WTI $110.49 +$4.36, Brent $111.55 +$4.10, Diff -$1.06 -26c, NG $7.66 -8c, UKNG 178.5p -11.5p
By Malcolm Graham-Wood
Oil was mixed last week, the big rise on Friday left WTI up 72 cents but Brent was down 84c over the period.
A number of EU countries are allegedly breaking sanctions on Russia by setting up Ruble accounts with Gazprombank to pay for gas, Eni are apparently on the list.
Diversified Energy Company
Diversified Energy Company has announced the following operations and trading update for the quarter ended 31 March 2022.
Recent Strategic Highlights
• Declared 1Q22 interim dividend of 4.25 cents per share, consistent with 4Q21: up 6% vs. 1Q21
• Acquired Central Region (East Texas) producing assets, adding scale to operations (previously announced on 26 April)
• Acquired Central Region midstream and processing facility assets complementing vertical integration to improve Cash Margins through higher pricing and lower expenses
• Acquired second Appalachian well plugging company, expanding capacity by 33% with two additional crews (8 total)
1Q22 Operating and Financial Highlights
• Exit rate production of 136 Mboepd (816 MMcfepd); Average 1Q22 production of 134 Mboepd (803 MMcfepd) inclusive of temporary weather-related impacts
• Realised 48% Cash Margin(a) (70% Unhedged Cash Margin) with higher realised prices partially offsetting elevated price-linked, largely-variable expenses
• Hedged additional 2023 and 2024 natural gas volumes(b) with an average NYMEX floor price 53% and 26% higher, respectively, versus the Company’s portfolio average as of 17 March 2022
• After successful ABS financings in February, ~90% of borrowings are fixed rate, fully amortising, largely investment grade notes that insulate from rising interest rates
• 2.2x Net Debt / Hedged Adjusted EBITDA leverage ratio(c) as of 31 March 2022 pro forma for recent acquisitions
• ~$350 million of liquidity(d)
Recent Environmental Highlights
• Joined the Oil and Gas Methane Partnership 2.0 (OGMP 2.0) to further advance the Company’s commitment to reducing emissions
• Asset-Retirement Progress:
◦ Plugged 49 wells through April 2022; on track to meet or exceed plugging goals
◦ Expect to add a 9th crew by the end of 2Q22 (4Q21: 1 in-house crew)
◦ Actively pursuing third-party work with independent operators and state agencies
• Emission Reduction Initiatives through 30 April 2022:
◦ Conducted ~37,500 unique emissions surveys of Appalachian assets benefiting from the full deployment of 600 handheld leak detection devices
▪ >80% of sites surveyed demonstrated no leaks with well tenders eliminating fugitive emissions on an additional ~10% immediately while on site and scheduling remaining repairs
▪ Accelerating the Company’s commitment to survey its Appalachian wells by the end of of 3Q22, significantly ahead of the previous mid-2023 commitment
◦ Completed LiDAR aerial surveillance over 2,000 miles of midstream, repairing ~60% of identified leaks and progressing additional repairs
◦ Demonstrated commitment to early-adopt emissions detection and measurement technology (as previously announced on 13 April 2022)
Rusty Hutson, Jr., CEO of Diversified, commented:
“Following our four Central Region acquisitions in the second half of 2021, I’m pleased with the progress we are making to integrate and optimise these assets while adding to their scale and vertical integration to reduce costs. Mindful of cash flow and cash operating margins, we also added to our hedge positions to capture value from the higher forward commodity price curve.
“We continue to deliver on our sustainability commitments, and we have made further investments to expand our in-house well retirement crews. With growing internal well plugging capacity, we expect not only to exceed agreed levels under State agreements but also to become a leading provider of well retirement services to third-party operators and to the Appalachian States themselves.
“With our investments in emissions measurement technology gaining traction and giving us the capability to proactively detect, measure and repair fugitive emissions across our upstream and midstream asset base, I am increasingly confident in our ability to hit our committed targets of lowering methane emissions intensity by 30% by 2026 and 50% by 2030 on our path to net-zero greenhouse gas emissions by 2040.”
A good trading statement from DEC today and with the 1Q dividend announcement showing a 6% increase on 1Q 21 further good news for shareholders. Indeed the company ‘continue to deliver’ to use their words and the model is proving to be highly successful.
DEC continues to make acquisitions adding to scale of its operations whilst improving margins by cutting costs and maintaining its strong financial position by astute hedging and money management. Indeed with c. 90% of borrowings at fixed rates that ‘insulate from rising interest rates’ and with c.$350m of liquidity the company’s position is a very strong one.
Also the company’s total commitment to reducing emissions and continuing to hit sustainability targets are ahead of the schedule of lowering methane emissions intensity by 30% by 2026 and 50% by 2030 on the path to net-zero greenhouse gas emissions by 2040. All in all a highly satisfactory announcement and I would expect more of the same across the board from DEC.
Union Jack Oil
Union Jack Oil plc has announced its audited results for the year ended 31 December 2021.
• Successful proppant squeeze and coiled tubing exercise at Wressle resulted in an instantaneous flow rate of over 1,000 barrels of high-quality oil per day being achieved with zero water cut
• Wressle-1 pressure test analysis by ERCE indicates potential flow rates of between 1,200 to 1,500 bopd are achievable
• Wressle Revised Field Development Plan submitted to the North Sea Transition Authority for approval
• Results from West Newton EWT confirm substantial hydrocarbon discoveries within the Kirkham Abbey formation
• Independent RPS Group review predicts initial average production rates of up to 35.6 million cubic feet of gas and 1,000 bopd from a horizontally drilled well at West Newton
• Planning granted at West Newton for both A and B site works and three year permit extension
• Completion of purchase of a further 15% interest in PEDL253 containing the Biscathorpe Prospect, bringing Union Jack’s interest to 45%
• Carbon Intensity Study on Biscathorpe Project rated AA by Gaffney Cline
• Purchase of a 2.5% royalty interest in the North Sea Claymore, Piper and Scapa oilfields
• Appeal against planning refusal at Biscathorpe submitted to Planning Inspectorate
• Oil revenues increased by over 1,000% during 2021
• Maiden gross profit on oil sales achieved
• Cash balances and near-term receivables of £7,545,575 as at 9 May 2022
• The Company is currently funded for all operational and contracted or planned CAPEX costs, including any budgeted drilling activities for at least the next 12 months
• Debt free
• Early settlement payment made to Calmar LP in respect of deferred consideration on acquisition of 25% interests in PEDL180 and PEDL182, containing the Wressle development
• Company solicitors progressing legal work on Capital Reduction to enable the Company to execute a share-buy-back programme or dividend payment. Appropriate resolutions relating to this are included in the Notice of Annual General Meeting for shareholders to consider within the Annual Report
• The Company’s AGM will be held at 11.00 a.m. on 23 June 2022, at the offices of Osborne Clarke, 2 Temple Back East, Temple Quay, Bristol, BS1 6EG
David Bramhill, Executive Chairman, commented:
“My confidence in Union Jack’s future remains highly positive.
“During 2021 and to date, the Company has advanced a number of its key projects, especially at Wressle which, as stated earlier, have been transformational financially with substantial revenues and indications that the Wressle journey has only just commenced.
“The latest results at West Newton are highly encouraging regarding the prospects of the significant hydrocarbon discoveries made to date and their development potential, following an extensive testing and investigative programme conducted on both sides of the Atlantic by industry leading geological and geochemical consultancies.
“I remain confident that future news arising from our well-balanced portfolio containing relevant components of production, development, appraisal and exploration will continue to vindicate the Board’s unflinching optimism in respect of our Company’s focused strategy.
“In closing, I believe our Company is in sound financial health with a robust balance sheet. Union Jack continues to be debt free, with significant cash reserves and substantial future revenues expected.
“The Company is currently funded for all G&A, OPEX, and contracted or planned CAPEX costs, including any budgeted drilling activities, for at least the next 12 months.
“The future of Union Jack remains bright.”
The picture at UJO gets increasingly rosy, news from Wressle gets better and better and at West Newton the ERCE report is positive on potential flow rates and based on the EWT confirms substantial ‘hydrocarbon discoveries’ within the Kirkham Abbey Formation.
Since the take off at Wressle revenues have soared, cash is up and was £7.5m+ on May 9th, the company is debt free and fully funded for all costs in the next twelve months. As for the share price it is significantly undervalued, the management has indicated that it plans to bring in some kind of shareholder returns this year and that would be just one thing that would create the environment for a substantial share price increase.
With demand for domestically produced hydrocarbons at a peak and Government leaning firmly towards helping increased supply in any way possible, UJO is in a uniquely strong position.
Liverpool won the FA Cup final, again on penalties.
In the Prem, the Noisy Neighbours dropped points at the Hammers after being 2-0 down then having a pen saved at 2-2. At the bottom of the table Leeds drew but the Toffees and Burnley both lost making it all to play for this week.
In the second leg of the Championship play-offs semi-final it is all to play for as the Terriers meet the Hatters for a place in the crucial final.
The opinions expressed here are those of the author
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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