Malcy’s Blog – Oil price, Genel, Challenger, Falcon, UOG, Advance, Serica & finally

WTI $69.29 -70c, Brent $72.61 -42c, Diff -$3.32 +28c, NG $4.38 +7c, UKNG 132.05p -0.75p

By Malcolm Graham-Wood

Oil price

I was away at the end of last week but the oil price ended up pretty much flat, Opec+ carried over it agreement, the Fed pushed back the taper after the Non – Farm payrolls showed a worse than expected 234/- growth in jobs. The KSA has cut pricing to Asian clients by $1.30 a barrel but not to Europe of the USA.

The rig count was very much out of kilter although whether one can blame Ida for a 16 unit fall in oil rigs it up to some debate. Back to Ida there is still almost total loss of the 1.7m b/d oil production but the 2.1m b/d of refining is slowly reappearing. Stock numbers will be all over the place in the next 2/3 weeks especially as today is Labor Day in the USA, traditionally the ending of the summer driving season.

Genel Energy

Genel has announced that payments have been received from the Kurdistan Regional Government relating to oil sales during June 2021. Genel’s share of those payments is as follows: Tawke $15.0m; Tawke override $8.8m Taq Taq $1.9m ;Sarta* $3.4m; Receivable recovery $4.6m; Total $33.7m.

Following the receipt of the receivable recovery payment, Genel is now owed $137 million from the KRG for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020. For the first time, Genel’s production from Sarta was also included in the calculation of the receivable recovery payment.

*Genel is awaiting confirmation from the operator, Chevron, that payment has been received. The Company expects this shortly and will not announce the payment separately.

Challenger Energy Group

Challenger Energy has advised that it has been awarded STOW-TT certification in Trinidad and Tobago. STOW-TT stands for “Safe to Work in Trinidad & Tobago”. STOW certification provides a standardized HSE requirement and an independent system for certifying operators and contractors with respect to Health, Safety and Environmental requirements. Heritage Petroleum Company Limited is a signatory of the STOW Charter and requires all contractors/operators conducting work on their behalf to become STOW certified.

Following an extensive program of work and preparation over the last 12 months, the Company has been awarded a 2-year certification effective 5th August 2021, the maximum time achievable under STOW rules.

 Eytan Uliel, Chief Executive Officer, commented:

 “An essential part of the social licence to operate in Trinidad and Tobago is to achieve STOW accreditation, which demonstrates an operator’s commitment to its people, vendors, contractors, regulatory authorities, and the local communities in which it operates. When we took over operating of our assets in Trinidad in August 2020, we noted that the prior operators had never successfully achieved STOW certification, and we determined to do so as a matter of priority. We are thus enormously proud of this achievement, which represents the culmination of more than 12 months of work by our in-country team, and provides strong validation for our commitment to, and operating presence in, Trinidad and Tobago.”

Falcon Oil & Gas

Whilst I was away, positive results from extended production testing at the Amungee NW-1 well in the Northern Territory’s Beetaloo Basin have increased Origin’s understanding of the Velkerri dry gas play. Average gas rates of 1.23 million cubic feet per day (1.23 MMscf/d) have been observed over the first three weeks of production testing, however importantly the majority of these flows came from only a portion of the well.

Specialist diagnostic equipment has been used to determine the extent to which these observed gas flows come from different fracture stimulation stages before or beyond a certain point in the well that was thought to be restricting the flow of gas across the  full production zone. Between 5%-15% of gas flow are coming from the stages beyond this point with the majority of flows measured, between 85%-95%, coming from the first 200m section of the well.

The result from this section, which has been independently verified, can now reasonably be considered to represent the deliverability that could be achieved across the full production zone of this and further wells drilled and fracture stimulated in the same Velkerri shale formation.

It suggests a normalised gas flow rate equivalent of between 5.2 and 5.8 million cubic feet per day (MMscf/d) per 1,000m of lateral. A typical future production well may have a lateral production section up to 3,000m long.

Origin General Manager Beetaloo and Growth Assets, Mr Chris White, said,

“This is a  positive result that supports the decision to undertake a second extended production test at the Amungee well as part of this year’s work program.

“These results significantly increase our assessment of potential deliverability and commerciality of future wells in this area.

“While further work will be required in coming years to determine if the result can be reproduced on a larger scale, this result indicates the Velkerri dry gas play may be in line with commercial shale plays around the world, based on normalised production rates,” Mr White said.

I spoke to Philip O’Quigley, CEO of Falcon this morning and he was unsurprisingly delighted.  ‘This is a very exciting and significant development for the company as it takes us a giant step closer to commercialising the Beetaloo’. What is more there is much more to come as wells from Santos are likely to massively improve the commerciality of the area.

‘Santos (Market Cap A$12 billion) has started drilling their second horizontal well targeting the same Middle Velkerri B shale about 80 km to the east. They plan to complete, frack and flow test both wells by the end of the year. More positive news here will further accelerate the commercialisation of the Beetaloo. ‘This really is the turning point for the Beetaloo that we have been waiting for’.

For those of us who have followed this project for some ten years it is a welcome reward to Falcon who have done a  lot of the heavy lifting on this project. There is a huge, profitable development in sight and management and shareholders have been patient enough to be ultimately rewarded, something that should happen.

United Oil & Gas

United Oil & Gas has issued the following operations update ahead of its half year results on 28 September 2021. H1 2021 production from the seven producing fields which make up the Abu Sennan licence  net to the Company’s working interest averaged 2,730 boepd  in line with full-year guidance of 2,500 to 2,700  boepd.  

The ASH field, which currently has three wells in production has performed exceptionally, with over 3 million barrels gross produced since it came on stream, representing c. 60% of oil production on the Abu Sennan licence since the start of 2020. However, since early July the proportion of water to oil being produced has increased on all three producing wells,  particularly on ASH-2, where it has increased at a faster rate than expected. The increase in water cut has been accompanied by an associated drop in production from the ASH field.

The  joint venture partners have performed a number of operations to investigate options for controlling the water-cut and stabilising production, including looking at the effect of differing choke sizes, shutting in various perforated intervals, and running production logging tests. The JV  partners are still in the early days of monitoring the performance of the wells since the interventions were performed and are continuing to consider other options that could help stabilise the decline. 

However as a result of this whilst H1 was in line with guidance at 2,730 boepd full year guidance has been reduced from 2,500-2,700 boepd to 2,100-2,300 boepd.

 The other six fields on the Abu Sennan licence are entirely unaffected by this and are producing  in line with our expectations. As a result of the lower oil production from the ASH field, the Company has revised its full year guidance for the Abu Sennan  licence from 2,500-2,700 to 2,100-2,300 boepd.  Production from the Abu Sennan licence as at 4 September was  1,817 boepd net to the Company’s working interest.

 The JV partners are assessing the impact this may have on the ASH field reserves and resources, which represent 36% of the Abu Sennan licence oil reserves at end 2020. The annual independent reserves report will be completed at the end of December and  will be published in our full year results.

Brian Larkin CEO commented:

“The Abu Sennan licence has performed exceptionally since we acquired the asset. Whilst the increase in water cut at ASH-2 and the resulting impact on our production guidance is disappointing, we will continue to work with the JV partners to identify and implement the best long-term solution.  

We are pleased to add a further well to our 2021 drilling program, in addition to the already drilling ASX-1X exploration well. The continued investment in the Abu Sennan licence by  the JV partners speaks to the potential which exists within the concession and we look forward to updating shareholders as we receive further results.

Our low-cost production base continues to deliver positive  operational cashflow, and  this, combined with recently announced portfolio management initiatives, ensures that United  remains in a strong position to execute our strategy”

Advance Energy

Advance has provided an update on the Buffalo-10 well drilling operations. Further to the announcement on 30 June 2021, in which the Company announced that the Operator, Carnarvon Petroleum Limited, had agreed a Letter of Intent for a jack-up rig for the Buffalo-10 well, the Company is pleased to announce that the formal rig contract has now been signed with Valaris Limited for the VALARIS JU-107 jack-up drilling rig.

The VALARIS JU-107 jack-up drilling rig is currently working in the Timor Sea, on the Montara field 300 km southwest of the Buffalo field, and only a short tow away from the Buffalo field. Carnarvon is expecting to take possession of the drilling rig upon the completion of the current drilling operations, which is currently planned to occur between mid-October 2021 and mid-November 2021. Once these operations are complete, the rig will mobilise to the Buffalo location to commence drilling the Buffalo-10 well.

The final well timing will be subject to securing the remaining drilling support services and equipment, and joint venture and regulatory approvals, all of which are well progressed. The Buffalo-10 well is designed to test the presence of a significant attic oil accumulation that remains after the original development was closed-in and convert the 2C certified resources of 34.3 MMstb to 2P (proved plus probable) reserves following re-certification.

Commenting on the update, Advance Energy’s CEO Leslie Peterkin said:

“We are pleased to see this contract finalised as it brings us one step closer to the drilling of the Buffalo-10 well which is on track to commence in 8-10 weeks.  The Joint Venture has contracted a first-class rig that is arriving hot from its current activities which ought to support the safe and efficient drilling of our well.

“The Buffalo-10 well has the potential to be truly transformative for Advance Energy and its shareholders given the materiality of the resources associated with the Buffalo field.  We are growing increasingly excited about securing a clear understanding of the field’s long-term potential after an extended period of technical evaluation to get us to this point.  Given the significance of this event to our shareholders, we intend to provide regular updates at all the key milestones associated with the well.”

I have liked the look of Advance since it came to the market and with Buffalo-10  fully in sight I think that the risk out there is of not being in the shares in the 4th quarter. Whilst it does carry some beta which only drilling Buffalo will eradicate, I think that this excellent management and operational team may have something here, the potential upside is indeed substantial.

Serica Energy

Serica has announced the commencement of production from the Rhum R3 well. First production from the well was achieved on 23 August and since then work has continued to optimise production rates from the Bruce, Keith and Rhum fields.

In the last seven days, gross Rhum production has averaged over 190mmcsf/d of gas and 1,400bbl/d of condensate. This equates to an average gross production in excess of 34,000boe/d for the Rhum field. This compares to a maximum rate of 26,000boe/d immediately prior to the commencement of R3 production. Further work will continue in the coming weeks to optimise and stabilise production and if necessary, we will update our production guidance at the time of the publication of our half year results.

Serica has a 50% working interest in the Rhum field. The successful recompletion of R3 has increased the Rhum production capacity utilising the existing facilities located on the Bruce platform. This is in line with Serica’s stated objective of reducing the carbon intensity (i.e. CO2 per barrel of oil equivalent) of its production operations.

Mitch Flegg, Chief Executive of Serica Energy, commented:

“I would like to congratulate everyone in the Company for the incredible achievements required to overcome the technical challenges involved in establishing first production from this well some 16 years after it was originally drilled.

This is a significant result for Serica and the addition of a third prolific Rhum well is excellent news. Despite the challenges we faced, the additional production and accelerated cash flows will lead to a rapid payback on the capital invested, particularly as we are immediately benefitting from the current high gas prices. Not only will this well enable enhanced production rates from the field, but it will also provide redundancy to help maintain future production.

The successful R3 project is a demonstration of Serica’s ongoing strategy of investment in capital growth projects designed to boost our production levels whilst continuing to reduce our carbon intensity. The next project will be Columbus where we expect first production in Q4 this year.”

When commercial television came into our lives in the 1950’s Lord Thomson of Fleet called it ‘a licence to print money’, he was of course referring to his licence in Scotland but at the current price of gas there are oil companies that fit that bill.

For Serica it is testament to the diligence of CEO Mitch Flegg along with Tony Craven-Walker and Andy Bell but assisted by a cracking team across and below the board. Along with a totally determined ESG policy and being financially astute so that should these gas prices be temporary these bumper harvests will be there for any rainy days by way of hedging activity Serica looks in cracking form.

And finally…

India have beaten England easily enough in the 4th test at The Oval. England will need to win Friday’s final match at Old Trafford.

Max wins in Holland and today it has been announced that Valteri Bottas has signed for Alfa Romeo replacing the retiring Kimi. George Russell’s move to Mercedes is expected imminently.

The opinions expressed here are those of the author

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 blog


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