Malcy’s Blog – Oil price, Eco Atlantic Oil & Gas, Exxon Mobil, Far Limited, Longboat Energy, Scirocco Energy & Victoria Oil & Gas

WTI $88.20 +5c, Brent $89.16 -10c, Diff -96c, NG $4.75 -12c, UKNG 184.56p -9.96p

By Malcolm Graham-Wood

Oil price- Swing baby swing…

Its Groundhog Day so expect worries about hibernation but over at the Opec+ meeting it might be slightly tricky. I know that it is always tricky one way and another especially in the bigger group but this time it is almost an embarrassment of riches, $90 oil is perfect.

So roll over and do it again to paraphrase the song, let the 400/- b/d rise under the production agreement go through in the full knowledge that the members can’t do that much. If the price rises towards $100 by next month that will be time for my favourite Opec action, the KSA stepping in as swing producer as the only one (with a little help from Kuwait, Iraq and the UAE) able to must enough oil to bring down the price otherwise at that level demand will disappear like snow flakes in the spring.

There is a fly in the ointment of course, it’s Opec+ you would expect that. What if Russia invades The Ukraine and triggers sanctions from the US, Europe and others? Not just oil suffers (Russia exports an interesting amount of oil to the US) but presumably currency and banking would be hit à la Iran so that sweet equation goes west, or east or….never mind!

Back in the real world I couldn’t help noticing that Exxon are finally moving to Houston with its management  leaving the ‘God Pod’ in Irving to join the Spring campus. It comes with a reorganisation of the business into three divisions.

Scirocco Energy

Scirocco has provided the following update on its operations:

EAG Joint Venture

The Company recently supported Energy Acquisitions Group Ltd, the specialist acquisition and operating vehicle in the sustainable energy sector, to acquire its first cash generative anaerobic digestion asset, Greenan Generation Limited, in which Scirocco Energy holds a 50% interest:

Financial

In Q4 2021 the revenue received for the quarter by GGL totalled £300,352 (unaudited) supported by high power prices through the period. This compares to the same period in 2020 where revenue was £232,968 (unaudited). At current power price levels EBITDA for the first 12 months of EAG ownership is estimated to exceed £600,000 rather than the £470,000 guidance previously issued.

Operational

Q4 2021 was the first complete quarter of EAG’s ownership of GGL. During the quarter the following upgrades were initiated to ensure biological, mechanical, and financial stability going forward.

·    Engagement and retention of a consultant biologist to commence a medium-term biological analysis of the plant to support optimisation of feedstock and process.

·    A number of equipment upgrades including the installation of an automated radar system to remove the requirement for operator intervention on digester recirculation and level monitoring.

·    Extended equipment support contracts and upgraded control software systems to ensure operational efficiency and mechanical stability.

·    Recalibration and replacement of gas monitoring and treatment equipment to ensure accurate recording of methane and associated gas values.

·    Replaced a number of the mixers due to normal wear and tear experienced over the plant’s six-year operational life. This will ensure good mixing and support optimal operational performance going forward.

Furthermore, the EAG team is currently reviewing options for a feedstock optimisation programme.

Business Development

From a business development perspective, EAG is currently carrying out due diligence on two additional AD plants. Under the arrangement with SEM (announced by Scirocco in an RNS dated 9 December 2021) the Company and EAG gained exclusive access to a technical solution for the processing of digestate into a nutrient dense organic fertiliser. The EAG team is engaged in discussions regarding two merchant installations of the SEM equipment on third party AD plants.

Tom Reynolds, Scirocco Energy CEO commented 

“We are delighted to see excellent operational performance supported by the current high wholesale power prices. EAG’s experienced team have begun investing to automate and future proof the asset and are making clear headway with an attractive pipeline of opportunities to support further investment. Scirocco’s 50% interest in EAG represents a robust, scalable platform primed for growth and we look forward to working with the team going forward.”

Tanzania Operations

Operational activities under the Ruvuma PSA in Tanzania, where Scirocco Energy owns a legacy 25% working interest, have progressed under the supervision of operator, ARA Petroleum Tanzania (“APT”):

·    Seismic camp fully constructed, and the contractor Africa Geophysical Services Limited (“AGS”) is completing the mobilisation of all necessary equipment to site. This work is expected to be completed by mid-February;

·    Acquisition of the 338km2 3D seismic survey will commence upon full equipment mobilisation;

·    The 3D seismic survey is an integral step in progressing and de-risking the Ntorya gas discovery ahead of the drilling of the Chikumbi-1 (“CH-1”) well;

·    The seismic acquisition and subsequent interpretation will seek to refine and confirm the exploitable gas resources of the Ntorya field. Additionally the survey will provide greater clarity of the potential upside of the discovery as identified by the operator APT, through a re-interpretation of the existing 2D seismic dataset.  APT’s revised mapping and internal management estimates suggest a risked prospective gas in place (“GIIP”) for the Ntorya accumulation of 3,024 Bcf (gross basis, mean case), in multiple lobes to be tested, and a prospective, risked recoverable gas resource of 1,990 Bcf (gross basis, mean case); and

·    APT continue to progress with well planning for the CH-1 well with key contracting now being undertaken. The operator continues to target a Q3 spud.

Commenting on the update, Tom Reynolds said 

“Ruvuma Operator, ARA Petroleum Tanzania, has injected energy into the operational programme and we are seeing the benefit of this engagement now. Following the award of the seismic contract in Q4 2021 and the ongoing mobilisation of the equipment to site, the Joint Venture expects to commence shooting seismic imminently. This will provide the high quality 3D definition of the subsurface in preparation for the appraisal well to be drilled in Q3 this year. An exciting time on the licence which has the potential to prove up substantial gas volumes.  As Scirocco moves towards these key operational milestones we are continuing with our ongoing discussions regarding possible farm-down and divestment options, while simultaneously progressing our funding options in the event that we retain 25% interest in Ruvuma at the time of the CH-1 well.”

Scirocco are moving along nicely with the legacy business in Tanzania really beginning to show  very decent progress towards a well in Q3 this year. With the seismic imminent 3D views will soon be ready to see what’s down there and all sides tell me that the substantial gas volumes hoped for for a long time will materialise. 

Scirocco can legitimately have both its cake and eat it, at Ruvuma operations are progressing and a 25% stake here is starting to look increasingly valuable, results of the long awaited appraisal well , whilst at EAG in sustainable energy the investment has proved most attractive especially with the Greenan add-on working out well and is generating good positive cash flows which supports the strategy to become a self-sustaining business.

Waiting for Ruvuma has proved wise and after a false start Scirocco deserves praise for creating another business away from Tanzania. Right now either combination works well but I suspect that if pushed the team would prefer to be building EAG for the future where current high gas prices help significantly, although Scirocco holds the cards as it is still in discussions regarding possible farm down/sale of its interest in Ruvuma while also preparing itself to be involved in the well.  Either outcome of monetisation or leaning into the drill represents a significant value catalyst for SCIR and its shareholders.

Victoria Oil & Gas

Victoria Oil & Gas Plc, whose wholly owned subsidiary, Gaz du Cameroun S.A. is the onshore gas producer and distributor with operations located in the port city of Douala, Cameroon, is pleased to provide shareholders with a brief operations update for the fourth quarter of 2021.

SUMMARY

·    Sales: Average daily gross gas sales rate for the quarter of 5.3 MMscf/d (up 6.0% on Q3 21: 5.0 MMscf/d) of natural gas, plus gross 5,584 bbls (Q3 21: 3,800 bbls) condensate was shipped to customers.

·    Logbaba Performance: The field has been meeting the demand using two of the three wells at any one time, with Well La-108 alternating with Well La-107.

·    Matanda: Following the selection of a suitable wellsite to drill a vertical well into the Marula prospect on Government-owned, late-life plantation lands, stakeholder engagement continued, and the preparation of site access roads commenced.

·  Litigation: Certain of the non-monetary claims in the ICC arbitration with RSM Production Corporation (“RSM”) have been settled consistent with the UNCITRAL arbitration settlement agreement, previously announced on 29 September 2021.  The settled non-monetary claims resolve several prospective accounting issues.

Roy Kelly, Chief Executive of Victoria Oil & Gas, commented:

“We are very pleased with the robust quarter that GDC achieved, despite a greater than expected number of maintenance shutdowns for its customers. Following the end of the quarter, 2022 has started very well with strong demand shown in the market.

“I am pleased we could settle those non-monetary claims with a prospective impact in the ICC arbitration, and I am again grateful to RSM for their continued and constructive engagement on this.”

I’m looking forward to chatting to the enigmatic management team at some stage as the new VOG story is gaining strength with every trading update. It is almost too long a story but those patient shareholders who have been in for the long haul are slowly getting something back and without tempting fate I think that the market has scope for GDC to deliver substantially more sales and as for Matanda the sky is the limit…

Longboat Energy

Longboat Energy, the emerging full-cycle North Sea E&P company, announces that the stacked Ginny/Hermine exploration prospects in licence PL1060 (Company 9%) failed to encounter hydrocarbons and will now be plugged and abandoned.

Exploration well 6407/9-13 operated by Equinor Energy AS, was targeting both the Upper Jurassic Ginny and the Middle Jurassic Hermine prospects located between the Galtvort discovery and Hasselmus field development. The well was drilled to a vertical depth of 2,319 metres below sea level and encountered the target reservoirs water wet.

The drilling operations were carried out within budget and with no HSE incidents.  

Helge Hammer, Chief Executive of Longboat, commented:

Although this was the least impactful target in our portfolio, we are disappointed that the Ginny and Hermine prospects were not successful, particularly given their location between discoveries of similar age and structure. 

“In the meantime, the Company is looking forward to continuing the fully funded well programme with the Kveikje well expected to spud next month, the Cambozola well spudding in the spring and Copernicus in the summer.”

Speaking to Helge this morning he is obviously disappointed as it looks like the reservoir quality was there but the seal wasn’t, but this is how it goes and it would have been a smaller prospect but cheap to produce if it had worked. Also it was extremely cheap and with tax credit may have cost around $500,000.

Longboat are still in its exciting well programme and the next three are in areas of significant discoveries which make for potential advantageous economics in particular Cambozola and Copernicus as mentioned above. With recent deals such as the Lundin/Aker BP one there are surely plenty of opportunities around and I still feel that Longboat is nowhere near its true valuation in the market. 

Far

A brief note after my comments on Monday after the off-market takeover bid at A45c per share, since then the price seems to have settled at around A60c per share which certainly proves my earlier comments that the A45c bid was somewhat opportunistic…

Eco (Atlantic) Oil & Gas

Canada’s CGX Energy (OYL.V) on Monday reaffirmed it and parent Frontera Energy (FEC.TO) discovered an oil and gas reservoir off the coast of Guyana and said drilling on a second well could begin later this year.

Its Kawa-1 well found approximately 177 feet (54 meters) of hydrocarbon-bearing reservoirs based on an initial evaluation of logging data, the company said. It did not disclose the size of the potential find.

“We are very pleased to have successfully drilled the Kawa-1 well with our partner CGX, said Orlando Cabrales, Frontera’s CEO.
Frontera is the majority shareholder of CGX and its joint venture partner in the exploration of Corentyne block, offshore Guyana.

Last month, CGX said the Kawa-1 results suggested the presence of oil and gas, but warned it may be required to seek additional financing to continue drilling. Costs associated with the well had risen to between $115 million and $125 million, it said.

Final well cost estimates and additional results of the discovery will be disclosed in the future, the company said.

I mention this discovery as it is the best possible well result for Eco Atlantic as it is the same depth and thickness as their acreage and the first one outside of Stabroek and on trend with Orinduik which makes it a very good read across for them. 

Eco is a favourite in the Bucket List, for its exposure to Guyana obviously as above and would have been drilled if it hadn’t been for the operator putting off its commitments for so long. More recently its acreage in Namibia has been focused on after a big discovery by Shell nearby, these two discoveries can but only vicariously help Eco and I’m sure that it will be reflected in the share price, already up by 92% since Christmas Eve. 

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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