Malcy’s Blog – Oil price, Challenger Energy Group, Hunting, Hurricane Energy, President Energy & finally

WTI $102.56 -$5.65, Brent $107.25 -$5.91, Diff -$4.69 -26c, NG $7.18 -64c, UKNG 175.0p +10.5p

By Malcolm Graham-Wood

Oil price

Oil had a sharp fall yesterday as the IMF brought down its GDP numbers and increased its inflation expectations. World GDP is downgraded to 3.6% which is down from the January forecast of 4.4% and before that 4.9%.

Challenger Energy Group

Challenger Energy has provided the following technical update:

·    In late March 2022, the Company detailed a near-term programme of recompletions of underperforming and non-producing wells from its extensive well stock in Trinidad, focussed on production enhancement.

·    Four recompletions have to date been completed, ahead of schedule and below budget. The aggregate incremental production from these four recompletions has been in the range of 40 to 60 bopd – in line with pre-work expectations as previously advised.

·    In aggregate, this represents a production increase of approximately 10%-15%, with gross production across the Company’s fields now consistently averaging approximately 400 bopd.

·    Further near-term production enhancement activities are being prepared, with a target to increase production by a further 10% over the coming months.

·    In addition to this well activity, repairs to access roads, upgrades to utilities, and facilities integrity work continues as planned, with this work due to be completed before the end of Q2 2022. Improved access will bring additional well stock into the ongoing review process for potential future recompletions, and the facilities/ infrastructure-based activity is designed to maintain baseline production on a consistent basis.

·    This work is benefitting from the restructured Challenger Energy team, including a greater level of in-country presence of the leadership team, which has been constrained to date by international travel restrictions.

Eytan Uliel, Chief Executive Officer of Challenger Energy, said:

“The turnaround of our Trinidad and Tobago business unit is proceeding according to plan, with good results seen thus far from the field work underway since the completion of the Company’s restructuring and recapitalisation in March 2022. The focus at Challenger Energy remains on getting the basics right – maintaining stable baseline production, achieving incremental production growth from the existing fields, maximising sales revenues and cashflow, and continuing to evaluate opportunities to grow production through value accretive M&A opportunities.”

Further good news from Challenger today as the company report yet more positive news on the restructuring front. I’m sure that Eytan and his team would say that due to a combination of Covid and delays in getting the team on the ground initially made life more difficult but this report seems to be seriously addressing the issues. 

Longer term I know that he is keen to rebuild and has many exciting ideas for CEG which I expect to hear about in due course, the one thing you can be certain of is that it will not be ambition constrained.  

Hunting

Hunting has issued the following Trading Update for Q1 2022, ahead of its Annual General Meeting that will take place today at 1:30p.m. BST in London.

Hunting Titan has reported good improvement in revenue during Q1 2022 compared to Q4 2021, with sales c.12% ahead of the prior quarter and c.45% ahead of Q1 2021 and recorded an operating profit for the period.

Revenue within the North America operating segment remains in line with management expectations as the Group’s Premium Connections, US Manufacturing and Subsea businesses report increasing orders.

Within the EMEA operating segment, revenue has increased in the quarter compared to Q4 2021 as drilling programmes across the region recommenced.

The Group’s Asia Pacific operating segment continues to see some volatility in sales; however, operating losses continue to reduce as enquiries and order book levels slowly improve.

The Group’s Balance Sheet remains robust with good liquidity, including undrawn core bank borrowing facilities of $150.0 million committed until February 2026, and a cash and bank position of c.$71.6 million at 31 March 2022 compared to $114.2 million at 31 December 2021. This reflects the normal settlement of accounts payables after year-end, coupled with increases to working capital as market conditions improve.

The final dividend recommended for 2021 of 4.0 cents per share is due for payment on 13 May 2022, which will absorb c.$6.4 million.

Commenting on Q1 2022 trading and the market outlook, Hunting’s Chief Executive, Jim Johnson said:

“The world is in a fundamentally different place today than when the quarter began with energy security now at the top of the policy agenda on both sides of the Atlantic. Trading in the quarter has remained in line with management’s expectations, with an EBITDA of c.$6.7m reported reflecting strengthening markets, particularly for Hunting Titan and the Group’s US onshore operations, along with a further narrowing of losses within Hunting’s other operating segments. Results have accelerated throughout the period with EBITDA in March 2022 now the best since April 2020. These results were achieved despite a residual drag from COVID-19 in January and early February.”

“Hunting’s order book grew further during the quarter and now exceeds pre-pandemic levels, supporting management’s view that global drilling activity and investment is improving. While the Group’s order backlogs are increasing, traditional lead times are, however, being impacted across the industry with raw material and electronic component deliveries being extended by the pandemic.”

“The sharp increase in global commodity prices is also leading to an increase in industry investment sentiment, with energy security and oil and gas reserve depletion driving a new phase of growth. Hunting remains well positioned to take advantage of this improving market environment.”

If ever there was a time for the raison d’etre of Hunting that time is now as the market cries out for companies that can deliver more, lower carbon and efficient hydrocarbons. In all its key markets Hunting is performing very strongly and as CEO Jim Johnson says EBITDA is now the best for two years and likely to get better.

Apart from some of the irritants caused by product delays the Hunting order book is growing strongly and you can bet a dollar to a wet doughnut that margins will be rising sharply as well. Things, as they say, can only get better…

Hurricane Energy

Hurricane has provided an update on Lancaster field operations and net free cash balances as of 31 March 2022.

Lancaster Field Operations Update

The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 (“P6”) well during March 2022.

March 2022 Lancaster Field Data

P6

P7z(1)

Oil produced during the month (Mbbls)

282

Average oil rate (bopd)

9,085

Water produced during the month (Mbbls)

204

Average water cut(2)

42%

Well gauge pressure (psia)(3)

1,585

1.       The 205/21a-7z (“P7z”) well was not on production during March 2022

2.       Expressed as total water produced divided by total fluid (oil and water) production

3.       Pressure reported is the monthly minimum from well downhole gauge

As of 17 April 2022, Lancaster was producing c.9,150 bopd from the P6 well alone with an associated water cut of c.43%.

The 28th cargo of Lancaster oil, totalling approximately 524 Mbbls, was lifted on 22 March 2022. This cargo was priced by reference to the average of the last five days of March’s Dated Brent quotes, being $116/bbl, resulting in net revenue of $60.5 million. The next cargo is anticipated to be lifted in late May 2022.

Financial Update

As of 31 March 2022, the Company had net free cash(4) of $106 million compared to the last reported balance of $71 million as of 28 February 2022. During the month, there was a net movement of $9.4 million from free cash into restricted funds following the agreement of the Aoka Mizu FPSO Bareboat Charter extension on 25 March. $78.5 million of Convertible Bonds remain outstanding and are due in July 2022.

The Company believes that net free cash provides a useful measure of liquidity after settling all its immediate creditors and accruals and recovering amounts due and accrued from joint operation activities, outstanding amounts from crude oil sales and after settling any other financial trade payables or receivables. It should be noted that the net free cash is calculated as at the balance sheet date and does not take into account future liabilities that the Company is already committed to but have not yet been accrued. As such, not all of the net free cash would be available for repayment of the remaining outstanding Convertible Bonds at their maturity in July 2022.

4.         Unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables.

 I have nothing more to add to my comments last week about the company’s CPR and production guidance as today’s RNS is merely the pure operations update which show a very healthy positive situation. Management rightly alert to the conversion date of July 2022.  

President Energy

President has provided an update on operational and strategy matters.

Key Highlights

·      Salta Province, Argentina

o  Testing at wells DP2001/2003 continues to progress, with both already having demonstrated commercial production

o  Side-track from the formerly producing well PG 13-1 has been successfully drilled to a target depth of 3,512 meters. Management is confident in its ability to bring this to production before the end of May

o  Well PE-8 has now been worked over and cleaned of accumulated sand with Swab results showing oil and gas production

·      Preparatory work for the drilling of the Paraguayan exploration well continues with President’s partner, OPIC, the subsidiary of CPC Corporation of Taiwan, both having now confirmed a location known as Tapir 1

·      The macro environment continues to support higher global oil prices, with a US$2 per barrel increase in prices receivable for Argentinian April production with a projected upward trend later in year

·      Pursuant to increasing pricing and gas demand in Argentina, President is re-evaluating a Paleozoic deep gas prospect in the Martinex del Tineo field within the Puesto Guardian Concession with a farm out process to start by end Q3

·      In Louisiana, the Triche well is producing in-line with expectations in the range of 180 barrels of oil plus gas with high value remaining recoverable reserves internally assessed. Simmons well is also producing in line with the expected 50 barrels of oil a day

·      Increasing value of President’s holding the recently spun-off AIM company Atome Energy PLC

SALTA PROVINCE, ARGENTINA

Drilling

Wells DP2001/2003

The new wells DP2001 and 2003 remain in the process of various stages of testing. As has been stated previously both oil wells have demonstrated they produce commercially. With long life wells such as in the Puesto Guardian Concession, time is being necessarily spent to understand downhole conditions and reservoir characteristics in order to optimise production. This process remains ongoing.

The wells have carbonate reservoirs which over time can inhibit flow through accumulation of residues of these same carbonates caused by pressure changes in the reservoir. Therefore, it is important to run laboratory tests to determine the right type of treatment and/or acid stimulation as well as pump size in order to ensure optimum steady state well-flow. During this time both these wells will be in sequence flowed and shut in as part of this process.

Accordingly, whilst this is taking more time than originally considered, the fundamental point is that both wells are oil producers and are already making solid contributions to Salta oil production.

Wells PG 13-1

This well is a side-track of the old, formerly producing well, shut-in due to an irretrievable fish (packer) in the well. The original well has been shut-in for at least 11 years. The side-track coming out of the original casing through a whip stock has been successfully drilled to a target depth of 3,513 metres, landing in the same reservoir level approximately 30 metres from the original well position. It was then cemented.

Logging while drilling and mud-logs showed similar positive hydrocarbon bearing characteristics to those in the original PG13 well which was drilled in the 1980’s. The target producing reservoir is very good quality sandstone having proved to have good porosity and permeability. PG13-1 is being completed with a casing liner to protect the formation and eventually may be stimulated depending on circumstances.

The drilling rig is now being released and the work of clean out and completion will be made by the workover rig. It is anticipated that this will take some 3 weeks before results from the well can be identified. For the reasons stated above, there is a level of confidence running through from management to the long serving field operatives that PG13-1 will prove to be a sound commercially producing oil well which will, all being well, be on stream before the end of May. By that time all three new wells should be optimally producing.

Well PE-8

This old well in the Pozo Escondido field in the Puesto Guardian Concession and adjacent to the producing PE-7 well was shut-in many years ago following an unsuccessful frac stimulation which screened out prior to President taking over the field operation. Since the frac, the Company has bled off oil to surface from time to time with pressure at the wellhead.

Taking advantage of the workover rig being in the Concession, the well has now been worked over and cleaned of accumulated sand, Swab results showed oil and gas production. The well is now being placed on production also for May.

WATER FLOODING PROJECT RIO NEGRO

This important project has been planned in detail and discussions with the relevant province are expected shortly whereupon, subject to the Province of Rio Negro approval, commencement of the initial work can be programmed. At the same time the management team, has implemented cost saving initiatives to improve margins in parallel with a fresh look at the principal fields in Rio Negro through external consultants. Whilst this work, as with the water flooding secondary recovery programme will take time for the effects seen, it is believed that all of these efforts will be rewarded in the future and are in the medium to long term interests of the Rio Negro Concessions. 

OIL PRICES IN ARGENTINA

The much-awaited increase in domestic oil sales prices in Argentina in part reflecting the global market has commenced with a US$2 per barrel increase in prices receivable for April production and a projection for further step by step increases during the year.

MARTINEZ DEL TINEO EXPLORATION, ARGENTINA

In the years between 2012 and 2016, President considered a Paleozoic deep gas prospect in the Martinez del Tineo field within the Puesto Guardian Concession.

In 2016, steps were taken to farm-out the prospect which with a background of the prevailing hydrocarbon market at the time ultimately proved to be unsuccessful.

Similar to President’s Paraguay acreage which has now been successfully farmed-out to the Taiwanese State Energy Company (see below), events including macro pricing and gas demand in Argentina, has led President to re-evaluate the prospect including the risk reward matrix which has materially benefitted from better economics. Since 2016, domestic realisable gas prices have increased by 50% in dollar terms to nearly US$4 per Million BTU which taking into account the potential size of the prize is a significant change.

The prospect is situated within the long term Puesto Guardian Concession expiring in 2050 and has significant infrastructure already in place due to President’s existing oil production operations. In terms of size, an independent Gaffney Cline and Associates report in 2012 best estimated Unrisked Recoverable Resources at 570 Bcf of gas and 14.5 MMbls of condensate with an updated Company internal estimate in 2016 after further geological and geophysical work upgrading those figures to approximately 2.8 Tcf of gas and 69 MMbbls of condensate from two independent formations.

The deep prospect, considered to have a target depth of 4,200 metres which is covered and clearly delineated by reprocessed 3D and 2D seismic, offers the highest structural position on a plunging anticline in the presence of an up-dip fault/saddle break, close to the Santa Barbara Mountains in Salta where source shales and reservoir sandstones are proven.

The potential location for a deep exploration well allows that well to penetrate a shallower Yacoraite potentially oil bearing interval approximately 1,000 metres higher up thus providing a default potential for hydrocarbon production in the event of failure in the main target. In effect the exploration could be interpreted as the deepending of an appraisal well at the Martinez del Tineo Field. 

Monetising options in the case of success include delivery of gas through a constructed pipeline, or gas to power.

Accordingly, the Martinez del Tineo gas farm out process is now being re-activated with steps to be taken to update the offering and data room and promote the same to the market with such marketing both domestically and internationally likely to commence before the end of Q3 2022.

PARAGUAY EXPLORATION

Preparatory work for the drilling of the exploration well continues with President’s partner, OPIC, the subsidiary of CPC Corporation of Taiwan. The drilling location has now been confirmed as Tapir 1, within the Delray Complex of prospects to the southwest of the previously considered locations of Delray Main.

Tapir has a Company internal estimated PMean unrisked recoverable oil in place of 96 MMbbls, with the Delray Complex having a total of 306 MMbbls PMean unrisked recoverable oil in place.

The well targets mainly the Lecho and Volcanic reservoirs and is located on a central structural high with a clear four-way dip structure shown by 3D seismic acquired by President as part of its original exploration campaign. Tapir is considered to have a more favourable location than the original Delray Main site relative to the source rock generative area and charge migration pathway. The principal exploration risks being migration from source and thus charge.

A further independent sub-surface study commissioned by President in March 2022 placed a 17% chance of success on the Tapir prospect. Of course this means also a high chance of failure and this correctly reflects the grounded attitude which investors must adopt in relation to exploration.

The updated projected time to spud the well is now beginning of Q4 2022. The delay to the original timetable has been the result of needing to coordinate all logistics, consents and approvals and the projected time to repair and recondition the preferred drilling rig required.

On the positive side, with macro events materially affecting the cost of hydrocarbon fuel in Paraguay, a country currently totally reliant for its liquid fuel on imports of finished product by barge through 1,000km of river system from the River Plate, the economics in the event of success have significantly improved the value of the prize and concomitantly the risk/reward ratio.

LOUISIANA

Whilst there have been sporadic interruptions of production due to technical issues in the facility, the Triche well is producing in-line with expectations in the range of 180 barrels of oil plus gas. Simmons is also producing in line with the expected 50 barrels of oil a day. An average sales price of US$109 was achieved for the oil sold in March with gas prices robust.

An internal estimate of proven recoverable oil in the Triche has identified a total of 300,000 barrels of oil yet to be produced giving a total realisable gross undiscounted sales value from that well at US$100 per barrel oil of US$30 million (President 70 per cent working interest) with as previously observed an excellent net back level with low opex and adequate tax losses to cover profits. 

Peter Levine, Chairman, commented:

“We should now see benefit from positive results from our drilling campaign in Salta, the increases in oil prices in Argentina and consistent contribution from Louisiana wells with excellent oil prices.

“At the same time, the high impact exploration Paraguay project is in progress with results expected by the end of the year. President is also re-invigorating the farm-out project at Martinez del Tineo with a significant potential prize having now been brought into greater focus and attraction due to the increase in hydrocarbon prices.

“The waterflood, secondary recovery project for the main Puesto Flores field previously announced is in the final stage of planning and approvals for the commencement of implementation is this half year.

“Finally, it is pleasing to note the progress of the green hydrogen and ammonia production AIM company, Atome Energy (President: 28% holding) and the improvement in its share value”.

 A very detailed analysis of activity at President which in the main is very positive news indeed. It certainly shows that the company is a way bigger corporation than the market cap gives credit for, it is selling its hydrocarbons very high and has genuinely exciting exploration prospects to boot. 

And finally…

Last night in the Prem Liverpool beat the Red Devils 4-0, it might have been more as the gap between these sides is as wide as I have seen it for many years.

Tonight it’s the London derby as the Gooners go to Stamford Bridge, the Toffees host the Foxes, the Eagles go to the Magpies and the Noisy Neighbours host the Seagulls at the Emptihad.

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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