Malcy’s Blog – Flash blog, Genel Energy, Scirocco Energy & Longboat Energy

A flash blog today as I’m in town but anything I’ve missed will appear tomorrow.

By Malcolm Graham-Wood

Genel Energy

Genel has announced that all payments have now been received from the Kurdistan Regional Government relating to oil sales during January 2022.

Genel’s share of those payments is as follows:

(all figures $ million) Payment
Tawke 16.9
Tawke override 10.2
Taq Taq 2.2
Sarta 2.2
Receivable recovery 6.8
Total 38.3

From 1 January 2022, sales are priced at netback adjustment prices that reflect revised KRG pipeline tariff charges. The new tariff includes a component based on realised Brent and has impacted working interest $/bbl for January by just over $1/bbl.

Following the receipt of the receivable recovery payment, Genel is now owed $91 million from the KRG for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

Regulation but satisfactory news from Genel here as updated KRG payments are announced.

Scirocco Energy

Scirocco has provided the following update on its investments:

EAG Joint Venture

The Company recently supported Energy Acquisitions Group Ltd (“EAG”), the specialist acquisition and operating vehicle in the sustainable energy sector, to acquire its first cash generative anaerobic digestion asset, Greenan Generation Limited (“GGL”), in which Scirocco Energy holds a 50% interest:

Financial

In Q1 2022 the revenue received for the quarter by GGL totalled £323k (unaudited) supported by high power prices through the period. This compares to the same period in 2021 where revenue was £240k (unaudited) – a 34.5% year on year increase. EBITDA for Q1 2022 was £158k and at current power prices, EBITDA for the first 12 months of EAG’s ownership of GGL is on target to exceed £600k.

Operational

During Q1 2022, in order to future proof the plant at its Greenan site, the EAG team completed the replacement and recommissioning of a number of elements of critical equipment, at a total cost of c. £230k funded from operational cash flow:

·    all mixers in the premix tank

·    all primary digester mixers, and refurbishment of all mixer infrastructure including winches, winch motors and guide rails

·    Full Edina CHP (Combined Heat & Power) engine block change, and completing major service

·    Upgrade and replacement of augers and pumps in feed and recirculation system including installation of automatic recirculation system

Other than some minor planned upgrades, and preventative maintenance which is contracted long term with service providers, there are no further major upgrade projects planned in the next 24 months. Following these upgrades, and the recommissioning of the CHP, the plant is expected to operate at over 95% efficiency for the foreseeable future, with no further downtime.

Business Development

From a business development perspective, EAG is currently carrying out due diligence on three additional AD plants. Under the arrangement with SEM (announced by Scirocco in an RNS dated 9 December 2021) the Company and EAG gained exclusive access to a technical solution for the processing of digestate into a nutrient dense organic fertiliser. The EAG team is engaged in discussions regarding up to seven merchant installations of the SEM equipment on third party AD plants. This is in addition to the planned nutrient recovery system at Greenan, which is expected to increase EBITDA for the entire Greenan complex to c. £1,500k per annum once operational.

Tom Reynolds, Scirocco Energy CEO commented:

“I am delighted with the progress made by the EAG team on all fronts during the first quarter with strong operational performance on EAG’s current asset and the development of a very attractive list of follow-on investments.

The investments targeted by EAG seek to deliver two valuable resources: sustainable energy from biogas and sustainably sourced organic fertiliser. EAG has positioned itself in two very exciting markets and we look forward to supporting the company’s growth going forward.

With respect to funding, the Scirocco team has been investigating parallel funding options which would support the pace of capital investment into EAG operated projects while reducing the call on Scirocco’s balance sheet in the near term.”

Tanzania Operations

As communicated to the market in an RNS on 8 April 2022, operational activities under the Ruvuma PSA in Tanzania, where Scirocco Energy owns a legacy 25% working interest, have progressed under the supervision of operator, ARA Petroleum Tanzania (“APT”):

·    Progress continues to be made by the contractor Africa Geophysical Services Limited (“AGS”) to acquire approximately 338 km² of 3D seismic data focusing on the primary area of interest including the Ntorya discovery. The Joint Venture intend to complete this acquisition and early processing of the data ahead of spudding the Chikumbi-1 well (“CH-1”).

·    APT has further advanced the well planning for the CH-1 well with all long lead items contracts now executed

·    APT reports a target spud date for the CH-1 well in November 2022

·    APT’s revised mapping and internal management estimates suggest a risked prospective gas in place (“GIIP”) for the Ntorya accumulation of 3,024 Bcf (gross basis, mean case), and a prospective, risked recoverable gas resource of 1,990 Bcf (gross basis, mean case) considerably in excess of the Joint Venture’s carried resource assessment 

As per the Tanzania Operations Update issued to the market on 8 April 2022, the operator (Aminex) of the Kiliwani North Development Licence (“KNDL”), in which Scirocco holds an 8.39% working interest, noted that any future drilling is contingent upon an improved seismic resolution of the prospective target structures.

·    The operator has reached an agreement with Pan African Energy Tanzania (“PAET”) to utilise their high-resolution 3D seismic campaign, targeting a mid-year start, to receive approximately 12.5km² of valuable new high-resolution 3D coverage over KNDL, at no cost to the Kiliwani North joint venture

·    This coverage, which represents over 40% of the critical area of the licence, will enable the operator to link the new high-resolution 3D data to its existing 2D seismic legacy data which currently covers the KNDL with an irregular seismic grid. This should significantly improve both fault resolution and reservoir horizon mapping

Commenting on the update, Tom Reynolds said:

“Ruvuma Operator APT continues to move the work programme forward to better characterise and enhance understanding of the potential resource, and we remain excited about the schedule of work on our Tanzanian assets as we approach key operational milestones.

As previously communicated, the Company is progressing discussions and exploring options with interested parties for possible divestment and/or farm-down of Scirocco’s interest in both assets, while maintaining our funding options in the event we retain our 25% interest in Ruvuma at the time of drilling CH-1.

The priority of management remains to progress the ongoing, material discussions on the sale of the company’s interest in Ruvuma, to remove the funding requirement and to achieve our stated strategy to pivot to sustainable energy and circular economy markets, where EAG represents a robust, scalable platform primed for growth in an exciting sector.

We look forward to providing further updates to the market in due course.”

A regular quarterly update from Scirocco that shows that the company is concentrating on the platform created by the investment in EAG+ which looks increasingly exciting. The company are continuing to plan to exit Ruvuma and this will have been made better by the good progress towards having updated seismic and moving towards drilling there. 

Longboat Energy

Longboat has announced that it has farmed-in to two additional near-term, gas weighted exploration prospects on the Norwegian Continental Shelf targeting combined gross unrisked mean resources of 2231 mmboe (451 mmboe net to Longboat) through an agreement with OMV (Norge) AS.

Summary

·    Acquiring 20% working interests in Oswig (PL1100, PL1100B) and Velocette (PL1016);

·    Oswig and Velocette are material, gas prospects close to infrastructure in Norway anticipated to drill in summer 2022 and Q2 2023 respectively;

·    The transaction increases Longboat’s net unrisked mean resources by 68% to 110 mmboe with additional, on-block follow-on potential of 55 mmboe;

·    Maintains the Company’s focus on material gas opportunities near to infrastructure in line with its ESG strategy; and

·    Post-tax drilling costs net to Longboat of US$6 million (excluding carry).

Overview

Following recent bilateral discussions, Longboat has executed a two-well farm-in agreement with OMV to enter three licences on the NCS containing material, gas-weighted prospectivity near existing infrastructure in return for a partial cost carry, subject to certain cost caps.

The licences contain two firm wells on the Oswig and Velocette prospects anticipated to drill in the summer 2022 and Q2 2023 respectively. All the licences are operated by OMV which will retain a 40% working interest post-transaction. The licences have significant follow-on prospectivity which would be de-risked by any exploration success. The consideration for the acquisition of the interests comprises an aggregate pre-tax carry of approximately NOK109 million ($12.4 million), NOK 30.7million ($3.4 million) post-tax. The associated expenditure is anticipated to be met by a combination of Longboat’s existing cash resources and drawings on its NOK 600 million Exploration Finance Facility. The Company is fully funded for its current committed expenditure.

The transaction seeks to build on Longboat’s recent exploration success at Kveikje, Egyptian Vulture and Rødhette by adding two material wells, increasing its net un-risked mean resources by 45 mmboe to 110 mmboe across four firm exploration wells drilling in the next 12 months, including the currently drilling Cambozola well (Longboat, 25%).  These wells fit with Longboat’s ESG strategy being large gas prospects, close to existing infrastructure and with plans for electrification from shore for one of the potential tie backs.

Oswig (PL1100, PL1100B) – Company 20%

The first prospect scheduled to be drilled this summer is Oswig (PL1100) which consists of a high pressure, high temperature Jurassic rotated fault block nearby the producing Tune and Oseberg fields in the Norwegian North Sea, operated by Equinor. The well is targeting the Tarbert and Ness formations, two separate intervals which are estimated by the operator to contain combined gross unrisked mean resources of 931 mmboe, 191 mmboe net to Longboat. The Oswig geological chance of success is estimated to be 36%1 and the key risks are reservoir quality and fault seal.

The Oswig prospect is located close to existing infrastructure with tie back potential to the Oseberg and Tune fields.

Several additional fault blocks have been identified on PL1100 and PL1100B and are estimated to contain a further gross unrisked mean resources of 80 mmboe which would be significantly de-risked by an Oswig discovery.

The Oswig well is operated by OMV and will be drilled this summer with the total post-tax cost net to Longboat estimated to be ~$3 million (excluding carry). The other licencees are Wintershall Dea Norge AS and Source Energy AS.

Velocette (PL1016) – Company 20%

Velocette is a gas-condensate prospect targeting Cretaceous Nise turbidite sands on the eastern flank of the Utgard High in the Norwegian Sea which have been identified following recent seismic reprocessing. Velocette benefits from seismic amplitude anomalies indicative of gas-filled sands located within tieback distance from the Equinor operated producing Aasta Hansteen field (~45 km).

Velocette is estimated by the operator to contain gross unrisked mean resources of 1301 mmboe (261 mmboe net to Longboat) with a geological chance of success of 35%1. A number of follow-up opportunities exist within the licence with aggregate gross unrisked mean resources of ~2001 mmboe, which would be significantly de-risked by success in the Velocette well. The key risks associated with this prospect are reservoir presence and quality.

The Velocette well will be operated by OMV and is anticipated to be drilled in the second quarter of 2023 at an estimated total post-tax cost net to Longboat of ~$3 million (excluding carry). The other licensee is INPEX Idemitsu Norge AS.

Helge Hammer, Chief Executive of Longboat, commented:

“We are pleased to be adding two high-quality, gas-weighted exploration wells into our forward programme following our recent success at Kveikje and our discoveries at Egyptian Vulture and Rødhette in 2021.

“Securing these additional wells through a bilateral negotiation continues to demonstrate Longboat’s deep relationships in Norway and gives investors exposure to a significantly increased exploration programme targeting net mean un-risked prospective resources of 110 million, a 68% increase. These important wells also maintain the Company’s focus on material gas opportunities near to infrastructure at a time when European energy security remains a top governmental priority.

“With results from the high-impact Cambozola prospect due in the coming weeks, we now have a sequence of significant, potential value catalysts between now and the middle of next year. We look forward to updating the market on Cambozola at the end of drilling operations.”

All seems to be going very well for Longboat, after recent discoveries they are adding two potentially exciting gas-weighted exploration wells to their Norwegian portfolio. I remain excited by what Longboat are doing and think that there is still significant room for growth in the share price.

The opinions expressed here are those of the author

Malcolm Graham-Wood

Disclaimer: Malcy’s Blog is provided for general information about the international oil and gas industry and the companies that operate within it. It does not constitute investment advice and Malcy does not buy or sell shares, warrants or bonds in any company written about within the blog. Information is taken from publicly available sources and any comment is that of the author who does not take any third party comment in the blog


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