Oil price, Genel, Challenger, UJO/Egdon/Europa, President, Helium One. And finally…

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WTI $66.07 +2c, Brent $68.65 +19c, Diff -$2.58 +17c, NG $2.91 +3c, UKNG 67.0p +3.7p

Oil price

A more gentle rise yesterday as Covid worries in India were lessened but overtaken by Malaysia where infections rose above them on a per pop basis. Concerns about the Tokyo Olympics still abound but it’s touch and go, meanwhile the Moderna vaccine has been found to be 100% effective in teenagers and is ready to go to the FDA for approval imminently.

The API stats after hours showed a draw across the board, crude was down 439/- barrels, gasoline 2m and distillates 5.1m, generally pretty good and readers need no reminding that this coming weekend is the Memorial Day holiday in the US which is traditionally the start of the driving season. I suggest that noting the passenger levels I wrote about in yesterday’s blog the autos will be being tuned and shined at the weekend ready to get out and about.

Genel Energy

Genel has announced that payments have been received from the Kurdistan Regional Government for its entitlement for oil sales during March 2021. Those payments are made up as follows: Tawke $14.3m, Taq Taq $2.1m and Sarta $3.4m making $19.8m in total.

As announced on 13 May, Genel and other KRI operators received a letter from the KRG proposing an amendment to the recovery mechanism and payment schedule for monies owed for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

The entitlement payments for oil sales were, in line with other operators, received ahead of the proposed amended schedule.

The Company has not yet received payments for March’s invoices under the recovery mechanism, regarding which it is engaging with the KRG on their proposed amendments, nor the Tawke override. Assuming the proposed revision to the terms of recovery stands, the recovery payment will be $3.1 million. The override payment will be $8.2 million. Given the proposed new schedule, Genel expects to receive both payments shortly.

Challenger Energy Group

Challenger has announced that the drilling of the Saffron-2 appraisal well in Trinidad and Tobago has commenced as scheduled, the Saffron-2 well has two primary objectives, to provide immediate production and cash flow, as a  successful Saffron-2 could produce between 200 to 300 bopd, resulting in US$1.8 – US$2.6 million p.a. of net cash flow to the company.

Also to inform the most efficient way to develop the Saffron field, internal estimates are that in a success case the Saffron field is capable of producing 1,000 – 1,500 bopd by end 2021, providing a cash flow run rate of US$8 – US$12 million p.a. In addition a full field development could achieve peak production rates of up to 4,000 bopd and yield cash flow in excess of US$25 million p.a.

The Saffron-2 appraisal well is a follow up to the successful Saffron-1 exploration well drilled in March 2020 that resulted in discoveries in both the Middle Cruse and Lower Cruse reservoirs. Significant lessons were learnt during the drilling of Saffron-1 to inform the drill plan for Saffron-2, Saffron-2 is a low cost onshore well with a budget, inclusive of production completion, of approximately US$3 million, and expected to take between 25 and 30 days to complete.

 Eytan Uliel, Chief Executive Officer designate, commented:

“Following completion of mandatory inspection and reporting processes in Trinidad, we can now advise that drilling of the Saffron-2 appraisal well has commenced, with the well having spud on 24 May (UK time, late 23 May local time). The well will be drilled over the next 25-30 days, to a total depth of approximately 4,500 feet.

The objectives of the Saffron-2 well are twofold. Firstly, to produce oil and generate cashflow in its own right, with a P50 projected production rate of 200-300 bopd and, more importantly, to inform the appropriate development plan for the Saffron field as a whole. Based on the Saffron-1 well discovery and subsequent studies, we believe Saffron is a field capable of growing to production in the range of 1,000 – 1,500 bopd by the end of 2021, and which could ultimately achieve production rates of up to 4,000 bopd in a full field development scenario.

This is an exciting start for Challenger Energy Group, as we take the first step in our longer-term strategy of developing our existing portfolio to increase the Company’s production and cash flow. I look forward to updating shareholders with results once the well has been completed.”

As the company moves under CEO Eytan Uliel into its next phase I think that there will be much to watch out for. He is building a team laden with onshore expertise as well as people able to address the other interesting projects in the portfolio. Starting with Saffron-2 which was always expected to be the next stepping stone will be an exciting one.

Union Jack Oil/Egdon Resources/Europa Oil & Gas

Union Jack, Egdon and Europa as partners have announced that Egdon as operator, say that consent has been received from the North Lincolnshire Council for the storage of crude oil under the Planning (Hazardous Substances) Regulations 1992 at the conventional Wressle Oilfield Development (“Wressle”).

Wressle is located in North Lincolnshire, on the Western margin of the Humber Basin, covered by licences PEDL180 and PEDL182. Union Jack holds a 40% economic interest in this development. The grant of consent allows full use of the installed oil storage capacity at site of approximately 2,000 barrels and will enable full production from the Wressle-1 well to be achieved following the proppant squeeze, which is expected to increase overall production to a constrained 500 barrels of oil per day (200 barrels net to Union Jack).

David Bramhill, Executive Chairman of Union Jack commented:

“The JOA partners are pleased to have received this final consent, which will allow the production target at Wressle to be realised following the proppant squeeze operation which is planned to be executed and completed during June 2021.”

Commenting on the news Mark Abbott, Managing Director of Egdon Resources said;

 “We are pleased to have received this final consent, which will allow the full production potential of Wressle to be realised following the proppant squeeze operation which is planned to be undertaken during June 2021.”

President Energy

President has provided an update with regard to operational activities and corporate matters. New gas well EV-1002 successfully completed, tested at over 100,000 m3/d (3.53 MMsft/d or 580 bopd) with excellent pressure and now on stream with production from both new wells EV-1001 and EV-1002 building.

Aggregate current production from the new EV wells together with the new well LB-1002 is expected to be approximately in line with pre-drill projections at approximately 170,000 m3/d (6 MMscft/d or 1,000 bopd) being the equivalent of 6,000 MMBtu. The aggregate actual cost for the three new wells fully completed and on stream was in line with budget at approximately US$4M and the possibility of new wells in the same originally pressured fault block as EV-1002 now being considered for later this year. Finally, it is worth noting that the company report that gas prices in Argentina are rising further with spot prices currently at US$ 6.50 per MMBtu.

Peter Levine, Chairman, commented on the core business in Argentina. Deep breath….

“On 20th January, President announced plans for the commencement of its H1 2021 drilling programme by end March comprising new gas wells in the Las Bases and Estancia Vieja Concessions in Rio Negro Province. Despite a variety of hurdles, all three new wells were drilled on time and on budget with initial aggregate production levels expected to hit pre-drill expectations as they build up.

 “President also previously announced its intention to bring the wells on stream by the end of May to capitalise on winter gas prices that were, at the time of planning, projected to rise in excess of US$3 MMBtu. Indeed, EV-1001 and EV-1002, the second and third wells drilled in the sequence, have now been placed on production meaning President has achieved its objective. Significantly, current winter spot gas sale prices in Argentina are US$6.5 MMBtu, much above expectations and a marked 182% increase from January 2021 prices.

“It is the responsibility of management to formulate a business plan, execute and deliver on it. As evidenced by the series of announcements this year, that part of the plan relating to drilling in Rio Negro has been executed at the same time as other multi workstreams continuing in parallel.

“Next up is the delivering of the oil treatment plant mid this year with the Salta drilling and seismic programme following later in the year”.

EV-1001 and EV-1002

The new well EV-1002 has been successfully completed and tested after perforation of an 8.5 metre interval in the Vaca Muerta reservoir. During testing, the well flowed at over 100,000 m3/d (3.53 MMsft/d or 580 bopd) with an 8mm choke and an excellent well-head pressure of 1,750 psi. President is now considering the overall prospectivity in the same fault block as supporting a possible further drilling campaign for later this year or the first part of 2022.

The very high wellhead pressure compared to the other EV wells requires work on balancing the production from that field so as to optimise all wells of varying pressure being online at the same time. This work is currently in progress, the issue was anticipated and in fact is a good problem to have.

Unlike EV-1002, which has original pressure in a virtually undrained fault block, EV-1001 is located in a producing block and therefore a more pressure depleted area. Due to this and reservoir quality, the well was both perforated and fracced, so it is taking longer to clean up. To assist in the clean-up of the near well bore, a treatment with CO2 is anticipated to take place in the next 21 days. 

Combined with LB-1002, the first well in the three well drilling programme, the aggregate current production from these three newly drilled wells is expected to achieve in due course 170,000m3/d (6 MMsft/d or 1,000 boepd) which is in any event in line with expectations and translates into the equivalent of around 6,000 MMBtu a day.

The current spot gas prices in Argentina continue to increase and are currently US$6.5 per MMBtu.

President will report average actual production for H1 as well as updated guidance for the full year in its Interim Report due later this year.

Paraguay

Whilst the execution of agreements regarding the Paraguay farm-out is taking longer than originally anticipated due to the structured signing formalities of a State company combined with many of their executives having again to work from home, President remains both patient and highly confident that agreements will be entered into in early course.

The key message is that this delay in signing will not affect the timing of the drilling of the exploration well due in H1 2022.

Atome

As advised on 22 February, the Company formed Atome Limited as a UK intermediate holding company intended to be focused on developing a hydrogen and ammonia production, marketing and sales business as distinct from an OEM (original equipment manufacturer). Atome has not to date traded and prior to the events below, had a paid up share capital of £2.  

The Company has now allotted a 15% interest in Atome to Alpha Oil Invest GmbH of Zug, Switzerland (“Alpha”) for cash at par value reflecting the work both done and continuing to be performed by Alpha referred to below. Alpha, in operation since 2006, is an established independently managed fund whose ultimate owner is Peter Levine, the chair of President. Since its inception Alpha has made a wide range of investments in a variety of sectors. Alpha has developed an interest and expertise in renewable energy. In this respect Alpha, at its own cost, has previously identified, originated and developed certain business opportunities which it is now introducing to Atome rather than pursuing them itself.

The allocation of shares in Atome is not a related party transaction for the purpose of Rule 13 of the AIM Rules for Companies due to that transaction being de minimis in its size. Nevertheless, in the spirit of Rule 13 of the AIM Rules for Companies, the independent directors of the Company (being all those save for Peter Levine and Rob Shepherd as an executive director), have carefully reviewed the terms of the issuance in the context of Rule 13 and consider them to be fair and reasonable insofar as the Company’s shareholders are concerned.  

It is expected that a further announcement relating to Atome will be made in June with progress being made on two diverse projects.

Helium One Group

Helium One has been the pin-up of the market in recent weeks since float and raise so I was delighted that CEO David Minchin was happy to spare some of his time to answer a few questions yesterday. This is a very interesting interview, I have to admit that despite having one session already with David I still needed more to update my knowledge. Here is the link.

Core Finance CEO Interview: David Minchin, Helium One

And finally…

Tonight is the Boropa Cup final in Gdansk where the Red Devils are facing Villareal who beat the Gooners so there should be no favourites.

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