. All completion equipment has been demobilised and the well site prepared for the installation of production facilities.

Surface equipment installation and preparations for production

Already purchased production facilities are ready to be installed and neighbouring operator PetroChina has provided spare oil storage tanks at nominal cost which are now being integrity tested and which will complete the production site configuration. It is planned to install and commission the surface facilities during the current operational window and the approval process for the construction permit required for installation of the facilities is at an advanced stage.

Discussions with PetroChina and industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), on processing, transport and sales of Block XX production are continuing. The sharing of facilities is covered under an MoU signed with PetroChina in 2021 and is fully supported by MRPAM.

Preparations for the 2024 drilling programme

The contract for the drilling of two wells in the Block XX Exploitation License area has been agreed with PetroChina’s drilling subsidiary DQE Drilling and approved by MRPAM. Mobilisation of the rig to drill the Heron-2 well is planned to begin before the end of August with well spud expected by mid-September. Heron-2 will be drilled to a total depth of c.2,900m and the anticipated timing will allow for a full evaluation of the well results, flow testing and completion within the current operational window.

A smaller rig for the high impact, low cost Gobi Bear-1 exploration well is expected to mobilise to site in the first half of September and to spud before month’s end. The planned total depth of 1,800m should be reached in good time to allow for logging and, if merited, testing before the normal winter operational shutdown in late November.

Mike Buck, CEO of Petro Matad, said:
“With the Heron-1 down-hole completion now ready for production startup, the well site has been prepared for the installation of the surface production facilities. We are pleased to have concluded our negotiations with DQE and look forward to continuing to work with them on the 2024 drilling programme.   

The team is now working at pace to spud Heron-2 in mid-September and to secure the required construction permits for Heron-1.”

Further updates will be provided as the 2024 work programme progresses.

So, Heron-1 is underway and ready for production but we have no idea of how many barrels a day, but storage has been prepared and is being tested ready for use. Next stop is to drill Heron-2 in ‘mid September’ and we are told all is well on that front. 

The famous Gobi Bear-1 well, which will use a smaller rig is expected to be on site for September and will spud later in the month and should do everything necessary before everything shuts down in late November. So far, so good and things are certainly getting better for MATD.

KeyFacts Energy Industry Directory: Malcy's Blog