Malcy’s Blog – Oil price, Cairn, GKP, President & finally

WTI $65.05 -$1.04, Brent $68.24 -$1.12, Diff -$3.19 -8c, NG $2.66 -4c, UKNG 41.4p -0.7p

By Malcolm Graham-Wood

Oil price

Not much to add today I think, yesterday oil had risen over two bucks on Friday and once the Saudis said that there was no outage from Ras Tanura the only news in town was $70 Brent. Today of course we are back up around 50 cents proving that the other pluses such as the opening up of world economies is taking the lead.

It’s Tuesday so that means retail gasoline time and yet again Americans are paying more for their dose of gas. A gallon of Exxon’s finest will rush you $2.771 which is higher again, up 6c w/w, 31c m/m and 39.6c y/y.

Cairn Energy

Cairn are changing the course of the business, selling out of chunks of its North Sea portfolio and investing in the Western Desert of Egypt, now I wonder who else close to Cairn has done that?

They are selling their interests in Catcher (20%) and Kraken (29.5%) fields to Waldorf Production Limited for $460m plus some contingent dependent on oil prices between now and 2025. The company says that it ‘strengthens the balance sheet and provides flexibility to sustain and prolong the producing asset base’.

Simon Thomson, Chief Executive of Cairn said:

The divestment of our UK producing assets as they move into decline phase, will further strengthen our ability to pursue Cairn’s strategic goals and position the company robustly for the decade ahead.

Also and with Cheiron it proposes acquiring a portfolio of upstream oil and gas production, development and exploration interests from Shell Egypt  in the Western Desert, onshore The Arab Republic of Egypt for a purchase price of $646 million ($323 million net to Cairn), with additional contingent consideration of up to US$280 million ($140 million net to Cairn) if certain requirements are met. Capricorn Egypt, a wholly owned subsidiary of Cairn, will acquire 50% of the Assets, with the remaining 50% acquired by Cheiron.

The company says that ‘it is in line with Cairn’s strategy of seeking to grow, diversify and extend its production base. The portfolio offers low cost production, near-term development and exploration potential, provides immediate operating cashflow contribution and adjusts our overall hydrocarbon split towards gas’. Sound familiar?

Simon Thomson, Chief Executive of Cairn said:

 “The proposed acquisition of Shell’s Western Desert assets in Egypt is an important step in our strategic ambition to expand and diversify our producing asset base, bringing material reserve and production additions and offering significant exploration potential.

We are delighted to be entering a country that has significant oil and gas growth opportunities where the Government has created an attractive environment for inward investment. Our Joint Venture with established Egyptian operator Cheiron creates a strong partnership with extensive experience and complementary strengths across the upstream value chain.”

A busy day, Cairn also announced results, nothing we didnt know.

A Loss after tax of $394m (2019: profit of $94m), including loss on disposals of $276m; no recognition of gain on arbitration award, held as contingent asset, operating loss $67m (2019: $155m operating profit). Year-end Group cash $570m with no drawn debt, $250m subsequently returned to shareholders by special dividend.

Simon Thomson, Chief Executive, Cairn Energy PLC said:

As we continue to live and work with the consequences of the global pandemic, we have focused on keeping our people safe while maintaining momentum on business priorities and returning value to shareholders.

 The proposed acquisition of Shell’s Western Desert assets in Egypt is an important step in our strategic ambition to expand and diversify our producing asset base, bringing material reserve and production additions and offering exploration potential in a country with significant oil and gas growth opportunities. Our Joint Venture with established Egyptian operator Cheiron Petroleum Corporation creates a strong partnership with extensive experience and complementary skill sets.

 We are also announcing today the proposed sale of our interests in the UK Catcher and Kraken fields. The divestment of these assets, as they fall into natural decline, will further strengthen our ability to pursue Cairn’s strategic goals.

 Following the unanimous arbitration decision under the UK-India Investment Treaty to award Cairn US$1.2 billion plus interest, we have engaged with the Government of India regarding adherence to the ruling and we are pursuing all avenues to protect our shareholders’ rights to the value of the award.”

Gulf Keystone Petroleum

Gulf Keystone confirms that a gross payment of$25.2 million ($19.8 million net to GKP) has been received from the Kurdistan Regional Government (“KRG”). The payment is comprised of gross $21.9 million ($17.1 million net) for Shaikan crude oil sales during January 2021 and gross $3.3 million ($2.6 million net) in relation to the arrears from the outstanding November 2019 to February 2020 invoices.

Following receipt of the arrears payment, the current outstanding balance is $70.7 million net to GKP.
This arrears payment is in line with the KRG’s proposal and corresponds to 50% of the difference between the January average dated Brent price and $50 per barrel multiplied by the gross Shaikan crude oil volumes sold in January. The Company remains in a constructive dialogue with the KRG to finalise the repayment terms.

That told you…

President Energy

President, has updated on its drilling programme in Rio Negro Province, Argentina, a Drilling rig has been contracted with site preparations in progress and it is on schedule to commence the first well by end of March.
The company has decided to a re-alignment of the drilling order to maximise production and decision making efficacy and the first well to be drilled will be LB-1002 in the Las Bases Concession, Rio Negro.

The second and third gas wells will now be at the Estancia Vieja field. These are twins of old wells that have suffered casing collapses, but prior to which showed proven gas production. The wells EV-1001 twinning the old well EV x-1 (which produced in December until the collapse) and EV-1002 twinning the old well EV-4 have each a target depth of 1850 metres, an estimated drilling time of 12 days and a cost of US$1.6 million. The Company projects initial production from each of these wells at 60,000 m3/d (2.1 MMsft/d or circa 350 boepd).

Peter Levine, Chairman, commented
“President continues on its stated work trajectory with a prudent level of optimism supported by robust pricing for our gas offerings.
“The mission is to make our average production more robust, increase our well stock to greater insulate us against the inevitable well down times, benefit from economies of scale using our own pipeline infrastructure and get these gas wells drilled on budget and in time for the more favourable winter price environment.”

And finally…

Last night in the Prem wouldn’t have gone down well at President as Leeds United lost 2-0 at the Hammers, also Chelsea keep up their recent run of form by beating the Toffees 2-0 as well. Incidentally that Hammers win put them into 5th position and a win in their game in hand would put them 4th, Champions League football is coming to the London Stadium…

(The opinions expressed here are those of the author, a columnist for Share Talk.)

Malcolm Graham-Wood

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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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