WTI $81.59 +25c, Brent $82.87 +23c, Diff -$1.28 -2c, NG $5.15 +27c, UKNG 199.0p +14.55p
By Malcolm Graham-Wood
Right now oil is flat on the week but the price is drifting as I write it will likely end slightly down. The Opec report was slightly negative, mainly in that it said that it had seen some demand resilience from all the areas we have discussed here recently, viz Covid, inflation and global supply chain issues.
Demand hovers around 100m b/d slightly less in Q1 22 as one would expect so Opec will have to tweak its output rises as indeed the Iraq minister said overnight. News that the huge Johan Sverdrup field has gone down owing to a power cut took 535/- b/d off the market but apparently is coming back today.
Diversified Energy Company
Diversified Energy has announced that the Company and Oaktree Capital Management, L.P. have entered into a Purchase and Sale Agreement to divest their working interest in certain predominantly undeveloped Haynesville acreage in Texas for estimated total cash consideration at Closing of approximately $72.8 million (net $37.3 million to Diversified).
Net to Diversified, the sale includes nearly $33.7 million for 22,729 net acres of predominantly undeveloped Haynesville Shale leasehold in Harrison, Leon, Panola, Robertson and Rusk counties, and $3.6 million for 38 gross Haynesville Shale wells on this acreage producing approximately 1,700 net Mcf per day as of November, 2021 (representing just 2% of the production that Diversified originally acquired from Tanos Energy Holdings II LLC in August 2021). Diversified retains an overriding royalty interest on certain of the undeveloped leasehold in Panola and Rusk Counties along with the development rights to all geologic formations other than the Haynesville Shale in the divested acreage.
Diversified’s successful monetising of these Assets effectively reduces its investment in the previously announced Tanos transaction by 30% to $81 million from the original $118 million, net of purchase price adjustments. Consistent with previous acquisitions, the Company ascribed no value to the undeveloped Haynesville leasehold. Accordingly, the Company’s sale of the Assets reflects its proven ability to purchase predominantly PDP (proved, developed, producing) assets at low multiples and drive further value through the strategic monetisation of undeveloped upside potential. Diversified expects to close the transaction in mid to late December subject to the purchaser’s normal and customary diligence.
Rusty Hutson, Jr., CEO of the Company commented:
“I am proud of our team’s actions to enhance the value of our recent Tanos acquisition, significantly reducing our net purchase price by successfully monetising these Assets. This transaction exemplifies our strategy of efficiently managing our producing assets and extracting maximum value from predominantly undeveloped resources. The sale proceeds enhance our liquidity as we evaluate other value-accretive opportunities. We remain focused on completing the integration our Central Region acquisitions, delivering operational and administrative synergies and implementing our ESG initiatives and Smarter Asset Management programme across the portfolio.”
This is another clever move by DEC as they, along with Oaktree have sold a package of assets from their acquisition of Tanos assets in August 2021. Selling assets from the undeveloped Haynesville assets bought extremely cheaply and then managing to derive added value by sales such as these adds to the credibility of the model.
As Rusty Hutson points out this increases profitability from further acquisitions that they regularly point out are to be found in a number of hydrocarbon basins across the US and their experience shows that they are a step ahead of the competition each time they complete a deal, and then some afterwards.
United oil & Gas
UOG has announced the spudding of the Al Jahraa-13 development (“AJ-13”) well in the Abu Sennan licence, onshore Egypt. Drilling of the AJ-13 development well, which will target stacked Upper and Lower Bahariya reservoir targets, has commenced and the well will take approximately 65 days to drill and complete and is fully funded from operational cashflow.
Assuming success, AJ-13 can rapidly be brought into production, generating revenue and following mobilisation of the ECDC-6 rig to site, the Company is pleased to note that the operators of the Abu Sennan Licence, Kuwait Energy Egypt, have notified the Joint Venture partners that the AJ-13 well has commenced drilling.
The well, which is a follow up to the successful Al Jahraa-8 well, will target the Upper and Lower Bahariya reservoirs in the Al Jahraa Field. The well can be quickly tied into existing facilities, adding additional production and revenue for the Company. The AJ-13 well is the fifth and final well in the Abu Sennan 2021 drilling programme before the 2022 drilling programme begins, which is planned to consist of five exploration and development wells. United holds a 22% working interest in the Licence, which is operated by Kuwait Energy Egypt.
Brian Larkin, Chief Executive Officer commented
“Following the success of Al Jahraa-8, we are delighted to now be drilling the Al Jahraa-13 well, which can add immediate cash flow to the Company. There is extensive potential in the Abu Sennan licence as demonstrated by the drilling success so far and the Joint Venture partners are pleased to once again be testing this.
“In this high oil price environment, we look forward to updating shareholders on operations and will update the market in due course on the progress of the well.”
Like shelling peas almost, drilling add-on wells in the Abu Senna has history of success and is economically highly valuable. Expect the company to continue down this low-risk avenue of developing the portfolio whilst it can and the rest of the asset base is still being rationalised as in Jamaica.
Block has announced that following the interim installation of a rod pump, WR-B1a is currently producing 50 bopd. A rod pump was installed on WR-B1a for the clean-up operations. Following the side-track of JKT-01, downhole operations at WR-B1a will resume with a low-cost side-track from the same well bore. It will target significant fractures and faults, newly identified from attribute analysis of the 3D-seismic survey, at a higher level within the Middle Eocene reservoir. The attribute analysis has been recalibrated from the significant amounts of data acquired through drilling WR-B1a.
WR-B1a was deliberately drilled into a less fractured zone in an attempt to produce more stable oil production rates, and to minimise water production. However, this resulted in oil production also being below targeted levels, and the attribute analysis provides some possible reasons why this may have occurred. This greater understanding of the reservoir has informed the placement of the JKT-01 wellbore, in order to change the orientation to target the larger fractures observed in the attribute analysis.
The second well of the campaign, the fully-funded side-track of JKT-01, is due to spud before the end of November and following intensive analysis of Block’s 3D-seismic survey, the JKT-01 horizontal hole will be drilled at a different orientation to that of WR-B1a. Post JKT-01, a low-cost side-track will be drilled from WR-B1a to increase production to forecast levels.
Well JKT-01 side-track is fully-funded and on target to commence drilling in the second half of November. The drilling rig is on the newly refurbished wellsite and undergoing a final planned rehabilitation before drilling operations commence. Analysis of the production data indicates that a volume of some 8 million barrels of oil is present in this area of the reservoir.
Block Energy plc’s Chief Executive Officer, Paul Haywood, said:
“Well WR-B1a has not so far produced at the forecast rate, but we have leveraged the new data gathered from the well to greatly enhance the potential production rates from JKT-01 and subsequent wells. Our technical team’s new attribute analysis also supports the plan to return to WR-B1a, aimed at delivering production more in-line with initial expectations. I encourage you all to watch the video by Stephen James, our in-house expert on fractured reservoirs.”
There is little to add to the further operational disappointment at Block but the management seem confident that they can fix it with a side-track. In addition they also seem confident that the upcoming JKT-01 will succeed and after that both side-tracks will provide additional production.
The F1 charabanc moves to Brazil for the Sao Paulo GP on Sunday and this is one with a sprint race to qualify on Saturday evening, so far they have been good but Red Bull are hot favourites here and to take the drivers and team Championship.
Rugby’s autumn international season continues, England with even more cases of Covid in the squad host Australia at Twickenham whilst South Africa head to Murrayfield and the All Blacks are in Dublin.
It is World Cup qualifying in footy, tonight Scotland are in Moldova, England host Albania and out already Northern Ireland entertain Lithuania. Tomorrow Wales host Belarus but are already guaranteed at least a play-off and maybe better.
It is the three days November meeting at Cheltenham with really proper racing including the Paddy Power Gold Cup.
The opinions expressed here are those of the author
Malcolm Graham-WoodRead More
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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