Malcy’s Blog – Oil price, Sound, Pharos, IOG, Touchstone,Trinity, Angus, Predator, SDX, Reabold & finally

WTI (July) $67.12 -$3.05, Brent (Aug) $71.84 -$2.95, Diff -$4.72 +10c.

Author @mgrahamwood

USNG (July) $2.26 +1c, UKNG (July) 74.25p -4.73p, TTF (July) €29.0 -€7.60. 

Oil price

Oil fell sharply yesterday and growth worries in the USA ahead of a Fed meeting this week overtook the more positive Chinese 2H demand expectations. Tomorrow the Fed will announce the rates, only 25% of analysts are expecting a rise, the rest have moved to a pause right now.

Sound Energy

Sound has provided a corporate update in relation to the entry into exclusivity for the partial divestment of the Tendrara Exploitation Concession and the Grand Tendrara Exploration Permit, and a financing of up to £4.0 million by way of a fixed price, senior unsecured convertible bond instrument.

Key Highlights

·   Binding 45 day period of exclusivity and non-binding term sheet entered into with Calvalley Petroleum for a partial divestment of a 40% working interest in the Tendrara Exploitation Concession and the Grand Tendrara Exploration Permit which will see, subject to agreement of definitive transaction documentation:

o Funding of the first US$48 million of Sound Energy and Calvalley’s Phase 2 equity funded development costs by Calvalley, subject to final investment decision

o Funding of 100% of the TE-4 Horst well costs by Calvalley up to a cap of US$7 million

o Funding of 40% share of Phase 1 costs, including back costs net to Calvalley of approximately US$8 million (through to July 2023)

o Advancement to Sound Energy of additional Phase 1 and Phase 2 costs, if necessary and at the Company’s election, repayable out of future revenue

·   Up to £4.0 million funding through the issue of senior unsecured convertible loan notes to provide the Company with liquidity ahead of receipt of outstanding receivables and/or receipt of Phase 1 back costs from Calvalley, if a partial divestment is ultimately completed.

Partner and Potential Partial Divestment Update

The Company announced on 9 August 2022 that it had initiated a formal farm-out process to identify a partner for the Tendrara Production Concession and the surrounding Grand Tendrara and Anoual exploration permits. The Company is pleased to announce that it has now entered into exclusivity for a period of 45 days on the basis of an otherwise non-binding term sheet with Calvalley, an associated company of Octavia Energy Corporation Limited.

Whilst the terms of the Term Sheet, outside of Exclusivity, are non-binding and subject to, inter alia, agreement of definitive transaction documentation between the parties, if a transaction is concluded, the terms of the Term Sheet would provide Sound Energy, together with the envisaged project debt financing and under current cost estimates, with the required funds to achieve first gas under its Phase 2 development plan whilst also funding the costs of drilling the TE-4 Horst well, with an estimated exploration potential of 273 Bcf gross Pmean GIIP.

TE-4 was tested in 2006 but did not flow gas to the surface. Mechanical stimulation has proven to be a key technology to commercially unlock the potential of the TAGI gas reservoir in the TE-5 Horst gas accumulation and, accordingly, the Company believes this offers potential to unlock commerciality at the TE-4 Horst, which sits adjacent to the TE-5 Horst and could be tied-in in the future for further development of the area.

Calvalley was previously listed on the Toronto Stock Exchange and was taken private in 2016. Today, Octavia and its associated companies operate Block S-1 and Block 9 in Yemen with gross production of approximately 6,200 bopd (3,100 bopd net). Calvalley is backed by a consortium of private investors who draw on a strong financial capability from many successful businesses across many sectors in the Middle East, Africa, and Asia.

Under the Term Sheet, Calvalley would acquire a 40% working interest in the Tendrara Exploitation Concession and the Grand Tendrara Exploration Permit, with Sound Energy retaining a 35% working interest and operatorship. Contingent upon the Phase 2 Final Investment Decision, Calvalley would fund the first US$48 million of Sound Energy and Calvalley’s Phase 2 equity funded development costs (a US$22.4 million net carry to the Company), being the Company’s estimate of equity funded costs to first gas under Phase 2 after the expected amounts available under the project debt financing. The Term Sheet also envisages Calvalley funding the first US$7 million of exploration costs on the Grand Tendrara Exploration Permit (a US$3.3 million net carry to the Company), being the estimated costs of drilling the TE-4 Horst well. In addition, Calvalley will fund its 40% working interest share of all Phase 1 costs to a cap of US$16.4 million (net to the 40% working interest), which will include payment of its 53.33% share of back costs payable on completion, comprising approximately US$8 million through to July 2023.

In the event Phase 1 costs exceed US$41 million gross (being US$16.4 million net to the 40% working interest), Calvalley would advance the Company up to US$11.65 million and Calvalley will be entitled to receive revenues equivalent to 0.9% above its 40% working interest share of revenue for every US$1 million of advancement drawn down by the Company (at its sole election) for a period of five years from first production from Phase 1. Likewise, in the event the Phase 2 pre-production costs exceed the current estimate, Calvalley would advance Sound Energy up to US$10 million and Calvalley will be entitled to receive revenues equivalent to 0.9% above its 40% working interest share of revenue for every US$1 million of advancement drawn down by Sound Energy (at its sole election) for a period of two years from first production from Phase 2.

During the due diligence period Calvalley will complete its confirmatory due diligence and the parties will seek to agree binding transaction documentation.

The Company cautions that there can be no assurance that binding transaction documentation will be entered into in respect of a partial divestment with Calvalley, or any other party, and further announcements will be made, as appropriate, in due course.

Issue of Convertible Notes and Warrants

The Company is also pleased to announce that it has raised up to £4.0 million by way of a senior unsecured convertible bond instrument with an institutional investor. The proceeds of the Convertible Notes will, if fully drawn, provide funds for the Company to continue to execute its Phase 1 development of the Tendrara Production Concession and bridge group working capital liquidity ahead of receipt of a receivable as disclosed in the year end results and / or receipt of Phase 1 back costs from Calvalley if a partial divestment is ultimately completed.

The first tranche of the Convertible Notes comprises £2.5 million with a fixed conversion price of 2.25 pence per ordinary share, a premium of approximately 28% to the closing price of 1.76 pence per ordinary share on 12^th June 2023.

The second tranche of the Convertible Notes comprises a further £1.5 million, which can be drawn at Sound Energy’s election on 13 December 2023 (being six months from the first tranche draw down) and can be drawn sooner if mutually agreed by the Company and the Investor. The second tranche can be drawn subject to the Company’s closing mid-price of its ordinary shares on the business day immediately preceding the proposed issue date being at least 1.32 pence per ordinary share. The second tranche conversion price will be fixed at the time of draw down at a 25% premium to the five-day volume weighted average price (“VWAP”) from the business day immediately preceding the second tranche drawdown date.

The term of the Convertible Notes is five years from draw down date, with interest of 15% per annum, payable bi-annually in cash or capitalised to the principal, at the Company’s election.

Subject to the draw down in full of both tranches of the Convertible Notes, the Company is now funded for its near-term working capital requirements until year end 2023.

Other key terms of the Convertible Notes:

·   Issue price and redemption price on maturity: 100% of par value

·   Early redemption/change of control: callable in cash by the Company at any time after draw down or in the event of a change of control of the Company at 110% of par value together with all unpaid interest. If the Convertible Notes are redeemed by the Company, the maximum amount of future interest payable by the Company in respect of any early redemption occurring on or prior to the second anniversary of the relevant issue date will be 15% of the Convertible Notes, and in respect of any early redemption occurring after the second anniversary of the relevant issue date will be 10% of the Convertible Notes. The Investor shall have two trading days to elect to convert some or all of outstanding amounts or accept the early redemption. In the event of default, Convertible Notes will be redeemable immediately at 120% of par value of outstanding Convertible Notes plus accrued interest.

·   Conversion: convertible into Sound Energy ordinary shares at each tranche’s fixed conversion price in whole or in part. Upon conversion, interest shall be rolled up and paid as if the Convertible Notes were held to the redemption date (being five years from draw down), with such interest convertible at the lower of the applicable fixed conversion price and the average of the five daily VWAP calculations selected by the Investor out of the 15 trading days prior to the conversion date.

·   Other conversion terms: any conversion notice must be for minimum of £250,000. No more than 20% of the initial principal of the Convertible Notes may be converted in any given calendar month. If the Company’s five-day VWAP exceeds 3.00 pence per ordinary share in any given month, the conversion limit will be increased for the relevant month to 50% of each draw down amount. If the Company’s five-day VWAP exceeds 3.50 pence per ordinary share in any given month, the conversion limit will be removed for the relevant month.

·   Second tranche draw down condition: the Company must maintain available share issuance authority headroom and disapplication of pre-emption rights to cover 150% of any draw down amount divided by the VWAP on the day immediately preceding a draw down.

·   Warrants: 33,333,333 warrants to subscribe for new ordinary shares in the Company at an exercise price of 2.25 pence per ordinary share with a term of three years. If the second tranche is drawn down, additional warrants over such number of new ordinary shares as represents 30% of the par value of tranche 2 Convertible Notes drawn down, with an exercise price at the conversion price of the tranche 2 Convertible Notes and a term of three years.

Commenting, Graham Lyon (Executive Chairman) said:

“We are very pleased to have entered into exclusivity and a term sheet with Calvalley, who have operations in the Middle East and are supported by a very large conglomerate. The envisaged arrangement would fund the further development of Tendrara Concession and the drilling of a well on the nearby TE-4 Horst. The companies will now work towards signing definitive transaction documentation which upon completion will enable the parties together to jointly progress to the Final Investment Decision.

I am also pleased that we have raised financing for the Company using a fixed price convertible debt facility, convertible at a premium to the prevailing share price, which provides the Company with additional resources with which to continue to execute its Phase 1 development and to progress the Phase 2 development.”

 This is incredible news for Sound shareholders, ahead of their AGM today (and stakeholder event)they drop the news they have found a farm-in partner and financing.  The deal obviously has some way to go to close but getting an exploration well carried, funding for their major pipeline project on an almost 2:1 basis looks a pretty solid performance to me in these markets. 

Doing a bridging finance to cover outstanding receivables as the state partner is being slow to cough up seems a wise move to keep activities moving along. The fixed conversion element at a premium to yesterday’s share price, if converted, would seem preferable to  a deep discounted raise in a very thin AIM equity market.

Overall, it’s a step in right direction and I am sure, as this deal would have surprised many, that Sound will sort out its Moroccan project bank debt financing on the qt too. The shares reacted with a 12.5% rise and is now up at just shy of 2p which would mark an important milestone for which Chairman Graham Lyon deserves significant credit. 

Pharos Energy

Pharos has announced that it has received approval from the Vietnamese Government for the two-year extension of Phase One of the Exploration Period (from 8 November 2023 to 7 November 2025) of the Block 125 & 126 Production Sharing Contract(PSC).                                                                                                           

Jann Brown, Chief Executive Officer, commented:

“We are pleased to have received approval from the Vietnamese Government for the two-year extension of the Block 125 & 126 Exploration Period. This approval shows the encouraging level of support from the Government while we progress our discussions with a number of interested parties to secure a farm-in partner before drilling the commitment well on Block 125.”

It goes without saying that this is exceptionally good news for Pharos who can now plan for a long-term campaign in Vietnam starting with pressing the button on the farm-out and of course preparing for a drilling process. 

IOG

IOG has confirmed that First Gas has been safely delivered from the Blythe H2 well and provides an update on the planned near-term intervention.  

Rupert Newall, CEO, commented:

“IOG’s Drilling, Operations and Engineering teams have done an excellent job to bring the Blythe H2 well onstream within one week of our initial three-month guidance, despite losing over a month to the well control event. Strong collaboration with Petrofac (Well Operator), Shelf Drilling (rig contractor), ODEAM (infrastructure Duty Holder) and Perenco (terminal operator), among others, has enabled safe and efficient execution of this important well.

We are expediting equipment to the rig to resolve the apparent downhole mechanical blockage, which if successful could increase H2 flow rates by around month end to the 30-40 mmscf/d range that we guided pre-well. In addition, we continue to work very actively on next steps beyond H2 and expect to provide further updates shortly.”

This piece of good news must be very welcome to IOG after the time and production lost to the the recent ‘well control event’. Indeed if there is any chance that the resolution of the problem might increase the flow rate back up to pre-well guidance by ‘around month end’ the operational work will have been excellent.

With promises of further updates shortly shareholders must be hoping that better news is on the way and they certainly deserve it. Even the strip gas prices have improved although modestly and it should be remembered that there is much to look forward to at IOG. 

H2 First Gas

·      First sales gas safely delivered from H2 into the Saturn Banks Reception Facilities and Bacton terminal on 12^th June

·  H2 brought onstream in three months and one week from spud date, versus initial guidance of approximately three months, despite 34 days lost to the well control event 

o  Hook-up and commissioning (“HUC”) completed well ahead of schedule

·      The well is in the ramp-up phase towards an expected initial maximum rate

o  Maximum well test dry gas rate was 22.8 mmscf/d and 280-336 bbl/d condensate at the export pipeline pressure of 1250psi

Planned H2 intervention

·     During testing, H2 flow appeared to be choked back below the levels indicated by reservoir properties by a downhole restriction

·   Analysis of pressure and temperature data from the well test indicates a downhole restriction above the reservoir is choking back production

·    Pressure build-up data since the test indicates reservoir permeability is in line with pre-drill expectations – further supporting the view that the issue is mechanical rather than reservoir driven

·    Analysis of combined pressure and temperature data infers that a potential cause for the restriction may be a partially activated downhole valve  

·    H2 is intended to be flowed at initial rates until specialist downhole equipment arrives on the rig within the next two weeks to assess and, if necessary, manually actuate this valve

·    This intervention would likely take up to a week at an estimated incremental cost net to IOG of c.£0.5 million

·     If successful, the intervention would be expected to increase H2 flow rates to the previously guided 30-40 mmscf/d range

Production plan

·    The H1 well was shut in as planned during the final H2 HUC. Post-intervention, the plan remains to produce initially from H2 only, to flush formation water out of the Saturn Banks Pipeline System and reduce associated opex

·     No faults or fractures were encountered in the H2 reservoir section and no formation water was observed on testing

·     Following a period of shut in to allow the water levels to re-equilibrate, the plan is to reopen H1 periodically at lower rates to flow gas and condensate with limited water production

Corporate and financial update  

·    The Company remains in discussions with an ad-hoc group of bondholders as stated on 7^th June and will keep the market updated accordingly on progress 

·      Management continues to be fully focused on maximising production and managing costs very tightly

·    Over June to date, UK NBP Day-ahead gas pricing has remained very volatile, ranging from its year-to-date low of 54 p/therm on 1^st June back to 80 p/therm by 9^th June

·     While this recent increase is encouraging, significant volatility and uncertainty persist

UK fiscal regime

·      IOG also notes the UK government’s announcement on 9^th June of price floors for the Energy Profits Levy (“EPL”), whereby oil must remain below $71.40/bbl and gas below 54 p/therm ($40.7/boe) for six consecutive months in order for the EPL to be suspended

·    The Company welcomes the introduction of EPL price floors, however expects the actual impact to be minimal given the particularly low gas floor and the requirement for both gas and oil floors to be met

·    The change looks likely to favour larger integrated energy businesses with international production and LNG trading capabilities at a time when greater focus is needed on developing domestic low carbon gas supplies to displace higher carbon intensity LNG from overseas and improve security of supply

·     The North Sea is a relatively mature basin and the UK gas market is increasingly dependent on imports. The Company continues to advocate for the reintroduction of a small fields allowance which would specifically help to stimulate much-needed further investment in lower carbon intensity domestic gas fields to displace imported LNG

Touchstone Exploration

Touchstone has announced that Primera Oil and Gas Limited, our wholly owned Trinidadian subsidiary, was notified on June 12, 2023 by the Trinidad and Tobago Ministry of Energy and Energy Industries that it was awarded the Cipero onshore block in the Trinidad and Tobago 2022 Onshore and Nearshore Competitive Bid Round. The Trinidad and Tobago government has authorised the MEEI to enter into discussions with POGL for the grant of an Exploration and Production Licence for the Cipero block.

In addition, POGL was notified that its bid on the 72,784 gross acre Charuma block did not meet the technical requirements for the grant of an Exploration and Production Licence. However, the Trinidad and Tobago government has authorised the MEEI to enter into discussions with POGL to improve the minimum work program for the possible grant of a licence.

Highlights

Paul Baay, President and Chief Executive Officer, commented:

“With this successful outcome, we have been able to secure extensive acreage in the Herrera fairway. Although the primary geological target for the Cipero acreage is the Herrera Formation, our team has also identified additional targets within the Cretaceous. In addition to the execution of the licence, we will be required to conduct geological studies, reprocess existing 2D seismic data, and apply for regulatory permits prior to drilling, which is anticipated to take a minimum of three years. We are excited to formally commence working on the block and will provide further updates and details when the licence has been executed.”

Plenty of good news here for TXP who gain the block that they wanted for the geological targets as well as those who practice Nearology, it being near to Ortoire and Rio Claro, But further down the road, timewise that is, they can work with the MEEI in order to do more work on the Charuma block but they do have plenty on their plate in the meantime.

And what is on their plate is the magnificent Cascadura which is still i’m convinced is not very far away from first gas which will dwarf the rest of the company and will provide revenue for shareholder and then the potential mentioned above. 

 Touchstone has looked like a stock of the year for many months now, 2H 2023 should start to prove that is no pipe dream and has a portfolio absolutely full of value.

Summary of Cipero Block Bid

 Notes:

(1)    POGL will be responsible for 100 percent of the exploration minimum work commitments over the initial six-year exploration term of the Licence.

(2)    The minimum work commitments and the estimated financial obligations were based on the POGL bid and information provided by the MEEI. This information is subject to change prior to formalization of the Licence.

Trinity Exploration & Production

Trinity has announced that it has been advised by the Government of Trinidad and Tobago Ministry of Energy and Energy Industries that Trinity’s application for the Buenos Ayres block offered in the 2022 Onshore and Nearshore Competitive Bid Round has been successful.

The MEEI has invited Trinity to enter into discussions for the grant of an Exploration and Production (Public Petroleum Rights) Licence for the Buenos Ayres Block.

Trinity has also provided the following update on guidance for 2023.

·    Sales guidance of between 2,800-3,100 bopd (Q1 2023: 2,899 bopd; FY 2022: 2,975 bopd)

·    Capex (USD) ranging between $16m-$18m (2022: $15.5m)

·    Operating Cashflow (USD) guidance of $10m-$12m (2022 $12m)

Jeremy Bridglalsingh, Chief Executive Officer of Trinity, commented:

“Trinity is very pleased to have been successful in our bid for the Buenos Ayres block – we believe it is a second important catalyst in quick succession following commencement of the Jacobin well.  It is a cornerstone of Trinity’s refreshed strategy and focus to leverage our competitive advantage in the Palo Seco area.

Our investment in purchasing the North West District 3D seismic dataset and resultant exhaustive subsurface work has provided Trinity with an unparalleled understanding of the trapping mechanisms in the Palo Seco area. Our review of the 3D seismic over Buenos Ayres block, utilising our in-house knowledge, has highlighted multiple prospects at a variety of levels in this virgin block.

The Buenos Ayres block is highly unusual being a relatively undrilled block in what is a very mature basin setting. As this is proposed to be an Exploration and Production Licence we expect better commercial and stronger legal terms than our existing onshore sub-licences, we are planning to fast track the first exploration well on Buenos Ayres within the next 12-18 months, subject to acquiring environmental approvals.

Our Jacobin well, targeting a deep Miocene Play objective in the Palo Seco area, will be invaluable in collecting data to further refine our geological model, with a direct bearing on Buenos Ayres. Our strong commitment to Buenos Ayres demonstrates our intention to rapidly exploit our competitive edge onshore Trinidad with opportunities material for Trinity and where initial drilling success can quickly be followed by a move to production operations.

Following positive fiscal changes last year, the success of this licensing round demonstrates that the Government is focused on stimulating the energy sector which we expect will continue to provide additional growth opportunities for Trinity.“

Trinity expects to be Operator of the Buenos Ayres block with an 85% interest.  Heritage Petroleum Company Limited, the state-owned oil company, will have a 15% working interest (carried by Trinity through the exploration phase).  The block covers an area of approximately 41 km² and is located immediately to the west of Trinity’s existing producing Palo Seco Blocks WD-5/6, WD-2 and PS-4. The work programme consists of four exploration wells and technical studies over the six-year initial licence period.

Buenos Ayres contains multiple stacked target reservoirs of the Lower Forest, Upper Cruse and Lower Cruse which are the most productive reservoirs in the Southern Basin in Trinidad.  These reservoirs have produced in excess of a quarter of a billion barrels of oil to date.

A presentation setting out Trinity’s focus on the Palo Seco area and Buenos Ayres will be available to view on the Company website later today via the following link: https://trinityexploration.com/investors/investor-presentations/

So, Trinity have got the Buenos Ayres block which I understand is what they wanted as well, but when you look at the guidance they don’t have the luxury of a huge development coming onstream anytime soon.

Indeed the guidance issued today shows pretty much flat numbers and Jacobin is still a long term project and as for Galeota, it comes after Buenos Ayres in the pecking order…

Angus Energy

Angus yesterday announced that it has successfully assisted a fellow Operator in a planned pipe inspection operation last week.  This planned operation demanded the diversion of our export flow from Saltfleetby into a third party pipeline and involved two transmission grid entry points and two industrial customers on the Humber.

The Company was fully reimbursed for this diverted flow, which averaged 9.3 mmscfd, at market prices.  Normal export into the transmission grid at Theddlethorpe seamlessly resumed during the Gas Day ending 5 a.m. on 10 June.

A summer maintenance shutdown is planned for 19^th to 21^st June inclusive.

Saltfleetby production can be seen on the National Grid webpage.

Little to add here except to prove that the flexibility of Saltfleetby adds to its financial and commercial appeal. 

Predator Oil & Gas

Predator has  announced an interim drilling update for the MOU-3 well appraising the Moulouya Fan primary reservoir target for which contingent gas resources have been previously announced.

Operations update

Prior to setting 95/8” casing an inflow of gas into the well was experienced. A substantial drilling break from 339 to 350 metres TVD KB was identified as the source of the gas. This correlated with an 11 metre-thick, unconsolidated, good quality sand with elevated background gas readings. 

Mud weight was gradually increased to 1.25 S.G., above that required to balance hydrostatic pressure. to reduce the inflow of gas into the well. This gas zone is therefore significantly overpressured (122 psi overpressured) and likely to be supported by connectivity to gas volume to provide pressure support. 

A second thin sand with a 2.42% formation gas show was encountered at 750 metres TVD MD.

The Company’s experienced management team safely set 95/8” casing at 764 metres TVD MD to protect the two new gas horizons, including the overpressured interval, that were not anticipated pre-drill based on offset wells MOU-1 and MOU-2. This was a difficult and challenging exercise for the drilling team but was achieved safely and without incident. 

Drilling costs

Despite the challenges posed by unexpected overpressured shallow gas the pre-drill time-depth curve remains as planned and costs to date are within pre-drill working capital forecast estimates.

Technical update

The unexpected overpressured shallow gas occurs within a structural closure of up to 6 km²

mapped for the next drilling targets the Ma and TGB-6 horizons below the 95/8” casing depth of 778.5 metres TVD MD. The 11 metre-thick overpressured gas interval is thicker than the sand thickness used for these intervals to estimate gas-in-place in a success case. 19 metres of net sand is the P50 thickness used to estimate gas-in-place for the Moulouya Fan primary objective in a success case.

The presence of overpressured gas trapped at shallow depths in a common structural closure above the next Ma and TGB-6 targets has de-risked vertical thermogenic gas charge from deeply buried source rocks generating dry gas.

Migration pathways can now be identified on seismic based on the early MOU-3 drilling results.

Six targets, including the Moulouya Fan primary objective, below the 95/8” casing depth at 778.5 metres TVD MD are potentially in contact with the gas migration pathway to the shallow overpressured gas.

The potential gas migration pathway into the primary target in the MOU-4 structure  could be proportionately de-risked.

Forward drilling plans

The Company is drilling ahead cautiously in 81/2” hole to evaluate six targets, in addition to the newly identified two shallow zones.

A further drilling update will be given after the completion of logging operations within the timeframe guidance previously announced.

Testing programme

The positive initial shallow results to date from MOU-3 will need to be evaluated in the context of the sequence for rigless well testing and the intervals to be prioritised for potential gas flow in a success case. This exercise will only be completed once the MOU-3 well has been logged and the logs analysed to determine zones with the best gas deliverability characteristics. The priority will be to focus on potential for high deliverability gas rates if supported by wireline logging results.

Paul Griffiths, Executive Chairman of Predator Oil & Gas Holdings Plc commented:

“Unforeseen overpressured gas at shallow depths is always a potential hazard in a new poorly explored sedimentary basin. I would like to thank our experienced drilling management team, Lonny Baumgardner and Moyra Scott, for overcoming successfully; using their extensive drilling experience, what could have developed into a very serious operational challenge.

The presence of shallow overpressured gas with an effective sealing caprock has added to the identification of two new potential gas reservoirs that were not known about pre-drill.

Of even greater significance is that the overpressured gas has validated shallow trap integrity and identified a clear path for the migration of deep gas into the next six targets to be evaluated by MOU-3.

We are very encouraged by what we have found to date, which we believe at this early stage is material in the context of our CNG development plans but remain cautious as we drill ahead through a section that may or may not contain more overpressured gas.

However this is already an exciting beginning for our shareholders to our planned drilling and testing programme.”

Although not having gone totally to plan, at least so far, this well is still the apple of Paul Griffiths’ eye and it certainly looks like it still has the potential it has always carried and the team on the rig seemed to have worked wonders to keep the well. 

Indeed it may be that from what we now know it may be an even bigger, if still somewhat risky prospect which is still drilling. And the ‘potential gas migration pathway into the primary target in the MOU-4 structure could be proportionately de-risked’.

Shareholders have a few apprehensive weeks to wait, although it is a state of affairs that they will be accustomed to and I hope that this is a successful, if ultimately complicated campaign. 

SDX Energy

The Board of SDX are aware of rumours concerning its Egyptian business and confirms that the Company has received multiple offers in regard to the sale of its Egyptian assets, which the Board are evaluating. Any proposed transaction would be subject to the usual conditions associated with a transaction of this nature, including but not limited to the satisfaction of a number of condition precedents such as Government and Shareholder approval.

The Company will be providing further details in due course as well as further information on the plans to return value to its shareholders via organic and inorganic growth.

This announcement from yesterday is encouraging as the turnaround under new Chairman Jay Bhattacherjee continues apace. With previous announcements indicating better GSA’s in Morocco, the sale of the Egyptian portfolio and seemingly at decent rates could pave the way for the plans for SDX going forward.  

Reabold Resources

Reabold yesterday announced the exercise of certain of its options to increase its interest in LNEnergy Limited by a further 13.2%, for an aggregate cash consideration of £500,000, to be satisfied through existing cash resources (the First Option), and £1,500,000 through the issue of 810,810,811 new ordinary shares of 0.1p each in the capital of the Company at a price of 0.185 pence per Ordinary Share  to certain LNEnergy shareholders.

These exercises follow the Company’s announcement of 9 May 2023 entitled “Investment in LNEnergy” announcing Reabold’s initial subscription to acquire a 3.1% interest in LNEnergy for a cash consideration of £250,000. As a result, Reabold will own a 16.2% equity interest in LNEnergy.

Furthermore, Reabold retains the Second Option, expiring 30 November 2023, to acquire, at its sole discretion, a further 10.5% in new shares in LNEnergy for an aggregate cash consideration of £1,800,000, which would be satisfied through either cash or shares, at the option of LNEnergy. If the Second Option is exercised, it would result in Reabold holding a 25.0% interest in the enlarged share capital of LNEnergy for a total cash and equity consideration of £4,050,000.

Key points

·    LNEnergy’s primary asset is an exclusive option over a 90% interest in the onshore Colle Santo gas field in Abruzzo, Italy, discovered in 1966:

o  Highly material gas resource, particularly in the context of onshore Europe; 65Bcf of 2P reserves[1]

o  Development ready, subject to approvals and permits

o  Two production wells already drilled, no additional drilling required; first gas targeted for early 2025

·    Since the initial agreement on 9 May 2023, Reabold has undertaken significant due diligence work, resulting in increased confidence in the likelihood of permits being granted for field development:

o  Revised small-scale LNG development has smaller land footprint and strong environmental credentials

o  Two-year, long-term production test currently under review

o  Full production concession approval expected 2024 to allow 20+ year production

·    Reabold’s investment supports the development engineering and approvals process prior to project financing to bring the project to first gas, with attractive economic returns

o  LNEnergy believes that the field has potential to generate estimated €11-12m of post-tax free cash flow per annum

Stephen Williams, Co-CEO of Reabold, commented:

“The potential in the Colle Santo gas field presents an exciting opportunity for Reabold to pursue its investment strategy to fund low risk, near-term projects with a clear path to generating cash flow. Our detailed work and analysis in recent weeks have increased our confidence that development of the field will ultimately be approved. Reabold has acquired a significant interest in the project through its investment in LNEnergy, and we look forward to updating our shareholders with progress on the project throughout the year.

So Reabold has already increased its stake in LNEnergy, something that gives them a higher stake in a gas field in Italy which needs development funding and with first gas two years away, if best estimates are hit then revenue sometime in 2025. 

I must need a meeting with Stephen Williams because I really don’t get this course of action. With the huge potential on the doorstep at West Newton the company are taking on an unfunded long term asset, in Italy where delays are not rare and something that increases its own risk without obvious reward. 

And finally…

It looks as if Qatar are about to buy The Red Devils and MU shares are up 25% in early trading in New York…

Author @mgrahamwood

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The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion