Malcy’s Blog – Oil price, Chariot, IGas, Pantheon & Finally

WTI $25.09 +1.46, Brent $32.84 +97c, Diff -$7.75 -49c, NG $1.78 -7c

By Malcolm Graham-Wood

Oil price

So, at 1500 hrs UK time the Opec+ meeting will take place this afternoon with as of yet, no certainty that it will have any forecast-able result. Oil markets have rallied significantly ahead of the meeting but Russia is still quixotic and quite how people will view the US position is anybody’s guess.

The reason for that goes right back to the Sherman Antitrust Act of 1890 which as we all know now is what stops anyone price fixing or operating cartels, somewhat ironic given the current US view of Opec. However most people seem to be happy that the very amount of US crude production that is already being shut-in can effectively be seen to be ‘instead of’ a requirement to forcibly cut production.

And that number is growing, remember back a couple of weeks when the January number of 12.7m b/d was down 100,000 b/d giving a 2019 y/e number of 12.8m b/d as a guideline. At that time I was the highest in terms of US domestic production fall with a guess of minus 1m b/d at end 2020 and another 1m b/d end 2021 so 11.8m and 10.8m b/d respectively. Last night the EIA have already brought their 2020 number down to 12.4m b/d, average, there will be more.

Finally the other question that must be asked is that having got this far and maybe wiped a couple of million barrels off the US market by next year why dont the Saudis go the whole hog and drive them out of business altogether, after all then you could charge what you liked….

Dow Jones has reported that the Saudi state fund PIF has invested $1bn in stakes in Shell, Total, Eni and Equinor, maybe they read the blog the other day and fancied a bit of the 16% yield in RDS…

Chariot Oil & Gas

A strategic update and response to market conditions from Chariot this morning who say that their corporate strategy is to focus on monetising the potential of the Lixus licence and maximise value for investors by developing a Moroccan gas business. All this is to be delivered with continued focus on capital discipline whilst retaining key players, operating capabilities and a continuing reduction in annual running costs by c.45% from $4.5m to $2.5m.

Part of this process involves the board seeing a cash reduction in fees and salaries by 50% and being replaced by shares, an important, meaningful cut to an already lean G&A figure. Chariot has cash of $9.6m in the balance sheet, no debt and no work commitments which mean that this is a realistic cut and because of the flexible nature of the company with no obligations outside of their control.

This is a response to the changing risk profile required from investors, the development of the Moroccan gas business in general and Anchois development specifically is all about capital discipline, focused risk and delivery of Lixus whilst preserving cash. Anchois has a total remaining recoverable resource of 423 Bcf and the company has performed a PSDM on legacy 3D data which has materially improved the dataset and has already highlighted additional potential within the Anchois area including identifying the additional, deeper target the ‘O’ sand. This may have best estimate (2U) prospective resources of 159 Bcf taking the total to 582 Bcf with the addition of the resources assigned to the O Sand to the NSAI 2C estimates for the discovered A & B Sands and 2U estimate for the undrilled C Sand.

All this shows that the project has the potential for near-term, substantial returns and strong partnering interest, whilst somewhat modestly delayed by COVID-19 is very much on the cards as Chariot shares the risk. The company appears to be most impressed by the breadth and width of the potential partners who appreciate the opportunity to join with a company with access to a top quality Moroccan gas business with strong ESG credentials, not to be ignored nowadays.

Finally, it must not be forgotten that Anchois has ‘additional running room’ in the Anchois satellites and additional prospects which would gain from the growing Moroccan gas market  with its attractive gas pricing. To me Chariot has addressed the situation and is moving as fast as is possible to be a Moroccan gas market player whilst reducing the overall cost  base of the company.

IGas Energy

IGas Finals today showing a laudable strength in depth in the current market mainly due to its exposure to onshore conventional plays with its eminent flexibility. Production was 2,325 boepd (2,258) in line with guidance with operating costs of $30/boe (31.9) with current guidance still 2,250-2,450 boepd with operating costs of c.$27.5/boe although this is caveat-ed for challenging environment and material uncertainty etc.

With significant 2P reserves replacement ~277% (1P ~192%) there was also encouraging reserves and resources highlighted by 2P of 16.05 MMboe at the end of 2019 (14.56). The new $40m RBL reduced financial costs and provided flexibility particularly in the conventional. That conventional business generated £16.5m of free operating cash flow and the company has cash balances of £8.2m and net debt of £6.2m. Put that with an excellent hedging policy both in the commodity and the currency and you can see how well the company is run. In these markets IGas has a lot going for it.

Pantheon Resources

Following the unsuccessful well reported by 88E and Premier Oil earlier this week, and to be fair some voluble feedback from Pantheon shareholders, I thought it would be good to fix a meeting with PANR to see what the position currently is. I did meet with top management when the shares were suspended awaiting an experts report and yesterday I wanted to check that I was up to speed with events.

Pantheon, through last year’s merger with Great Bear Petroleum has a high impact project on the Alaskan North Slope where it controls 200,000 acres to the south of the historic and huge Prudhoe Bay and Kuparuk fields and with the TAPS pipeline system nearby and the Dalton highway on its land has excellent infrastructure.

Following the successful Alkaid well last year the company commissioned an independent experts report which gave the company 76.5 million barrels of contingent resources with an overall P50 of 1.2bn barrels of oil equivalent. Clearly all these numbers are huge and whilst they make Pantheon potentially massive it is clearly a requirement to find a partner, indeed they are keen for it to be the ‘right’ partner who has to be prepared to commit a substantial amount of capital.

Having said that, finding the right farm-inee will not be easy although ironically, speaking to the company yesterday the conventional ANS has greater appeal than the shale already shutting-in. One of the reasons for proving how hard it is to find a partner is more to do with the virus and that the data room is a physical one, albeit in Houston making it hard to visit just now.

Pantheon clearly has an absolute monster of a potential project, it has high quality directors, shareholders and first rate advisors, indeed a geophysical contractor was so impressed with what they saw they wanted their fee in shares, not possible but a 1% royalty has appeased them. Pantheon are in an amazing postcode and with a partner and when action can begin the value will start to transfer to the shareholders.

It is almost impossible to calculate how much this acreage could be worth to Pantheon, perhaps a 20 bagger, maybe 50 but that can only happen when the partner is found and while this may or may not take potentially a long time management and shareholders remain confident and prepared to wait.

And finally…

Have a Happy Easter, Passover or whatever, if any, god goes with you, keep safe all.

PS Disney +, is this the current generation’s licence to print money?

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 publication.

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