WTI (Oct) $74.52 -$1.01, Brent (Oct) $78.65 -90c, Diff -$4.13 -6c
USNG (Oct)* $2.10 -2c, UKNG (Sep) 93.34p +0.41p,  TTF (Oct) €38.88 -€0.72
*Denotes expiry of USNG September contract

Oil price

Oil fell as more bearish numbers concerned the market, inventory stats were mixed, crude drew but very small but gasoline drew by 2.203m barrels which is good as we approach Labor Day weekend and a refinery rate of 92.3% as the driving season comes to an end.

Arrow Exploration Corp

Arrow has provided an update on operational activity and announces the filing of its Interim Condensed  Consolidated Financial Statements and Management’s Discussion and Analysis for the three and six months ended June 30, 2024 which are available on SEDAR (www.sedar.com) and will also  be available shortly on Arrow’s website at www.arrowexploration.ca.

CNB HZ-4

The third horizontal well on the Carrizales Norte “B” pad (CNB HZ-4) is now on production and exceeding expectations. The well has a current flow rate exceeding 2,500 BOPD gross (1,250 BOPD net to Arrow) and production is continuing to increase.  Currently the well has  an 8% water cut while still recovering load fluid.  Management’s expectations are that the CNB HZ-4 well will reach IP production rates similar to the Company’s first two horizontal wells. Please note initial production flows are not necessarily indicative of long-term performance or ultimate recovery and a stabilized production rate will be determined in the first few weeks of operations, in keeping with conservative reservoir management. Further updates will be provided in due course.

CNB HZ-4 was spud on July 28, 2024, and reached a target depth of 8,452 feet (true vertical depth) on August 12, 2024.  The well was drilled to a total measured depth of 13,335 feet with a horizontal section of approximately 3,940 feet. CNB HZ-4 came on production on August 26, 2024, with the use of an electric submersible pump (ESP) and, based on initial results, has displayed comparable reservoir characteristics as CNB HZ-1.  

CNB HZ-3

The CNB HZ-3 is continuing to perform above expectations and is being restricted to a current flow rate of 1,920 BOPD gross (960 BOPD net) with approximately 31% water cut. CNB HZ-3 average production for the first 30 days of production (IP30) was 2,212 BOPD gross (1,106 BOPD net).  The well is being restricted to optimize reservoir performance and ultimate recovery.   

CNB HZ-1

The CNB HZ-1 is continuing to perform above expectations and is being restricted to a current flow rate of 2,090 BOPD gross (1,045 BOPD net) with approximately 41% water cut. CNB HZ-1 average production for the first 60 days of production (IP60) was 2,375 BOPD gross (1,188 BOPD net). 

Drilling Technology

Drilling metrics continue to improve in the horizontal program regarding both time and cost.  The improvements reflect the learnings taken from CNB HZ-1 and CNB HZ-3 as the operations team continues to focus on improving capital and operating costs and creating further shareholder value. 

The CNB HZ-4 is the first Arrow well to use Autonomous Inflow Control Devices (AICDs) which are designed to limit the water cut in horizontal wells.   The results of CNB HZ-4 will be closely monitored to determine if these technologies or others will enhance production and ultimate recovery in the Ubaque reservoir.

Upcoming Drilling

The rig has been moved to the fifth cellar on the Carrizales Norte B Pad where the Company spud the fourth horizontal well (CNB HZ-5) on August 22.   Thereafter, the Company expects to drill two more horizontal wells on the B pad, followed by the Chorreron-1 (formerly known as Baquiano-1) exploration well, which is on trend with the Carrizales Norte field.

Corporate Update

Current net corporate production is approximately 5,000 BOE/D, inclusive of CNB HZ-1, CNB-3 and CNB HZ-4. 

Arrow’s cash position was approximately $12 million on August 1, 2024.  Arrow has maintained a healthy balance sheet with no debt. 

Q2 2024 Highlights:

• Successfully drilled three development Carrizales Norte (CN) wells, including the first horizontal well.
• Recorded $15.1 million of total oil and natural gas revenue, net of royalties, representing a 47% increase when compared to the same period in 2023 (Q2 2023: $10.3 million).
• Net income of $1.2 million (Q2 2023: loss of $0.8 million).
• Adjusted EBITDA(1) of $8.9 million, a 53% increase when compared to 2023 (Q2 2023: $5.8 million).
• Average corporate production of 2,546 boe/d (Q2 2023: 2,169 boe/d).
• Realized corporate oil operating netbacks(1) of $51.21/bbl. 
• Cash position of $10.8 million at the end of Q2 2024.
• Generated H1 2024 operating cashflows of $15.7 million (H1 2023: $7.4 million).
• Recognized an impairment in its Canadian oil & gas properties for $1.5 million due to low natural gas prices.

(1)Non-IFRS measures – see “Non-IFRS Measures” section within the MD&A

Post Period End Highlights:

• Drilled three additional CN wells, including two horizontal wells and one disposal well.
• Spud the CNB HZ-5 from the CNB pad.  The Company expects to be able to provide an update on the production figures for CNB HZ-5 in the coming weeks.

Outlook:

• Continuing with the balanced delivery of the 2024 capital program, the majority of which will be focused on the Carrizales Norte field and will include additional horizontal wells. 
• Low risk exploration well planned at the Chorreron prospect. 
• The remaining 2024 capital program will be self-funded by a combination of cash flow from operations and cash reserves.

Marshall Abbott, CEO of Arrow Exploration Corp., commented:
“The horizontal well program at the CNB pad continues to exceed expectations, and the Company now plans to drill two additional horizontal wells before moving to the Chorreron prospect (formerly named Baquiano).  This will result in a total of six horizontal wells at Carrizales Norte in 2024 with additional horizontal wells being planned for 2025.  The Arrow team continues to reduce the time and costs needed to drill horizontal and vertical wells, using internally generated development drilling and completion strategies.”

“Arrow experienced material growth in production, revenue and earnings in Q2 2024 compared to Q2 2023.  This growth was achieved while preparing for the highly successful horizontal well program at Carrizales Norte.  This included the Q1 and Q2 Carrizales Norte vertical well program to delineate the Ubaque reservoir, as well as preparing pads, roads, oil transportation and water disposal infrastructure.” 

“Arrow’s focus for the remainder of 2024 will be the completion of the six well horizontal well program at Carrizales Norte as well as a low-risk exploration well at the Chorreron prospect. A second rig is being evaluated to begin development drilling at the RCE field towards the end of 2024.” 

“In 2025, Arrow plans another aggressive capital program focused on production growth and exploration.  Arrow plans to drill low risk exploration wells at Mateguafa Oeste, Capullo, and Mateguafa Attic. The Company is also targeting further horizontal Ubaque and vertical C7 development drilling at Carrizales Norte, and Chorreron, if successful, and the drilling of development vertical wells at Rio Cravo Este in 2025.”

“This enhanced capital program underlies the prolific setting of the Tapir Block in the Llanos Basin in Colombia. The block displays significant hydrocarbon density in multiple oil-bearing zones down to 10,000 feet total depth.”

There are results in this announcement but even more than usual they offer no insight into how you should value this company because it is the drilling programme this year where such significant value is being created. More importantly, the horizontal wells which are currently being drilled, have yet again exceeded expectations and there are still two to be drilled before going to Chorreron, formerly Baquiano.

These wells are producing exceptional flow rates, this one exceeds 2,500 b/d gross, 1,250 net, and is still increasing. A water cut of 8% is not outwith the pre-drill expectations and as explained last time the company is ahead of the game with its water disposal wells, also still recovering drilling fluids. I would expect from this statement that something like the earlier horizontal wells is likely. 

Finally on the well front I observe that the company continue to reduce the time and hence the costs of each well, both horizontal and vertical which improve shareholder value and speed up return on capital. Indeed, the  CNB HZ-4 is the first Arrow well to use Autonomous Inflow Control Devices (AICDs) which are designed to limit the water cut in horizontal wells.  ‘The results of CNB HZ-4 will be closely monitored to determine if these technologies or others will enhance production and ultimate recovery in the Ubaque reservoir’.

So, the company report net current production of some 5/- b/d and is up to speed with expectations and has cash of c.$12m and a strong balance sheet with no debt. Expect more of the same and with the company evaluating another rig to potentially start development drilling at the RCE field, shareholders can expect more upward movement in the share price, even after a strong recent rally. My Target Price remains at 75p. 

Zephyr Energy

Zephyr has provided an update on the production test on the State 36-2R LNW-CC well and the Company’s farm-in to the Salt Wash helium project, a previously producing asset with proven oil, gas and helium reserves located three miles to the south of Zephyr’s Paradox project in Utah, U.S.

Salt Wash project update

A key term in the farm-in agreement on the Salt Wash project is the requirement for Zephyr to commence drilling operations on a well on the farm-in acreage (the “commitment well”) by 1 September 2024 (as announced by the Company on 26 June 2024).

The Company is pleased to report that initial operations at the site of the proposed commitment well have commenced, including drilling pad preparation and fencing the perimeter of the site.  In the coming weeks, a spudder drilling rig will be mobilised to the well location and a 30-inch hole will then be drilled to a depth of approximately 100 feet and 20-inch conductor casing will be set.

While activity on the pad has begun, the Company does not expect full drilling operations to commence until the first half of 2025, in line with its operational commitments to the field leaseholders.

Zephyr remains in active conversations with industry and financial parties regarding the potential funding of up to 100% of the costs of the well at the asset level, and the Company’s board of directors continues to appraise the available options with the key objective of maximising value for Zephyr Shareholders.

State 36-2R well production test update

At the State 36-2R well, the Company is pleased to confirm that, further to its announcement of 23 July 2024, the acidisation operation was executed successfully, following which a second phase of production testing and related evaluation commenced and is ongoing. As part of this process, the well has been tested at varying rates and choke settings over multiple pre-planned time periods. All field work to date has been conducted safely and in line with expectations, and the Company plans to conclude its technical analysis and expects to announce the results from the test within the next ten days.

Colin Harrington, Zephyr’s CEO commented:
“I would like to thank our partners on the Salt Wash project for their continued cooperation.  We are making steady progress on the project, particularly in advancing funding options, and we look forward to getting full drilling operations underway next year.

“We remain confident in the significant potential value uplift the Salt Wash project represents, and we fully intend to unlock this value for our Shareholders. Additionally, we look forward to the completion of the State 36-2R well production test and sharing the results in the coming days.”

Not a great deal to add here, the Salt Wash project commitment well has started but will only go to next stage in 1H 2025 after funding and partner discussions have taken place. At the Paradox the second phase of production testing and related evaluation is ongoing.

Eco (Atlantic) Oil & Gas

Eco has announced completion of a farm down of a 13.75% Participating Interest in Block 3B/4B offshore the Republic of South Africa and Transfer of Operatorship of the Block after receipt of the requisite regulatory approvals (Section 11) from the government of South Africa. Eco now holds a 6.25% interest in Block 3B/4B. 

Further to the Company’s announcement on 6 March 2024 detailing the Farmout Agreement (“FOA”), Azinam Limited (“Azinam”), Eco’s wholly owned subsidiary, has farmed down a 13.75% Participating Interest in Block 3B/4B, offshore the Republic of South Africa as part of an aggregate 57% farm down transaction along with its Joint Venture (“JV”) Partners Africa Oil SA Corp. (“Africa Oil”) and Ricocure (Proprietary) Limited (“Ricocure”) to TotalEnergies EP South Africa S.A.S., who will become Operator (“TotalEnergies”) and QatarEnergy International E&P LLC (“QatarEnergy”) (the “Transaction”).

Pursuant to the terms of the FOA, following Completion Eco is now due to receive US$8.3million in total as part of the 3B/4B Transaction, including Completion linked milestone payments of US$4m from Africa Oil and US$1.56m from Ricocure, as referred to in the Company’s announcement of 6 March 2024. Further payments, amounting to $11.5m will be payable to Eco from TotalEnergies, QatarEnergy and Africa Oil on spudding of the first exploration well.

Following Completion, TotalEnergies is now the Operator of the Block, holding a 33% Participating Interest; QatarEnergy International E&P LLC, holds a 24% Participating Interest; Africa Oil SA Corp, a wholly owned subsidiary of Africa Oil Corp. retains a 17% Participating Interest; Azinam Limited, a wholly owned subsidiary of Eco Atlantic, retains a Participating Interest of 6.25%; and Ricocure (Proprietary) Limited, retains a 19.75% Participating Interest.   

Gil Holzman, Co-founder and Chief Executive Officer of Eco Atlantic, commented: 
“I am grateful to the Eco team and our advisors for their support in completing this transaction. We look forward to continuing our strong working relationship with all the JV partners, the South African Government, and the new Operator TotalEnergies. Block 3B/4B sits in a prolific hydrocarbon jurisdiction and we are excited to continue preparations for first drilling on the block under the leadership of TotalEnergies.

“Completion of the transaction further strengthens Eco’s balance sheet and enables us to focus and continue progressing our wider work programmes and farm out processes in Eco’s asset portfolio in Guyana and Namibia, with no shareholder dilution.”

Nothing to add here, save that it is very good news for Eco that with all necessary approvals the deal has completed. Eco is sitting on  huge potential in South Africa alone but when you add in Namibia and Guyana you get to a number that is somewhat hard to believe given the massive upside even after discounting substantially. Eco must surely have it in themselves to be a ten-bagger so big is the upside in its portfolio.

Hunting

Hunting has today announced its unaudited half year results for the six months ended 30 June 2024.

Financial Highlights 

• Order book increased by 32% to a record level of $699.5m
• Revenue increased by 3% to $493.8m
• Gross profit of $135.2m up 18% and gross margin improved to 27% from 24%
• EBITDA of $60.3m up 23%, with EBITDA margin of 12% up from 10% in H1 2023
• Adjusted operating profit $40.1m and adjusted operating profit margin 8% up from 6%
• Adjusted diluted EPS of 15.5 cents up from 9.6 cents
• Interim dividend declared 5.5 cents per share (H1 2023 – 5.0 cents), an increase of 10%

Commenting on the results Jim Johnson, Chief Executive, said:
“Hunting’s balanced and diversified product portfolio has been decisive in delivering another set of strong results and securing a record order book, helping to underpin Hunting’s continued growth.

“Over the period, there were strong performances from our OCTG, Subsea and Advanced Manufacturing product groups. Today’s results demonstrate the strength of offshore and international markets and steady progress in energy transition markets. Our success with Kuwait Oil Company demonstrates Hunting’s technology and supply chain leadership, and we are looking to further build on this success in the coming years. While our Perforating Systems results have been impacted by the challenging onshore market in the US, Hunting’s technology offering remains compelling for clients, and will see improvements as and when market conditions recover.

“I am delighted with the progress against our Hunting 2030 strategic ambitions, with management already delivering on many of the key areas we highlighted to our stakeholders – especially around revenue diversification, profitability and progressive shareholder returns. In addition, the acceleration of commercialisation of our licensed Organic Oil Recovery technology is another great milestone to report and showcases Hunting’s ability to leverage its industry leading IP to deliver value adding solutions to our global clients.

“In summary, I would like to thank our leadership team and all of our staff for their hard work and achievements in the period and we look forward to the future with confidence.”

These figures demonstrate how Hunting are handling the long list of positive announcements they have been supplying the market with in recent months, indeed the figures themselves could have, and will be, better as those big, nay huge contracts start to feed through. 

The record order book of $700m gives record visibility and whilst the KOC order takes its piece of the credit, various parts of the business are doing remarkably well. For example ‘tec lock bucked the trend of the rig count’ as well as in Canada and Subsea has been fantastic in Guyana, Brazil and specifically for Chevron at Anchor in the Gulf of Mexico. There is also more to come in places like Namibia and the Black Sea. 

And as I have been banging on about, they have non-oil and gas sales in aviation, space and defence and the Indian JV is going very well and like other parts of the growing business are very much in for the long term. The rig count has been upsetting but Hunting seem to have found a way of gaining and see positives for the future.

Margins are growing and fast in some areas showing up to mid 20’s but overall in the business it is around 12% with the target of 15% seemingly highly achievable, and soon. The company have announced a 5.5c dividend and again the long term policy is to grow in line with the fast growth the company is achieving.

Hunting is in great shape, growing even in areas which are quiet but where confidence is very high I remain as happy as ever to recommend the shares as the best play in the oilfield services sector by a country mile.

Gulf Keystone Petroleum

Gulf Keystone has today announces its results for the half year ended 30 June 2024.

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:
“We have safely delivered a solid operational and financial performance in the first half of 2024, with robust local sales combined with sustained capital and cost discipline supporting our return to profitability and free cash flow generation in the period. Cash flow has enabled us to strengthen our balance sheet and restart shareholder distributions, with $25 million returned to shareholders in 2024 to date.

Looking ahead, we continue to engage with government stakeholders to push for an exports restart solution, with significant potential value to be unlocked for Kurdistan, Iraq and the Company. In the interim, we remain focused on maximising shareholder value from local sales. To capitalise on continued strong demand, we are pursuing incremental opportunities to optimise production and improve process safety and reliability. We also continue to review the Company’s capacity for additional dividends or buybacks to build on our track record of shareholder returns.”

GKP continues to sell locally and as long as the pipeline remains shut the upside stays limited with it. GKP has established that with what it has it can pay a dividend thus nailing its colours to the Kurdistan mast. With current oil prices and no change in the political situation then discounted prices will become the norm, hardly exciting but pretty proud to be hanging on in there…

Highlights to 30 June 2024 and post reporting period

Operational

• Continued strong safety track record, with no Lost Time Incidents for over 590 days
• Gross average production increased 69% to 39,252 bopd in H1 2024 (H1 2023: 23,256 bopd), reflecting robust local market demand for Shaikan Field crude
• Gross average production of c.41,400 bopd in 2024 year to date
  • Local market demand rebounded in February and has remained high
  • Strong gross average production in July of c.47,900 bopd and in August to date of c.48,200 bopd
  • Realised prices have fluctuated between $25/bbl – $28/bbl and are currently at c.$27/bbl
• Shaikan Field reservoir and operations have continued to perform well following the smooth ramp up of production at the beginning of 2024 and the subsequent transition to 24/7 truck loading
• No operational impact from regional tensions; we continue to closely monitor the security environment and take precautions to protect the organisation

Financial

• Successful return to profitability and free cash flow generation in H1 2024 following a challenging 2023, driven by pre-paid local sales and capital and cost discipline
• Adjusted EBITDA increased 6% to $36.4 million (H1 2023: $34.2 million) as higher production and cost reductions offset the decline in realised prices related to the transition from exports to discounted local sales
  • Revenue decreased 11% to $71.2 million (H1 2023: $79.6m) as the increase in H1 2024 production was more than offset by the 49% decline in average realised price to $26.3/bbl (H1 2023: $51.3/bbl)
  • Gross operating costs per barrel decreased 25% to $4.2/bbl (H1 2023: $5.6/bbl), reflecting higher production and cost control
• Net capital expenditure of $7.8 million (H1 2023: $47.0 million) reflecting the Company’s focused 2024 work programme of safety critical upgrades and production optimisation expenditures
• Monthly average net capex, operating costs and other G&A in H1 2024 of $6.2 million, in line with guidance
• Free cash flow generation of $26.6 million (H1 2023 free cash outflow: $9.9 million) enabled the Company to strengthen its balance sheet and restart shareholder distributions
  • $25 million returned to shareholders in 2024 year to date, comprising a $10 million share buyback (initiated in May and completed in July) and $15 million interim dividend (paid in July)
• Cash balance of $102.3 million as at 30 June 2024 (31 December 2023: $81.7 million); latest balance as at 28 August 2024 of $98.2 million

Outlook

• GKP remains focused on maximising shareholder value from local sales and unlocking significant potential additional value from the restart of Kurdistan exports

Local sales and production

• The Company sees continued robust local sales demand in the near term while longer term market dynamics remain uncertain
• The Shaikan Field is producing close to its maximum capacity reflecting prudent reservoir management in the current investment constrained environment
• Planned safety-critical upgrades and maintenance are scheduled for November 2024, requiring the shutdown of PF-1 for c.3 weeks with an expected gross production impact of c.26,000 bopd, as previously announced
• The Company continues to exercise capital and cost discipline to maximise free cash flow while maintaining production capacity to respond to local market demand and the restart of exports

• Average monthly aggregate net capex, operating costs and other G&A run rate in 2024 now expected to be c.$7 million
• Reflects incremental expenditures on production optimisation, process safety & reliability and associated resources to capitalise on continued local sales demand following the strong performance year to date
• Net capex and operating costs expected to be weighted to H2 2024, as safety critical upgrades are completed as part of the planned PF-1 shutdown; estimated 2024 net capex remains c.$20 million

Shareholder distributions

• GKP remains committed to returning excess cash to shareholders via dividends or share buybacks, subject to conserving sufficient liquidity to manage the current operating environment and ensuring the Company is able to transition successfully from local sales to the restart of Kurdistan exports and normalisation of Kurdistan Regional Government (“KRG”) payments

Kurdistan exports

• GKP continues to engage with government stakeholders regarding a pipeline exports restart solution with the objective of unlocking significant potential value for shareholders
• GKP remains ready to restart exports, contingent upon reaching agreements on payment surety for future oil exports, the repayment of outstanding exports sales receivables (of which GKP is owed over $150 million net) and the preservation of current contract economics

 KeyFacts Energy Industry Directory: Malcy's Blog