WTI (Nov) $69.69 -$1.87, Brent (Nov) $73.46 -$1.71, Diff -$3.77 +16c
USNG (Oct) $2.64 +8c, UKNG (Oct) 89.47p +2.72p, TTF (Oct) €36.97 -€0.80

Oil price

Oil has fallen sharply after the FT apparently reported that the Saudis were planning to unwind the 2.2m b/d of voluntary cuts from December and allegedly walking away from their $100 target price. Now I was never aware that they had such a target, the FT must be getting confused with the breakeven price which is also thought to be in the mid 90’s but whatever the actualite the market is down sharply. I understand that so far neither the Saudis, nor Opec+ has responded to the article which if it is accurate is of significant interest. 

Ironically the news came at a time when word from China seems a tad more positive and the OECD put out a positive forecast on global GDP growth and the EIA published draws in crude, gasoline and distillates. Meanwhile hurricane Francine has moved away from the Gulf and towards Florida but apparently there might be John on the way.

Zephyr Energy

Zephyr has reported its unaudited interim results for the six months ended 30 June 2024.

Overview

During H1 2024, and in the period since, Zephyr continued to invest significant capital into the development of its flagship operated project in the Paradox Basin, Utah, U.S. primarily by drilling the State 36-2R LN-CC well (the “State 36-2R well”) and conducting the subsequent successful production tests on the well. This investment activity was in line with the Company’s strategy of generating and compounding cash flow from its non-operated portfolio in the Williston Basin (the “Williston project”), which fully funds all general and administrative (“G&A”) and finance costs and allows for continued investment in its Paradox and Williston projects.

The Company’s board of directors (the “Board” or “Directors”) is highly encouraged by progress made on the Paradox project during the year to date and remains focused on bringing the Paradox project into commercial production while maximising potential returns for the shareholders of the Company (the “Shareholders”). To accelerate this process, the Company is focused on executing asset-level and/or wellbore investment opportunities with U.S.-based institutional investors, and discussions on this front are now at an advanced stage. The Company will update the market on the progress of these discussions in the near-term.

HIGHLIGHTS

Financial

• Revenue for H1 2024 increased to US$13.6 million, net to Zephyr, and was driven by the Company’s hydrocarbon production from the Williston project:
• Revenue for H1 2024 was higher than that in the six months ended 30 June 2023 (“H1 2023”) of US$13.4 million. The increased revenues reflected the addition of production from the six wells operated by Slawson Exploration Company (the “Slawson wells”) and was partially offset by standard production decline rates from the underlying assets.
• H1 2024 gross profit (including operating and transportation expenses, production taxes and realised gains from hedging contracts, and excluding depreciation, depletion and amortisation (“DD&A”)) increased to US$10.0 million (H1 2023: US$9.4 million), demonstrating the strong cashflows and high margins generated by the non-operated production during the period, covering the entirety of the Company’s G&A and finance costs and providing net cash for reinvestment.
• H1 2024 net sales volumes averaged 1,239 barrels of oil equivalent per day (“boepd”), for a total of 225,622 barrels of oil equivalent (“boe”) net to Zephyr, over the period.
• Adjusted earnings before interest, tax, DD&A, unrealised foreign exchange gains, share based payments and unrealised losses on hedging contracts (together “Adjusted EBITDA”) for H1 2024 were US$7.1 million.
• At 30 June 2024, the combined carrying value of the Paradox project and Williston project was US$98.0 million, demonstrating the scale of the Company’s asset portfolio.
• The Company’s gross borrowings at 30 June 2024 were US$29.2 million, a reduction from US$33.7 million at the end of H1 2023. By 6 September 2024, gross borrowings had been reduced further to US$27.9 million.
• During H1 2024, the Company embarked on the drilling of the State 36-2R well which was almost entirely funded by proceeds from its well control insurance policy for the State 36-2 LN-CC well (the “State 36-2 well”). The well control insurance policy requires Zephyr to make payments in advance, prior to making claims for reimbursement. As a result, cash balances during H1 2024 fluctuated considerably depending on the level of operational activity and timing of the reimbursement cycle, including at 30 June 2024 when drilling operations were particularly active. To date, US$15.3 million has been reimbursed to Zephyr in respect of the State 36-2 well control insurance policy, which relates to activity from the well control incident on the State 36-2 well and the State 36-2R well drilling programme.
• At 24 September 2024 (the most practicable date prior to this statement), the Company had cash balances of US$1.3 million. In addition, the Company expects to receive the following payments over the next few days:
• Reimbursement of circa US$3.0 million from its insurer. The invoices relating to the US$3.0 million claim have already been paid in full by the Company.
• A revenue payment of circa US$0.9 million related to a portion of its non-operated portfolio.
• Over the coming months, Zephyr expects to submit final claims under the well control insurance policy of circa US$1.3 million for which it also expects to be fully reimbursed. 

Paradox project (operated asset)

State 36-2R well drilled and all key drilling objectives met:

• Drilling operations safely and successfully completed to total depth;
• Well successfully ‘twinned’ to the State 36-2 well and intersected the same Cane Creek reservoir natural fracture system;
• Confirmed the presence of flowing hydrocarbons; and
• Substantially all drilling costs of the State 36-2R well to be recovered though the Company’s well control insurance policy.

Following the completion of the State 36-2R well, two successful production tests were carried out on the well.

• Peak production rates achieved during testing were over 2,100 boepd, a significant production rate for an onshore U.S. well with only 130 feet of completed reservoir interval.
• The acidisation operation used on the well successfully removed near-wellbore formation damage and generated very high reservoir deliverability, with a notable improvement to near-wellbore reservoir permeability. As such, the operation not only removed formation damage caused by the State 36-2 well but also enhanced reservoir productivity.
• This was the first known example of acidisation stimulation in the Paradox Basin, and the result is highly positive for the development of the play, with the potential for substantially reduced reservoir risk and removal of the need for costly hydraulic stimulation as used in other U.S. onshore resource plays.
• Higher than expected liquid yields from the State 36-2R well and almost zero water production could also materially enhance the economics of the well and positively impact the future Paradox project development.
• Given the positive observations, Zephyr has commenced the process of discussing potential well and wider Paradox project development opportunities with U.S. based industry partners to accelerate additional appraisal and development of the Paradox project.
• The Company is evaluating the potential to lengthen the completed reservoir interval by drilling a lateral from the existing wellbore, which would serve to increase overall estimated ultimate recoveries and drain a larger portion of the reservoir. This analysis is expected to be completed shortly.

Williston project (non-operated assets)

• Zephyr continues with its strategy of building and developing a portfolio of working interest positions in value accretive, high-quality, high-margin production assets with significant near-term growth potential in the Williston Basin.
• The Company has continued to deploy capital into new drilling opportunities on its existing acreage, including two recently drilled wells operated by Continental Resources in the Harms field in North Dakota, U.S.
• H1 2024 sales volumes averaged 1,239 boepd (or 225,622 boe), net to Zephyr, over the six-month period.
• H1 2024 revenue, net to Zephyr, totalled US$13.6 million.
• H1 2024 gross profit (including operating and transportation expenses, production taxes and realised gains from hedging contracts, and excluding DD&A) increased to US$10.0 million (H1 2023: US$9.4 million), demonstrating the strong cashflows and high margins generated by the non-operated production during the period, covering the entirety of the Company’s G&A and finance costs and providing net cash for reinvestment.
• At 30 June 2024, 231 wells in Zephyr’s portfolio were available for production. Net working interests across the Company’s portfolio now average 7.1% per well, equivalent to 16.3 gross wells in total.

Corporate

• There were no reported health or safety incidents during H1 2024.
• In May 2024, the Company retired US$3.88 million of existing debt through the issuance of US$3.88 million of equity comprised of 64,045,768 new Ordinary Shares of 0.1 pence each in the Company (“Ordinary Shares”) at a price of 4.85 pence per new Ordinary Share.
• In May 2024, the Group announced that it had been awarded an additional US$0.25 million of grant funding from the U.S. Department of Energy (the “DOE”) for operations on the State 36-2R well. This brings the total DOE grant funding made available to the Group to US$3.65 million in recent years.
• In April 2024, during its standard semi-annual borrowing base redetermination process, Zephyr’s commercial lender (First International Bank and Trust) increased the Company’s overall borrowing base by US$5.6 million due to the newly added production from the Slawson wells. The addition to the borrowing base was in the form of a new term loan which will amortise monthly over four years and has an interest rate of 10% per annum. Proceeds from the new term loan were used to fully retire the Company’s remaining 12% acquisition credit facility.

Colin Harrington, Chief Executive of Zephyr, said:
“H1 2024 was an active time for Zephyr, during which we invested a significant amount of capital into the Paradox project with the drilling of the State 36-2R well and the subsequent production tests. We were delighted with the results from this activity and over the coming months we will continue with the work required to transform the Paradox project into a revenue generating asset. On a related note, we are in advanced conversations with U.S.-based institutions regarding wellbore and asset-level investment opportunities, and look forward to updating the market in the near-term regarding our proposed next steps for the Paradox project.

“Our Williston project continues to perform as a robust cash flowing engine for the Company, funding our G&A and debt service costs in addition to providing capital for the Paradox project and growth in the Williston (where production has increased for four consecutive quarters). We also look forward to progressing the Salt Wash hydrocarbon and helium project located in close proximity to the Paradox project.

“I would like to extend my appreciation to the Zephyr team and our contractors on site in Utah for their intensive, safe and successful efforts. I would also like to extend my gratitude to my fellow Board members, advisors and, most importantly, our Shareholders for their continued support.

“We have an exciting period ahead of us and I believe, more than ever, that we have the pieces in place to enable us to deliver on our strategic objectives successfully.”

Obviously a backwards facing statement containing information that is already in the market but no less interesting for that, it has been a very strong period of substantial progress, not just for operational success, which was in itself highly impressive but across the board.

In my view the Paradox well has delivered above expectations and accordingly has led to where Zephyr are now ‘in advance negotiations with US -based institutions regarding wellbore and asset-level investment opportunities’ which should make shareholders very happy indeed. 

Also I think that Zephyr are in a very strong position with regard to the next steps at the Paradox, there must be a host of potential partners all of whom have interest in what looks like a world class asset and more interestingly where in the industry they come from. 

Accordingly at such a formative stage in its development I can see a range of possible suitors, maybe a traditional energy company but not limited to that, I suspect that those with interest may include local suppliers, midstream operators or even those trading operations who are fast moving upstream. 

Thus the outlook for Zephyr is excellent, the success of the acid stimulation has produced fantastic flow rates and what the company say is improved reservoir performance which should make wells down the road to be capable of excellent well and field economics. 

Zephyr has a stable balance sheet with reduced debt and when  combined with a partner makes the potential for the Paradox development highly attractive. In addition to that the company are preparing to drill a well on the Salt Wash helium prospect and are out to industry partners for joint funding on what might be a seriously exciting asset. My TP for Zephyr remains at 20p as I consider the management and the portfolio to be right up with the best in the sector.

Reabold Resources

Reabold has announced its unaudited interim results for the six months ended 30 June 2024.

Highlights

• Cash and cash equivalents up 41% at £7.6 million as at 30 June 2024, compared with £5.4 million as at 31 December 2023.
• Final tranche cash proceeds of £4.4 million for the sale of Corallian, received from Shell in January 2024.
• In August 2024, agreed to further increase interest in LNEnergy Limited ("LNEnergy") taking Reabold's total shareholding to approximately 27.1% of LNEnergy's enlarged share capital. LNEnergy is the manager of LNEnergy S.R.L., the Italian company which has applied for the Colle Santo gas field concession, a highly material gas resource with an estimated 65Bcf of 2P reserves(1).
• Execution of a non-binding Heads of Agreement between Gunvor International B.V. ("Gunvor") and LNEnergy for the purchase of Liquified Natural Gas ("LNG") by Gunvor from LNEnergy from the Colle Santo gas field. 
  • HoA provides for a potential prepayment for a portion of the first five years of deliveries to help fund the development.
• At West Newton, a Gas Export Feasibility study completed by independent energy consultants, CNG Services Limited, concluded that as a precursor to the intended West Newton full field development, an initial single well development and gas export plan can accelerate production and cash flow whilst requiring limited capital expenditure, giving the joint venture ("JV") partnership the ability to drill future wells out of cash flow. See Review of Operations section below for further details.
  • The single well development plan benefits from early cash generation with the ability to drill future wells out of cash flow. Following drilling and testing of this horizontal well, first gas is expected after 18 months with an associated development capex estimated to be c.£12 million.
• The North Sea Transition Authority ("NSTA") approved a revised work programme for PEDL 183 onshore UK, which contains the West Newton field. The JV partnership for PEDL 183 is expected 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.

(1) RPS estimate, September 2022

Sachin Oza and Stephen Williams, Co-CEOs of Reabold, commented:
“Reabold enters the second half of the year with a strong balance sheet and a number of exciting catalysts on the horizon.

The Company is excited by the potential of the Colle Santo gas project, which holds significant gas reserves, and the regulatory process continues to be encouraging.  We are pleased LNEnergy has established a strong relationship with Gunvor in the context of a gas offtake partner.

“The revised work programme for PEDL 183 confirms that significant value can be unlocked at West Newton through the early production plan, which is technically robust and economically attractive due to a low capex requirement, and the JV remains focused on delivering this strategic UK gas project.

“We look forward to replicating the success of the Corallian sale elsewhere in the portfolio as we carry out the Reabold strategy to create value for shareholders.”

Again as we come to the end of this period, more interim results and there is nothing we don’t already know about the situation at Reabold particularly with plenty of updates on Colle Santo and very recently on West newton. 

But this announcement shows the positives of Reabold, a strong balance sheet just waiting for the asset base to be worked on in the coming months. The catalysts I expect are the concession approval at Colle Santo justifying all the hard work from the company and of course updates on the forthcoming West Newton recompletion after the news this week regarding environmental approval. 

Shareholders have been patient but it will prove worthwhile as these two assets start to provide activity and a return on the investments, long term by their very nature. It’s a very good thing that the Government in Italy has recognised the huge positives of domestic, low carbon gas supply rather than murderous fiscal policies that are on offer in the UK. 

Deltic Energy

Deltic has announced its interim results for the six months ended 30 June 2024.

Highlights

• Farmed down a 25% interest in Licence P2437 including the Selene prospect to Dana Petroleum (E&P) Limited (“Dana”), resulting in Deltic now being fully carried for the estimated success case cost of the well.
• The Shell operated Selene exploration well, targeting Gross P50 Prospective Resources of 318 BCF in the UK Southern North Sea, was spudded on 28 July.  Operations are expected to take approximately 90 days from spud and the Company will update the market as appropriate.
• Deltic accepted two out of the four licences provisionally awarded by the North Sea Transition Authority (“NSTA”) in the UK’s 33rd Offshore Licensing Round.  Both licences contain attractive low risk, low cost, infrastructure led exploration opportunities with nominal capital commitments in Phase A of the licences.
• On 10 June Deltic notified its Joint Venture (“JV”) partners on Licence P2252, containing the Pensacola discovery, of the Company’s intention to withdraw from the licence.
• Deltic has now reached agreement with the JV partners on Licence P2252, limiting the Company’s liabilities associated with withdrawal from licence P2252 to £1.9 million with payment of circa 50% of this amount deferred for a period of 24 months.
• Cash position of £3.7 million at 30 June 2024 (31 December 2023: £5.6 million.

Graham Swindells, CEO, commented: 
“There is no doubt that the first half of the year has been one of the most challenging periods for the Company since its inception, with highly publicised fiscal and political pressures impacting companies operating across the UK’s domestic oil and gas sector.  Despite these unprecedented headwinds, the Company continues to make significant commercial and operational progress, which has resulted in a farm-down to Dana which limits our potential cost exposure to the high impact Selene exploration well which is currently being drilled, as well as the award of two new UK licences located close to key production hubs in the Central and Southern North Sea.    

Despite our necessary withdrawal from Pensacola, Deltic remains in a strong position to extract significant value for shareholders from our existing UK asset portfolio over the coming months and years.  While limiting our cost exposure to UK exploration, the Company remains committed to continuing its exploration-led growth strategy and is actively evaluating investment opportunities in other jurisdictions where we can leverage our team’s core strengths and where a more supportive approach to the future oil and gas exploration and development prevails.”

These results show, as do most, the historical nature of interims and this is no exception, indeed as CEO Graham Swindells points out above one of the most challenging periods since inception so to have got to this stage is indeed a credit to management.

A really good farm-out to Dana has meant that right now Deltic is in the process of drilling the exciting Selene exploration well and we should hear about this in the next few weeks, success here would be more than meaningful for the company and well deserved.

I want to just mention the settlement that Deltic has reached with its JV partners on Licence P2252, limiting the Company’s liabilities associated with withdrawal from licence P2252 to £1.9 million with payment of circa 50% of this amount deferred for a period of 24 months. This in my view could have been much worse and whilst in no way enough to make up for the loss, somehow makes up a little bit. 

Right now Deltic are well placed, carried at Selene and with cash of some £3.7m in the balance sheet can look forward to the drilling programme with significant optimism. Accordingly I think that the share price reaction to this very good RNS is way more than harsh, Deltic are in the middle of drilling a well in which it is fully carried and if it were to come in should be worth multiples of the current share price. There is no reason to believe that a price a great deal higher than this can be perfectly achievable so down c.40% today is quite ridiculous…

Rockhopper Exploration

Rockhopper has announced its unaudited results for the six months ended 30 June 2024 (“H1 2024”).

YEAR TO DATE HIGHLIGHTS

Sea Lion and North Falkland Basin

• Rockhopper holds 35% working interest
• Rockhopper benefits from pre and post Final Investment Decision ('FID') loan from the operator Navitas Petroleum Development and Production(1)
• Independent Resource Report commissioned by Navitas(2)
  • Sea Lion initial development targeting 312mmbbls via two drilling campaigns
  • Sea Lion total 2C resource base 791mmbbls
  • Plateau production up to 55 kbbls/d for prolonged period of eight years
  • Life of field costs US$25/bbls
  • NPV 10 of first 312 mmbbls development > US$4bn gross to the JV pre tax post Falkland Islands Government royalty at US$77 Brent
• Environmental Impact Statement ('EIS') public consultation period completed

Ombrina Mare Arbitration Award

• Transaction to monetise the Award completed
• First Tranche payment received - €19m retained by Rockhopper
• Annulment hearing with ICSID convened ad hoc committee completed
• Post hearing submissions completed
• Cost submissions made to Committee (by Rockhopper and Italy)
• No formal timetable for outcome, hopeful a decision is possible by year end 2024

Balance Sheet

• Balance sheet strengthened following completion of Award monetisation
• Period end cash balance US$27.8m
• Cost control maintained

Outlook

• Strong balance sheet
• Work continues on securing all permissions required to launch Sea Lion financing, including EIS and licence extension
• Ombrina Mare annulment, hopeful a decision is possible by year end 2024

Samuel Moody, CEO, commented:
"Rockhopper is in its strongest position for some time. Monetisation of the Award delivers increased financial flexibility and allows the Company to focus on progressing Sea Lion to sanction, which remains our core focus. We also welcome the news, announced on 24th September, of a new general co-operation agreement between the Falklands and Argentina.

"I would like to thank our team for their continued commitment to driving progress at Rockhopper and our shareholders for their continued support at this exciting time for the Group."

(1) Navitas is the legal entity that holds and operates Sea Lion and our other NFB licences. The company's ultimate and controlling parent is Navitas Petroleum LP, a limited partnership established and registered in Israel and listed on the Tel Aviv Stock Exchange.
(2) Rockhopper is not an addressee and has not been party to the production of the 2024 NSAI Independent Report. The 2024 NSAI Independent Report has been produced to PRMS standards. The last independent resource report commissioned directly by Rockhopper was the ERCE 2016 Report which had an estimated 2C value of 517 MMbbls. See RNS dated 22 January 2024.

 Nothing to add here to what we already know, Rockhopper has done well to get here and is in a very strong position to get stuck into progressing Sea Lion and readers know how positive I am about that potential development.

SDX Energy

As announced on 4 September 2024, the Company and Aleph Finance Ltd (the “Lender”) signed a new agreement (the “New Facility Agreement”) that would refinance the Company’s syndicated unsecured convertible loan agreement with the Lender for up to US$3.25 million (the “Existing Convertible Loan”).

The Existing Convertible Loan is unsecured, convertible at any time at the option of the individual lenders and repayable on 24 July 2024, but the Company requested and the Lender consented and agreed to repayment now being delayed until 14 October 2024. The amount payable is US$3.82 million (principal US$3.25 million and interest US$0.57 million).

The Lender and the Company have now agreed to amend the terms of the New Facility Agreement to refinance the Existing Convertible Loan (the “Amended Facility Agreement”). The revised key terms of the Amended Facility Agreement are:

Under the terms of the Amended Facility Agreement, the Lender will provide a term loan facility in the amount of up to US$6,500,000, such total amount to be confirmed by the Lender (the “Loan”), to the Company to be repaid by 23 July 2025. Following repayment of the Existing Convertible Loan, the Company intends to draw on approximately US$2.0 million of the remaining balance of the Loan. Following the repayment of existing financial indebtedness owed by the Company to the Lender under the Existing Convertible Loan and other agreements, the Company will apply the balance of the monies borrowed under the Amended Facility Agreement towards capital expenditure in Morocco and general corporate creditors. The Amended Facility Agreement is also conditional on the Lender confirming that it has been funded by its sub-participants and delivering a funding statement covering the amount of the Loan.

The Loan will be available for drawdown within six months of the satisfaction or waiver of the conditions precedent under the Amended Facility Agreement. The conditions are usual for a facility of this nature and include the Company securing shareholder approval.

In connection with the Amended Facility Agreement, the Company will grant the Lender the following security package:

(i) a pledge over the Company’s shares in SDX Energy Morocco (Jersey) Ltd;

(ii) a pledge over the Company’s shares in Sea Dragon Energy (Nile) B.V.;

(iii) a debenture over the Company, including assignment of intercompany loans and security over HSBC bank accounts in England; and

(iv) a security agreement, in the form of a pledge, granted by SDX Energy Morocco (Jersey) Ltd and/or SDX Energy Morocco (UK) Ltd in respect of rights and receivables that may be derived from Moroccan licences (being Sebou Central, Lalla Mimouna Sud, and Rharb Occidental).

All outstanding amounts under the Amended Facility Agreement shall accrue interest at a rate of 20% per annum. Interest will be capable of being paid in kind and added to the principal outstanding. A consent fee of US$195,677 in lieu of interest for the period from 24 July 2024 to 14 October 2024 and an arrangement fee of US$170,889 shall be payable and capitalised into the Amended Facility Agreement.

The Lender will have the right to convert the outstanding Loan, including any accrued, in full or in part, into ordinary shares in the capital of the Company (“Ordinary Shares”) at an exercise price (the “Exercise Price”) being 80% of the Average Daily Closing Price calculated over 30 trading days preceding the relevant date of notification for conversion, provided that the number of Ordinary Shares issued to the Lender pursuant to the Amended Facility Agreement does not exceed the lower of (i) 300,000,000, and (ii) the sum of 200,000,000 plus 50 multiplied by the amount of any loans drawn during the term of the Amended Facility Agreement (the “Threshold”). If the number of Ordinary Shares to be issued, based on the Exercise Price, would mean that the Threshold is met, then the portion of the Loan representing the excess Ordinary Shares will not be converted and will remain outstanding on the terms of the Amended Facility Agreement.

On 14 October 2024, the Company plans to convene a general meeting to ask shareholders to vote on the Amended Facility Agreement (the “General Meeting“). The completion of the Amended Facility Agreement is conditional upon the Company’s shareholders voting in favour of the resolutions at the General Meeting.

The directors consider that the resolutions to be proposed at the General Meeting will promote the success of the Company for the benefit of its shareholders as a whole. Accordingly, the directors intend to recommend that shareholders vote in favour of all of the resolutions, as they intend to do in respect of their own beneficial holdings.

Shareholders should note that, in the event that the resolutions are not passed, the Amended Facility Agreement will not become unconditional and the Existing Convertible Loan will be due for repayment on 14 October 2024. Therefore, if the resolutions are not passed, the Company will not be able to repay the Existing Convertible Loan and would be in default and, if no alternative arrangements can be agreed with the Lender, may become insolvent.

Another shot at the AFA for SDX, quite a problem this has been and as before they warn that the if it’s not passed then it may be game over…

KeyFacts Energy Industry Directory: Malcy's Blog