WTI (Apr) $66.03 -$1.01, Brent (May) $69.28 -$1.08, Diff -$3.25 -7c
USNG (Apr) $4.49 +9c, UKNG (Apr) 101.73p +7.07p, TTF (Apr) €41.695 +€1.995

Oil price

Oil has rallied a touch today but with thoughts of a US recession being entertained anything might happen. The latest panic over the pond is in the airline sector where US travel will apparently be hit should such demand fade then, looking for excuses methinks…

Zephyr Energy

Zephyr has provided initial fourth quarter 2024 and full-year 2024 results related to hydrocarbon production from its non-operated asset portfolio in the Williston Basin, North Dakota and Montana, U.S. (the “Williston project”), and an update on the Company’s flagship project in the Paradox Basin, Utah, U.S.

Williston project results

• FY 2024 sales volumes averaged 1,149 barrels of oil equivalent per day (“boepd”), an increase over full-year 2023 (“FY 2023”) sales volumes of 1,116 boepd.
• Total FY 2024 sales were 420,724 barrels of oil equivalent (“boe”) of which 90% comprised crude oil sales, 4% natural gas sales, and 6% from natural gas liquids sales.
• FY 2024 revenues from the portfolio are estimated to be, subject to audit, circa US$24.3 million, versus FY 2023 revenues of US$25.2 million. The 3.6% year-on-year decline in revenues, despite increased sales and production in FY 2024, was the result of lower commodity prices in FY 2024 compared to the prior year.
• FY 2024 operating income is estimated to be, subject to audit, US$16.7 million (after production taxes, lease operating expenses, realised hedging impacts, and gathering and marketing fees), demonstrating the strong profitability of the portfolio.
• FY 2024 production was 1,052 boepd versus FY 2023 production of 1,040 boepd. The increase in production year-on-year was the result of the Company’s wells operated by Slawson Exploration Company being online for much of FY 2024, offset by the natural decline of the portfolio. FY 2024 production was 4.3% lower than the Company’s base forecast range due to the downtime experienced in the Williston Basin in Q4 (which experienced extreme weather during the quarter). 
• Q4 production averaged 829 boepd net to Zephyr. Production impacts caused by the Q4 downtime are expected to be temporary.
• At 31 December 2024, 229 wells in Zephyr’s portfolio were available for production (versus 228 wells at the end of third quarter of 2024).
• Net working interests across the Zephyr portfolio now average 7% per well (equivalent to 16.0 net wells).
• The Company hedged a total of 27,500 barrels of oil (“bbls”) in Q4. 10,500 of these were hedged at a price of US$80.91 per barrel of oil (“bbl”) and the other 17,000 bbls were hedged by way of financial collars with a weighted average floor price of US$71.35 per bbl and a weighted average ceiling price of US$84.38 per bbl.

Paradox project update

Following the completion of safe and successful drilling operations of the extended lateral section (the “lateral”) at the State 36-2 LNW-CC-R well (“the well“), the Nabors rig was fully demobilised from site and the drill-pad has been prepared for the upcoming completion and production testing operations. Equipment for the completion operation has begun mobilising to site. 

The Company is encouraged that 97% of the lateral was drilled in the Cane Creek reservoir and that elevated mud gas levels with notable peaks were evident across the length of the lateral.  In addition, data gathered during the drilling operations has been incorporated into an updated completion plan in order to determine the optimal number and location of stages to be perforated along the length of the lateral. 

At present, Zephyr plans to perforate 16 stages, using a wellbore perforating technology developed by Halliburton to generate improved connectivity between the reservoir and wellbore, prior to treating the well with acid to enhance near-wellbore formation permeability. As part of the operation, the Company also plans to deploy a fibre optic cable in the well to gather pressure and temperature data to assess the production rate of each individual stage during production testing. This will allow the team to further understand the production capacity of the reservoir and optimise stimulation techniques for future operations. Due to a slightly longer lead time on the fibre optic cable than originally expected, the Company anticipates completion operations to commence next week and expects initial production test results to be available in mid to late April 2025, subject to weather and current vendor schedules.

Colin Harrington, Chief Executive of Zephyr, said:
“2024 was another strong year for our non-operated Williston portfolio. The historical investment in the portfolio continues to compound cashflow which enables us to pursue the significant upside potential of the Paradox project.

“I am also very happy with the progress our team has made, in conjunction with our service partner Halliburton, in designing the upcoming completion for the State 36-2 LNW-CC-R well.  Activity at site has started, and we look forward to commencing completion operations shortly, with production testing to follow immediately thereafter.

“We will provide further updates as operations progress.”

 A good production number even though the 4th quarter was affected by terrible weather but the important revenue number delivered as it was intended. But as we know thoughts turn to the Paradox Basin project which is funded by the non-operated portfolio. 

Zephyr has plans to perforate 16 stages with technology developed by Halliburton to generate improved connectivity between the reservoir and the wellbore before acid treatment. All the gear is here and includes a fibre optic cable to assess the whole process individually during testing, it is this bit of kit that has slightly delayed the process due to a longer lead time in ordering but it hasn’t affected much and operations should start next week.

This means that initial production test results will be available mid to late April subject to weather and kit availability but it hasn’t caused much delay and clearly the company are pleased to have decided to go with much better kit and put up with some scheduling delays in the process.

Exciting times indeed…

Genel Energy

Genel yesterday announced the signing of agreements that will see Genel enter into Block 54 Exploration and Production Sharing Agreement in the Sultanate of Oman for a 40% participating interest, in partnering with OQ Exploration & Production SAOG (“OQEP”), who will hold a 60% participating interest and operatorship of the licence.

Block 54 (the “Karawan Concession”) is located onshore Oman on the eastern side of South Oman Salt Basin and immediately adjacent to existing production. The block covers an area of 5,632km2 within the Al Wusta Governorate approximately 600 km south of Muscat and is largely underexplored.

Over the next three years , Genel and OQEP expect to invest approximately $25 million gross in direct costs over the Initial Phase (3 years) of the EPSA, to undertake the minimum work obligation that involves testing accessible existing wells, drilling and 3D seismic acquisition. Genel will provide a partial carry of OQEP’s 60% participating interest during the Initial Phase.

OQEP is Oman’s third largest producer and is publicly listed on the Muscat Stock Exchange, having recently completed a successful Initial Public Offering, and is a subsidiary of OQ SAOC, the state owned global integrated energy group.

Paul Weir, Chief Executive of Genel, said:
“We identified Oman some time ago as a preferred jurisdiction for geographical diversification, given its stable regulatory environment and the significant steps it has taken in recent years to set its oil and gas sector up for an exciting future. It is therefore the ideal country for Genel to begin its strategic diversification, expand its portfolio and invest capital. We are delighted to be partnering with OQEP and the Ministry of Energy and Minerals of the Sultanate of Oman on this exciting opportunity and look forward to working together to unlock and expand this contingent resource.  We see this entry as an important first step towards achieving our strategic goal of diversification, establishing a significant and profitable footprint in Oman, and  diversifying our cash generation.”

I like this deal and the word is that the team at Genel are very pleased, into Oman which is a really good spot for Genel and they can really get to work with OQEP whilst ‘establishing a significant and profitable footprint in the country. 

I also like the potential value creation and will make a meaningful mark with a decent stake and the chance to add a new country in which to work. And with talk of the pipeline opening it looks like a great start to 2025.

Deltic Energy

Deltic has provided the following operational update in relation to its portfolio of UK gas development and exploration assets:

Highlights

• Post-well analysis and pre-Field Development Planning work on Selene Gas Project underway
• Selene gas project NPV10 of USD$58M, net to Deltic, based on updated economic model
• Selene project – Endymion prospect maturation demonstrates low-cost upside on block
• Farm-out process on Blackadder licence commenced

Selene Gas Project – Licence P2437

Deltic has a 25% non-operated interest in the Selene gas discovery in the Southern North Sea (“SNS”).

Following the successful drilling of the discovery well in 2024, the Joint Venture (“JV”) partners unanimously supported the move into the second term of the licence and committed to the various engineering, commercial and regulatory workflows required to support a Field Development Plan (“FDP”) and a future Final Investment Decision (“FID”) in early 2027.

This work has initially focused on the analysis of data and samples collected from the 2024 well and integration of this information into the various subsurface and reservoir models. This process is progressing well, and Deltic expects significant amounts of data to become available over the coming months which will enhance the Company’s understanding of the reservoir and provide a higher degree of confidence around potential future flow rates in a production scenario.

Given the legacy 3D seismic dataset over the development area was last reprocessed more than 10 years ago, the JV is considering upgrading the dataset and utilising modern processing techniques to improve seismic image quality and refine the structural model up-dip from the discovery well location. Should the JV decide to proceed with this work, which would run in parallel to other workflows, it would result in reprocessed data being available towards the first quarter of 2026 .

Updated Economic Model

Deltic has revised its internal economic model for an indicative two well development of the Selene discovery, with gas export via the existing Barque production infrastructure, which incorporates updated cost and time estimates for the development recently provided by the Operator and Deltic’s internal modelling, as follows:

*Values are estimates based on Deltic’s own internal economic model and have not been subject to any third-party review.

The Company’s sensitivity modelling demonstrates that the Selene Gas Project is a commercially robust development. Gas prices utilised in the model represent a significant discount to both current spot price and long-term forward gas prices indicating the potential for material upside to the NPV10 valuation quoted above.  

On Block Upside

Based on data acquired during the drilling of the Selene exploration well in 2024, Deltic has also reviewed the prospectivity associated with the Endymion structure located on the north-eastern corner of the P2437 licence area. Endymion is a structural extension of the depleted Mimas gas field and, following recent model updates completed after the Selene well drilling, Deltic estimates that the Endymion prospect contains P50 Prospective Resources of 70 BCF (with a P90-P10 Range of 45 to 106 BCF) with a geological chance of success (“GCoS”) of >75%.

It is envisaged that the Endymion structure would be developed via a single subsea tie-back to the proposed Selene development infrastructure. Any additional gas produced from Endymion could further materially enhance the overall Selene licence project economics and could maximise the use of the proposed Selene infrastructure for a number of additional years. It is expected that any drilling on Endymion would only occur after FID on the core Selene development had been secured.

Funding Options

Deltic is currently evaluating a number of options, both at the corporate and asset level, which should allow it to secure the funding required to meet its medium-term requirements in relation to the Selene development. The options under evaluation include, but are not limited to, a further farm-down of Deltic’s current equity position in Selene, a partial sale of its interest in Selene, a pre-payment against future gas sales, and seeking to add new strategic shareholders to the Company’s register.

This is a key area of focus for the management team and board as the Company determines the best way forward for the benefit of all shareholders.

Blackadder – Licence P2672

Deltic has a 100% working interest in Licence P2672 which is located in a mature area of the Southern North Sea Gas Basin.

Updated structural mapping completed by Deltic, incorporating knowledge gained from the Selene discovery, suggests that the legacy Blackadder prospect and the Pharos discovery (Well 47/05d-6 drilled in 2013) are likely a single structure which has been extensively de-risked by the Pharos well.

Deltic estimates the updated structure to contain P50 Prospective Resources of 165 BCF (P90 to P10 range of 66 to 293 BCF) with a GCoS of 65%, with the key outstanding risks being related to reservoir quality and producibility.

The proposed forward work programme will be focussed on improving the quality of existing 3D seismic data which Deltic believes will enhance its understanding of the local depositional model and partially de-risk issues around reservoir quality and refine the Company’s volumetric estimates. 

A farm-out process in relation to this opportunity was launched at an industry event last week. Deltic expects this process to run over a number of months and looks forward to updating the market once this process has concluded.

Dewar – Licence P2646

Deltic has a 100% working interest in Licence P2646 which is located in the Central North Sea and contains the Dewar oil exploration prospect. The Dewar licence remains in ‘care and maintenance’ mode and, other than nominal licence rental and NSTA levy fees, the Company expects to incur no further costs on this licence during 2025.

The subsurface opportunity is well understood, given legacy work completed by Deltic, and while the prospect is robust there are significant challenges in terms of access to export infrastructure. The Company’s intention is to review potential development and export options for this low-risk exploration prospect again in 2026, before looking to introduce a partner to help take this project forward.

Andrew Nunn, Deltic CEO, commented:
“The magnitude of the divergence between Deltic’s share price and the Company’s valuation of its stake in the Selene Gas Project is clearly a cause of frustration for both shareholders and the Board, especially given the quality of the asset and commitment of the JV partners. The Board considers that actions taken in late 2024 to reduce ongoing G&A costs, and Deltic’s previously communicated year end cash position of £1.4m, provides the Board with sufficient flexibility to progress potential funding options to enable the business to move to Selene FID and beyond.

There has now been a period of stability in the UK oil and gas industry following the UK Budget in October 2024, and while the overall environment remains extremely challenging, we believe there has been a slight improvement in sentiment towards the sector. Deltic, and in particular our Chairman, have been and will continue to provide leadership and input into industry-led initiatives to educate government, ministers and other stakeholders on the environmental, employment, economic, and energy security benefits of producing oil and gas from UK waters. As recent events have demonstrated, it has never been clearer that a secure domestic energy supply is a vital national asset and Deltic’s work could be a key contributor to delivering that for the UK in the coming years.”

When I selected Deltic for the Bucket List I knew it could be quite a ride, ‘it is clearly at the biggest discount to TP of 200p by a mile following the Pensacola trauma but management should be given huge credit for carrying on with the Selene project’. 

The board clearly agree and ‘the magnitude of the divergence between the market cap and the valuation of the Selene gas project is a cause for frustration’. One of the reasons is Government policy which remains vindictive and incredibly short sighted, imagine killing a golden goose that can pay a very reasonable long term tax contribution to a cash short Treasury whilst at the same time providing the domestic gas market with best in breed low carbon gas saving on trade deficit into the bargain.

Selene is looking like being a cracking project, full of value with its great economics that as I have said will contribute to both the Treasury and balance of trade, 50/- mmcfd is no mean production and with 130m Bcf of reserves that we don’t have to buy from despots and dictators abroad makes you sleep at night.

There is little doubt that a degree of trust will be needed over the funding process but don’t tell me that a project like Selene can’t work and be developed profitably, with potential from Endymion and of course Blackadder in their own way adding contributions. Deltic is a well managed store of value, it should be held at least until the market susses it out although the relevant Ministers may take a little longer to ‘get it’ but value there is indeed….

Original article   l   KeyFacts Energy Industry Directory: Malcy's Blog