Today’s Oil & Gas Update – Block Energy and Gulf Keystone Petroleum and more…

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Oil & Gas Daily Flow

Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below

Market Update: Tuesday 16 February 2021

Block Energy (AIM:BLOE): West Rustavi coming onstream leads to 5x increase in production

Gulf Keystone Petroleum (LON:GKP): CPR reaffirms management’s resource estimates, Shaikan production reaches monthly high

Energy Prices

Brent Oil US$63.1/bbl vs US$63.3/bbl yesterday

WTI Oil US$59.7/bbl vs US$60.6/bbl yesterday

Natural Gas US$3.01/mmbtu vs US$3.01/mmbtu yesterday

Oil Price News

  • Oil prices have slipped slightly as caution has given way to the overly optimistic sentiment of late 2020, with most energy agencies cutting their estimates of 2021 crude demand
  • According to an industry consensus, global crude demand will increase by 5.5-6MMbopd, implying that a full return to pre-COVID demand levels will require several years to take place
  • The underlying question whether crude output levels can actually follow this demand growth this year has been growing in importance, steep backwardation on the Brent curve might suggest has serious qualms about it
  • With divergent trends abounding, Middle Eastern national oil companies have opted for nuance after the January-February price increases
  • As usual, Saudi Arabia has led the way, rolling over all of its February 2021 OSPs into March completely unchanged
  • Overall, the reports pointed to a still-fragile energy market that is highly susceptible to the course of Covid-19
  • The robustness of Asian demand remains a key gauge for Middle Eastern NOCs
  • China and India have been leading the continent with fuel consumption almost returning to pre-COVID levels in both
  • On the other hand, insular economies such as the Philippines, Indonesia or Taiwan have been running their refineries below maximum capacity or temporarily halting several units amidst poor margins
  • At the same time, turnaround season is just around the corner and Japan’s month-on-month import drop in February is the first of many to come
  • Albeit smaller in terms of overall output, refinery maintenance in Thailand, Taiwan and Sri Lanka will also tighten the markets a bit
  • February turnaround will blaze the path for next month’s large-scale works, China alone will have at least 0.9MMbopd of refinery capacity going offline in March 2021
  • Currently, the oil market is in backwardation, which occurs when spot prices are higher than further-dated contracts
  • Backwardation does suggest however a near-term bullish market structure with tightening inventory levels
  • This may encourage refiners to tap deeper into storage as they ramp up production to take advantage of higher prices

Gas Price News

  • US gas prices remain above US$3/mmbtu on news that the EIA has substantially increased its forecast for natural gas production in 2021 and 2022 amid expectations of more associated gas production in the Permian Basin, and trimmed its gas price forecasts for the current year
  • In the agency’s February Short-Term Energy Outlook, its raised output by 3.60Bcf/d to 98.68Bcf/d its total gas marketed production estimate for the US in the first quarter, and pushed up its Q2 forecast as well by 2.74Bcf/d to 97.95Bcf/d
  • Estimates for the total marketed natural gas production over the next two years also rose, by 2.42Bcf/d, to average 98.34Bcf/d in 2021, and by 1.31Bcf/d to 98.93Bcf/d on average in 2022
  • In the latest inventory report announced yesterday, stocks were marginally higher than anticipated
  • Natural gas in storage was 2,518Bcf as of 5 February according to the EIA
  • This represents a net decrease of 171Bcf from the previous week
  • Expectations were for a 183Bcf draw according to survey provider Estimize
  • Stocks were 9Bcf less than last year at this time and 152Bcf above the five-year average of 2,366Bcf
  • At 2,518Bcf, total working gas is within the five-year historical range

Company News

Block Energy (AIM:BLOE): West Rustavi coming onstream leads to 5x increase in production

Share price: 3.5p, Market Cap: GBP22m

Block has confirmed that gas sales from its West Rustavi field in Georgia have commenced.

West Rustavi wells WR-38Z and WR-16aZ have been on continuous production since 28 January 2021 and 3 February 2021 respectively and production rates are currently 790boepd, comprising 423bopd and 1.9MMcf/d of gas, representing a substantial increase when compared to the rates achieved before the wells were shut-in during April 2020.

Production across all of Block’s portfolio is currently 940boepd, resulting in estimated future revenue for the Company of approximately US$920k/month at current oil and gas prices.

Production from the wells is currently constrained as the Company continues its production testing programme, monitoring reservoir production and facility parameters, in order to determine the maximum flow potential and optimum production rates.

Management has confirmed that the testing programme will continue into Q2 this year and, on completion, stable production rates will be further communicated to the market.

Our take: As well as being a major milestone for Block’s growth, the commencement of gas sales also represents a significant step change for the Company’s progression towards becoming a sustainable energy provider to Georgia. Block’s onshore, low-cost gas production is distributed to independent gas stations, where it is compressed for fuel in motor vehicles. Block’s gas production represents an important contribution to Georgia’s harnessing of an otherwise unutilised energy source, which has the potential to replace the more carbon-intensive forms of hydrocarbons being imported and used in the country. Elsewhere, last years’ acquisition of producing Block XIB (615km2) and exploration Block IX (1,925 km2) represents Georgia’s most productive acreage in our view, with over 180MMbbls of oil produced from the Middle Eocene, peaking in the mid-1980s at 67,000bopd. The deal has served to boost Block’s 2P reserves by 64MMboe and initial production by 245bopd. In addition, the deal offers further 600Bcf of initial-gas-in-place in the Lower Eocene and Upper Cretaceous, following Schlumberger’s historical appraisal drilling. SRCL also benefits from a cost recovery pool of c.US$133m on Block XIB, underlining the attractive fiscal terms available once production ramps up.

Gulf Keystone Petroleum (LON:GKP): CPR reaffirms management’s resource estimates, Shaikan production reaches monthly high

Share Price: 167p, Market Cap: GBP351m

GKP has today provided an updated Competent Person’s Report (CPR) on its flagship Shaikan Field in which it has an 80% working interest.

The CPR, an independent third-party evaluation of the Company’s reserves and resources as at 31 December 2020, was prepared by ERCE.

The CPR incorporates addtional incremental information, including an updated development plan, new wells, production data and further technical analysis, since the last CPR was prepared by ERCE in 2016.

Gross 2P reserves + 2C contingent resources of 798MMstb at 31 December 2020 are consistent with volumes as at 31 December 2019, adjusted principally for 2020 production.

Gross 1P reserves increased to 240MMstb, up 33% after adjusting for 2020 production.

Gross 2P Jurassic reserves were revised down marginally (2%) to 505MMstb, after adjusting for 2020 production.

Gross 2P Triassic and Cretaceous reserves of 47MMstb were reclassified to gross 2C contingent resources, while the Field Development Plan is progressed with the Ministry of Natural Resources.

Shaikan continues to deliver stable production with average gross production in January of 44,405bopd, the highest monthly average to date from the field.

The Shaikan Field has significant future production potential with a gross 1P reserves life index of c.15 years and a gross 2P reserves life index of over 31 years, assuming January 2021 production levels.

Our take: Whilst we exected a strong CPR to be released this month, today’s update exceeded our expectations, marking an encouraging turnaround from the challenges presented in 2020 with regards to commodity pricing and regular payments from the KRG. Prior Company estimates are reaffirmed with gross 2P+2C reserves and resources of c.800MMstb at 31 December 2020, including over 500MMstb of gross 2P reserves. In light of the recent boost to production, it is significant to note the Company’s recent intention to adopt a dividend policy in line with its direct peer Genel Energy (GENL LN). With GKP’s ongoing prudent approach to managing its financial position and the decisive measures taken to reduce its cost structure to preserve liquidity (debt free cash balance of US$147m), the Company remains financially resilient to manage through the current volatile macro environment in our view. GKP has also successfully executed low-cost, high-impact investments that have so far increased gross production to 44,405bopd, in excess of the initially targeted increase of 5,000bopd.

Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

[email protected]


Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535

Grant Barker – 020 3470 0471

SP Angel

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35-39 Maddox Street London


+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

Sources of commodity prices

Oil Brent, WTI


Natural Gas


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