Malcy’s Blog – Oil price, Chariot, San Leon Energy, PetroTal Corp, SDX Energy & finally

WTI $91.59 -$1.22, Brent $97.93 -$1.15, Diff -$6.34 +7c, NG $4.47 -17c, UKNG 281.48p 

By Malcolm Graham-Wood

Oil price

Greetings and this week’s blog comes from Fort Lauderdale, Fla.

Friday’s oil price fall was short live as it was based on hopes of talks regarding the Ukraine which have not occurred, yet. This has been followed this morning by another rise of around $3 taking WTI over $95 and Brent $100.

The signs are that we are in for the long haul given the huge exposure to commodities that Russia controls but surely the oligarchs at the top and the downtrodden people in the streets will not put up with this forever.

I don’t follow BP but today’s statement makes pretty grim reading. They are to sell their 19.75% stake in Rosneft (good luck with that) and messrs Rooney and Dudley have resigned from the board. The 1Q figures will have details of non-cash charges which, having cut loose Rosneft BP will wave goodbye to the massive dividends that they have been taking from the ‘investment’. At least some of us saw this coming but not the huge BP board of the great and the good…

Chariot

Chariot has announced that it has been formally awarded the Rissana Offshore Licence in Morocco.

·      75% interest and operatorship of the Rissana licence awarded to a wholly owned subsidiary of Chariot Limited in partnership with the Office National des Hydrocarbures et des Mines (“ONHYM”) which will hold a 25% interest.

·      Rissana (approximate area 8,489 km2) surrounds the offshore area of Chariot’s existing Lixus Offshore Licence (“Lixus”), where the Company, in January 2022, announced the conclusion of successful drilling operations at the Anchois field, including significant new gas discoveries.

·      Provides material additional potential running room on-trend with the Anchois gas discovery and reinstates the highest potential areas of the former Mohammedia Offshore area into Chariot’s portfolio.

·      Initial minimum licence commitment is the acquisition of a 2D seismic survey, which will help to evaluate the extension and potential of these gas plays across Rissana.

Mrs Amina Benkhadra, General Director Office National des Hydrocarbures et des Mines, commented:

“We are pleased to formally award Chariot the Rissana licence, offshore Morocco. ONHYM and Chariot recently conducted a highly successful drilling campaign in Morocco and we hope that we will be able to have similar success on Rissana.”

Adonis Pouroulis, Acting CEO, commented:

“We are delighted to have been formally awarded the Rissana licence. As we demonstrated with our recent successful drilling campaign at Anchois, this is a highly prospective basin and, along with the Lixus Offshore Licence, the award of Rissana ensures that we have captured the exploration upsides in this exciting play. In parallel with the development plans on the Anchois gas field, we aim to maximise value from the exploration upsides in what we believe is a low risk and high value opportunity.”

This is clearly very good news for Chariot who are in the process of building a very decent, high percentage stake portfolio in Morocco built on early success which is already exhibiting signs of significant value creation. It is capturing prospective acreage around this significant gas discovery which is one of the highest value hydrocarbon economic models in the industry when you look at the demand and pricing of gas in the region and combined with the attractive fiscal regime should create substantial value.

Of course Morocco is only part of the Chariot model in which it is developing a leading position in the transition to renewables in mining assets all over the African continent. What I can’t understand is why the market is yet to take this on board, the shares had a good run up last year and more than doubled in the second half of the year. Since January the shares have fallen and at a time when both parts of Chariot have been delivering on the promises in a favourable market doing exactly the reverse of what I would expect. I said before that Chariot was a multi-bagger and I havent changed my view, if anything at 8.8p the shares are incredibly cheap.

San Leon Energy

San Leon has provided the following update on the proposed reorganisation to consolidate Midwestern Oil and Gas Company Limited’s shareholdings in: i) the Company; and ii) Midwestern Leon Petroleum Limited into a single shareholding in the Company. The Potential Transaction also comprises, inter alia, a proposed consolidation of Midwestern’s indirect debt and equity interests in Energy Link Infrastructure (Malta) Limited (“ELI”) with those of the Company, as well as further new debt and new equity investments to be made by San Leon in ELI. The Potential Transaction, if concluded, would be classified as a reverse takeover under the AIM Rules for Companies (the “AIM Rules”).

AIM admission document update

Further to the Company’s announcement on 24 December 2021, the Company now currently expects to publish an AIM admission document (the “Admission Document”) in respect of the Potential Transaction by the end of April 2022, following which point the Company will seek the restoration of trading of the Company’s ordinary shares on AIM.

Proposed Eroton Transaction

On 29 November 2021, San Leon announced that, inter alia, it had been informed that the operator of the OML 18 oil and gas block located onshore in Nigeria (“OML 18”), Eroton Exploration and Production Company Limited (“Eroton”), is seeking to acquire an additional 18% interest in OML 18 from two of the other partners in OML 18, subject, inter alia, to agreeing documentation, finalising bank financing and relevant regulatory consents in Nigeria, thereby taking Eroton’s interest in OML 18 to 45% (the “Proposed Eroton Transaction”).

As previously noted in the Company’s announcement of 24 December 2021, completion of the Potential Transaction will be conditional upon completion of the Proposed Eroton Transaction. The entering into binding conditional transaction documentation in relation to the Proposed Eroton Transaction is contingent, inter alia, on Eroton’s financing of this transaction which is expected to form part of a refinancing of OML 18’s reserve-based lending facilities. San Leon has recently been provided with updates on the progress of the funding for the Proposed Eroton Transaction, which includes Eroton having received a term sheet in relation to a reserve-based lending facility, totalling US$750,000,000 (the “Proposed Eroton Debt Facilities”), which is proposed to be lent by a financing syndicate led by African Export-Import Bank.

San Leon has also been informed that:

i)           updated OML 18 off-take agreements will be entered into by Eroton in order for the financing syndicate to finalise the Proposed Eroton Debt Facilities; and

ii)          in order for the current off-taker (which is also a lender within the financing syndicate) to enter into a new off-take agreement, ELI will need to have successfully demonstrated the barging of oil to the floating storage and offloading vessel (“FSO”) through part of the Alternative Crude Oil Evacuation System (“ACOES”) project, to the off-takers’ satisfaction.

The loan of US$2.0 million provided to ELI by San Leon, as announced on 15 February 2022, is expected to assist with advancing this process, although the barging of oil to the FSO through part of the ACOES will also be subject to, amongst other matters, receipt of the necessary Nigerian regulatory maritime approvals.  San Leon has been informed that ELI is likely to have demonstrated the barging of oil to the FSO to the off-takers’ satisfaction during March 2022, and following this, San Leon understands that Eroton and the financing syndicate intend to seek to finalise the Proposed Eroton Debt Facilities in order to allow for binding conditional transaction documentation in relation to the Proposed Eroton Transaction to be concluded as soon as may be practicable.

Potential Transaction update

In relation to the Potential Transaction, progress has been made by the Company and its advisers in preparing the necessary transaction documentation in relation to the Potential Transaction, including work on progressing the Admission Document, given that the Potential Transaction will be classified as a reverse takeover under the AIM Rules for Companies (the “AIM Rules”).

The draft conditional agreement to be entered into between: (i) the Company; (ii) Midwestern; and (iii) MLPL, to effect the acquisition of the outstanding shares not already owned by San Leon in relation to MLPL and Midwestern’s indirect debt and equity interests in ELI, as part of the Proposed Transaction, currently remains subject to finalisation of the precise position in relation to its conditions precedent in respect of regulatory consents in Nigeria.  The Company and Midwestern are receiving advice in relation to the relevant process here, in order to best reflect this in a finalised version of this agreement.

As previously announced, as part of the Potential Transaction, San Leon would increase its indirect economic interest in Eroton from 39.2% to 98.0% and, taking into account the completion of the Proposed Eroton Transaction, San Leon’s initial indirect economic interest in OML 18 would increase from the current 10.58% to 44.1%.

In accordance with Rule 14 of the AIM Rules, the Company’s ordinary shares will remain suspended from trading on AIM until such time as either an AIM admission document is published or an announcement is released in the event that the reverse takeover in contemplation is not proceeding.

The announcement of binding agreements in relation to the Potential Transaction remains subject to a number of factors, including, inter alia, the completion of due diligence, the further negotiation and the execution of binding contractual documentation and would be accompanied by the publication of the Admission Document.  Among other things, completion of the Potential Transaction is expected to be subject to various regulatory consents, completion of the Proposed Eroton Transaction, a reorganisation of Midwestern’s indirect equity and debt interests in ELI and the approval of San Leon’s shareholders. Given the need for binding contractual documentation and applicable regulatory consents, it remains the case that there can be no guarantee at this stage that the Potential Transaction (including the proposed debt and equity investments by San Leon in ELI) or the Proposed Eroton Transaction will complete.

There are some further comments in the RNS with regard to the waiver and the related parties which I have omitted on this occasion. However for patient shareholders the good news is that all being well the company hope to publish the AIM Admission document by the end of April which should lead to a restoration of the company’s listing on the AIM market. 

If all goes according to plan, and this deal has taken a great deal of putting together, shareholders should  see the winning post in sight and with it shares and in due course substantial distribution of profits from these deals. 

PetroTal Corp

PetroTal has announced that it has been recognized as one of the top 50 performing TSX-V listed issuers, ranking tenth in the energy industry sector.  All amounts are quoted in US dollars.

TSX Venture 50

The 2022 Venture 50 is an annual program of the TSX Venture Exchange that recognizes the top performing TSXV-listed companies from five industry sectors. The 2022 Venture 50 winners are chosen based on 2021 annual performance for market capitalization growth, share price appreciation and trading volume. A video featuring PetroTal can be found at the link below.  For more information and the full 2022 Venture 50 ranking, visit: www.tsx.com/venture50.

2022 TSX Venture 50 video link

https://vimeo.com/marketonemediagroup/review/676647431/6fd32a3512

Bond Update

PetroTal also advises that is has provided the required notice to bondholders, per the bond indenture, of its intention to repay $20 million in bonds, previously reserved for M&A activities. The cash settlement will occur on or around April 1, 2022. Subsequent to this payment, the Company estimates long term debt, excluding lease obligations and abandonment costs, will be $80 million.

Congratulations to Manolo and all at PTAL for their deserved success, in a difficult couple of years it shows that class will out. But perhaps more importantly is that the company is repaying $20m in bonds and now has $80m in long term debt. 

PetroTal shares have nearly tripled in under a year and at 41p still look excellent value based on my 75p target price. 

SDX Energy

SDX has announced the completion of drilling at the MSD-25 infill development well on the Meseda field in its West Gharib concession, Egypt (SDX: 50% working interest). MSD-25 encountered the primary top Asl Formation reservoir at 4,109ft MD (3,361ft TVDSS) and reached a TD of 4,385ft MD. The well encountered 84.8ft of good-quality, net oil pay sandstone, with an average porosity of 26.1% in the Asl Formation reservoir. MSD-25 will now be tied-in to the existing facilities and flow tested, and it is expected to be in production within two to three weeks.

MSD-25 is the second well in a fully-funded, 13-well development campaign on the Meseda and Rabul oil fields in the West Gharib concession, Egyptian Eastern Desert. The development drilling campaign is aimed at growing production to c.3,500 – 4,000bbl/d by early 2023.

The rig will now move to the next well in the campaign, MSD-20, which is expected to spud in mid-to late-March 2022.

Mark Reid, CEO of SDX, commented:

“The logs from MSD-25 are encouraging, implying a 36% larger pay zone than in MSD-21 with porosity also being good at 26.1%. The well will now be connected to our infrastructure and flow tested and we will update the market on the results of this in the coming weeks. With the oil price now at multi-year highs, West Gharib is a very high margin asset in our portfolio, MSD-25 and subsequent wells will boost the production and cashflow from these fields in the coming months. I look forward to updating the market further as the campaign progresses.”

This is a very encouraging well result assuming that it connects up and flows well will indeed be highly profitable. Readers will know that last year I had well documented, less than positive views on the company over a number of matters which I was pleased to conclude after a very helpful meeting with the company. 

However, SDX have halved over a year and are now trying to regenerate investor sympathy so they need to do something positive and my guess is that will need to involve major shareholder Waha Capital and maybe even one or two other substantial investors. 

And finally…

In the 6 Nations Scotland couldn’t hold France and lost 17-36, England nearly tripped up but beat Wales 23-19 at headquarters. Yesterday Ireland cruised to a 57-6 win against Italy which turned into a farce as at one stage had only 12 men on the field and were playing uncontested scrums, only 57 points then…!

In the Prem the Toffees held out a long time before losing 0-1 to the Noisy Neighbours and the Hammers beat Wolves 1-0 as well. Leeds lost 0-4 to Spurs which led to the ‘genius’ Bielsa getting the sack. In the Haribo final Liverpool beat Chelski 11-10 on pens.

And I listened to the title fight and with Taylor winning on points against Catterall we saw, and heard another scandalous disgrace by the ringside judges yet again boxing is in shame.

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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