Today’s Oil & Gas Update – Helium One; SDX Energy; United Oil & Gas and more…

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Market Update: Tuesday 4 May 2021


Helium One (AIM:HE1): Completion of extended 2D seismic campaign


SDX Energy (AIM:SDX): SDX commences active drilling campaign in Morocco


Trinity Exploration & Production (AIM:TRIN): Acquisition of PS-4 Block, Trinidad


United Oil & Gas (AIM:UOG): ASD-1X confirmed as a commercial discovery, Egypt




Energy Prices


Brent Oil US$67.5/bbl vs US$67.8/bbl on Friday


WTI Oil US$64.5/bbl vs US$64.3/bbl on Friday


Natural Gas US$2.96/mmbtu vs US$2.94/mmbtu on Friday




Oil Price News


  • Investment in new oil and gas projects last year fell to the lowest in 15 years at US$350bn.
  • As the world continues its battle against Covid-19 and as the energy industry increasingly looks towards diversification outside its core business, it is doubtful how soon, if ever, investments in new upstream projects will recover to pre-pandemic levels
  • This is not to say there is no sign of recovery in investments
  • Wood Mackenzie has reported there are a total of 26 new projects in conventional oil and gas that could get their final investment decision this year
  • These projects would require as much as US$110bn in investments to unlock about 27Bnboe in reserves
  • Underlining the changes that the energy industry is undergoing, more than 50% of the reserves to be tapped with these projects are natural gas reserves
  • Many of the largest projects slated for greenlighting this year are in liquefied natural gas, notably Qatar Petroleum’s expansion of production at the North Field
  • 10% of the projects awaiting FID this year are deepwater production, and the rest are a mix of offshore and onshore projects
  • According to Wood Mac, however, there is no guarantee that all these projects will indeed receive a final investment decision
  • This is due to a variety of reasons, chief among them the expected rate of return, carbon intensity, and the political context
  • Returns, and the period they will take to make an appearance, have become of the utmost importance for oil and gas investors, and they have also become a top priority for the companies themselves
  • While before it was usual to pour millions in projects that might not return the investment for decades, the focus is now on shorter return periods, which means short-cycle projects have the best chance for approval


Gas Price News


  • Natural gas moved higher yesterday following last week’s rally
  • According to the National Oceanic Atmospheric Administration, warmer than normal weather is expected to cover most of the United States and Europe for the next 8-14 days
  • Residential and commercial demand fell due to mild weather
  • Injections of gas into US storage facilities in the week ending 16 April totalled 38Bcf, down from 47Bcf for the same week last year, according to the Energy Information Agency (EIA)
  • Estimates from analysts ranged between 37-59Bcf, with a median of 48Bcf Working natural gas stocks totalled 1,883Bcf in the week – 251 Bcf lower than for the same period last year
  • After posting a strong gain last week and changing the trend to up on the daily chart, natural gas bulls are hoping that the market continues to remain supported by solid LNG demand and forecasts calling for more heat
  • Strong demand from manufacturing also helped buoy natural gas prices
  • US Durable Goods orders are stoked by manufacturing demand that has been building since last fall
  • According to the Commerce Department, new orders for durable goods increased by 0.5% to US$256.3bn in March compared with February
  • According to the National Oceanic Atmospheric Administration, the rally in natural gas comes despite warmer than expected weather that will cover most of the United States for the next two weeks


Company News


Helium One (AIM:HE1): Completion of extended 2D seismic campaign


Share price: 23.9p, Market Cap: GBP143.6m


  • Helium One has announced the completion of its extended infill 2D seismic campaign and identification of new priority drill ready targets ahead of commencement of exploration drilling programme at Rukwa Project (100%) in Tanzania.
  • The infill 2D seismic campaign consists of 150 line kilometres of seismic acquisition, targeting shallow trap structures identified from historic seismic and gravity data.
  • Closely spaced seismic data acquisition focussed on areas of known prospectivity to provide greater clarity over subsurface structures which Helium One believed to have the highest chances of successfully discovering helium.
  • Data acquisition commenced in mid-March and, following encouraging early results, the decision was made to extend the seismic campaign with the acquisition of an additional 50 line kilometres of 2D seismic.
  • Additional line kilometres targeted several new and high priority closures including Tai, Mbuni, Mamba, Chiruku and Itumbula.
  • Initial data interpretation has upgraded and expanded the Tai prospect, which was poorly defined on legacy seismic data, but now clearly demonstrates a faulted 3-way dip closure concurrent with a gravity high.
  • New data has identified stacked targets within multiple closures over an expanded area that the Company now plans to test as through its first well.
  • By focussing on stacked closures in its first exploration well, Helium One hopes to identify charged horizons with the highest quality seal to assist in the planning of subsequent wells.
  • Relocating its first well to Tai will necessitate approximately two weeks of additional time required to upgrade existing tracks, construct a drill pad, and receive all necessary regulatory permits to commence drilling at this new location.

Our take: A positive update from the Company further de-risking its acreage position through its latest infill 2D seismic campaign, which has provided high-quality data across multiple prospects. Modern data allows improved interpretation of structuration and trapping styles and aids a better understanding of reservoir characteristics and reservoir-seal pairs within each stratigraphic sequence. Ongoing seismic interpretation supports improved drill targeting for the Company’s maiden exploration campaign, which is now planned to commence drilling in early-June.




SDX Energy (AIM:SDX): SDX commences active drilling campaign in Morocco


Share price: 17.9p, Market Cap: GBP36.0m


  • SDX has commenced its first, three well, phase of its 2021 drilling campaign in Morocco, which will comprise up to five wells over the year.
  • This first phase of the Morocco drilling campaign will consist of three appraisal/development wells, which management estimates will target a total of 1.3Bcf of P90, 1.8Bcf of P50, gross unrisked prospective recoverable resources, in its operated Gharb Basin acreage in Morocco (SDX: 75% working interest).
  • The first well, OYF-3, which spud on 30 April 2021, is targeting the Guebbas reservoir at approximately 1,160m.
  • The second well, KSR-17, will target the Hoot reservoir at approximately 1,720m and the third well, KSR-18, is a dual target well, with the first in the Guebbas reservoir at 1,600m and the second in the Hoot reservoir at around 1,790m.
  • All three wells are looking to encounter shallow, biogenic gas accumulations near to the Company’s existing infrastructure, thus enabling tie-ins to be completed quickly and at low cost.
  • The Company will utilise the drilling rig that is already stacked in its yard in Morocco, thereby incurring minimal mobilisation cost.
  • The first phase of the campaign is expected to complete in July 2021, and the second phase of the Moroccan drilling campaign will commence in September/October 2021.

Our take: The spud of the OYF-3 appraisal/development well in Morocco has market the start of a very active period for the Company, offering several valuation catalysts for investors. The objective of these wells is to add reserves and maintain long term production levels. Elsewhere, the Company’s Egyptian drilling activities are expected to commence in June with the first of four development wells in West Gharib and the two well campaign in South Disouq where the second well, the Hanut-1X exploration well planned for mid-Q3, will be targeting gross unrisked mean recoverable volumes of 139Bcf with a 33% chance of success.




Trinity Exploration & Production (AIM:TRIN): Acquisition of PS-4 Block, Trinidad


Share Price: 13.7p, Market Cap: GBP53.2m


  • TRIN has executed a Sale and Purchase Agreement (SPA) with Moonsie Oil, a private Trinidad based operator, to acquire an operated 100% interest in the PS-4 Block Lease Operatorship Sub-Licence, onshore Trinidad for a total headline cash consideration of US$3.5m to be funded from the Company’s existing cash resources.
  • The PS-4 Block covers c.4 km2 located onshore in the Southern Basin of Trinidad in the prolific producing Grande Ravine area within the Super-Giant Forest Reserve Field (produced >1 billion barrels to date).
  • The PS-4 Block is contiguous to TRIN’s largest and most prolific onshore Block, the WD-5/6 Block, and to its WD-2 Block.
  • Current production from the PS-4 Block is from multiple stacked sands in the Morne L’Enfer, Forest, and Cruse Formations.
  • It is located geologically up-dip and due east of the Company’s WD-5/6 Block and due northeast of the WD-2 Block.
  • The PS-4 Block is therefore strategically located from both an operating and geological standpoint and enables the Company to expand its new 3D seismic sequence stratigraphic interpretation approach across not only a larger contiguous area but also to a less well-developed area of the Southern Basin.
  • Production in the PS-4 Block started in early 1930’s and has produced over 9MMbbls of oil to date with a recovery factor of between 12.5%-17%.
  • Global averages for conventional recovery factors in similar clastic reservoirs average between 25-30% and, as such, there is the potential for a significant uplift in production and reserves.
  • Following a full 3D seismic interpretation and the re-mapping and integration of all historical wells and production data, the Company will update the market on reserves and forward plans for the Block and the greater Erin Basin area.
  • This is expected to be largely completed during 2021.
  • On the ground, the Company will, on further review of well data, promptly initiate a comprehensive workover plan to reinstate and build production.
  • In addition, the Company will examine and tier all the wells on the Block to seek automaton well candidates.
  • In comparison to the WD-5/6 Block, the PS-4 Block has seen relatively little new investment over the last 30-40 years, from both a technical and drilling perspective, and therefore offers significant opportunities to add reserves and production on a meaningful scale.
  • The PS-4 Block has had only six wells drilled on it over the last 30 years.
  • In contrast, Trinity’s neighbouring WD-5/6 Block has had over 50 wells drilled on it during the same period and currently produces over 1,000bopd.
  • Given the geographic proximity, Trinity believe there are substantial synergies from a financial, operational and technical perspective.

Our take: This appears to be an accretive transaction at a compelling price and is a strong candidate to benefit from TRIN’s automation and data driven operating approach. The Company expects to compound the enhanced economic returns expected from the resultant larger, contiguous acreage position over this prolific basin. Putting additional barrels across the Company’s highly efficient operating base provides attractive leverage, especially as TRIN will be applying modern 3D data across the field.




United Oil & Gas (AIM:UOG): ASD-1X confirmed as a commercial discovery, Egypt


Share Price: 5.3p, Market Cap: GBP33m


  • UOG has reported further drilling success at the recently drilled ASD-1X exploration well, located 12km to the north-east of the producing Al Jahraa Field.
  • Preliminary results suggest the well encountered a combined net pay total of at least 22m across a number of reservoir intervals, including the primary reservoir targets of the AR-C and AR-E, as well as the Lower Bahariya and Kharita Formations.
  • The ASD-1X well has now been successfully tested from both the Lower Bahariya and Abu Roash C reservoirs.
  • Preliminary short-term test results from the Lower Bahariya reservoir indicate a maximum flow rate of 1,619bopd and 2.84MMscf/d (c. 2,187boepd gross; 481boepd net) on a 64/64″ choke, and a rate of 852bopd and 1.6MMscf/d (c.1,172boepd gross; 258boepd net) on a more constrained 32/64″ choke.
  • The preliminary short-term test results from the Abu Roash C reservoir indicate a maximum flow rate of 1,215bopd and 1.371MMscf/d (c.1,489boepd gross; 328boepd net) on a 64/64″ choke, and a rate of 661bopd and 0.632MMscf/d (c.787boepd gross; 173boepd net) on a more constrained 24/64″ choke.
  • Based on these preliminary test results, notice of a commercial discovery and an application for a development lease at ASD-1X have been submitted to EGPC by the operator, KEE.
  • Production from what would be the 8th development lease within the Abu Sennan licence, would be expected to commence shortly after approvals are granted.
  • The well was drilled by the EDC-50 rig, which has now been moved to the Al Jahraa Field within the Abu Sennan concession, where the drilling of the AJ-8 development well commenced on 2 May.
  • This well will target the Abu Roash and Bahariya reservoirs in an undrained portion of the Al Jahraa field.

Our take: The new discovery at ASD-1X is a positive sign for the remaining exploration potential within the Abu Sennan concession. UOG continues to enjoy operational success from its flagship Egyptian acreage and has emerged as a low-cost producer poised for significant growth this year. Cash generation is expected to continue strongly throughout 2021 in line with increased production and pricing, particularly in the second half of the year as the capital expenditure associated with the drilling campaign is phased almost entirely in the first half. UOG continues to maintain strong operational momentum following recent success at ASH-3 and ASD-1X, serving unlock significant new resource plays for the Company and its partner. Shareholders will also be encouraged that the recent recovery in oil prices has significantly enhanced operational cashflows and improved the economics of additional development wells and there will be further drilling activity with the AJ-8 development well having now spudded.




Research – Oil & Gas


Sam Wahab – 0203 470 0473 / 0784 385 5037


[email protected]




Sales


Richard Parlons – 020 3470 0472


Abigail Wayne – 020 3470 0534


Rob Rees – 020 3470 0535


Grant Barker – 020 3470 0471




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+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 – ICE


Natural Gas – NYMEX






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Recommendations are based on a 12-month time horizon as follows:




Buy – Expected return >15%


Hold – Expected return range -15% to +15%


Sell – Expected return < 15%





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