Malcy’s Blog – Oil price, Genel Energy, San Leon, Lamprell & finally

WTI $103.09 -$6.68, Brent $105.94 -$6.45, Diff -$2.85 +23c, NG $7.03 -$1.01, UKNG 115.0p -22.95p

By Malcolm Graham-Wood

Oil price

Two factors caused the sharp drop in the oil price yesterday and it was nothing to do with the Victory Day celebrations in Moscow which were somewhat muted.

In fact it was the EU who poured water on the flames of sanctions as the organisation reminded the world that they have two speeds in moving things like this and that is dead slow and stop. Getting agreement is going to take a long time as bureaucrats dither whilst Ukraine bravely fights on.

The second factor was the continued Covid outbreak in China where 1Q stats for oil demand showed a big fall and whilst the long term will be OK the short term worried oil markets.

Genel Energy

Genel has announced the following update on the Sarta PSC (30% working interest and operator).

Testing of the Sarta-5 appraisal well has been completed. While oil was recovered to surface from a number of intervals, notably c.800 bbls of light oil from the Najmah formation, stable and sustained commercial flow of oil was not achieved from the primary reservoir objectives of the Mus and Adaiyah formations nor the secondary Lower Sargalu or Najmah formations. None of the intervals tested were able to support sustained flow of reservoir fluids, indicating that the reservoirs at this location are tight. This was identified as a critical pre-drill risk of this appraisal well.

The presence of oil associated with both the primary and secondary Jurassic reservoir intervals, 12 km southeast of the Sarta pilot EPF, will now be subject to further investigation and integration into the joint venture’s understanding of the Sarta field and future planning. The well will now be suspended according to KRI regulations.

The Sarta appraisal programme continues at Sarta-6, c.6 km to the west of the pilot EPF, with test results expected in Q3.

Whilst this is a disappointing result it doesn’t come as a massive surprise and it certainly wasn’t in my core value projections for the company. The step-out appraisal was less than likely to succeed and work goes on starting with the Sarta-6 well. 

The near 10% fall in the shares today is an extreme reaction but the shares have risen by some 65% since Christmas 2021 and I would expect the strength that Genel has overall in its asset portfolio to regain all of that. The company has a powerful balance sheet and the wherewithal not just to continue further drilling but also to continue to fund significant returns to shareholders in the future. 

San Leon

San Leon has noted the announcement made yesterday by Decklar Resources Inc. in Canada.  San Leon has a 11.5% shareholding in Decklar Petroleum Limited, the local subsidiary of Decklar operating in Nigeria, and has also made a US$5.5 million loan to DPL, via 10% per annum unsecured subordinated loan notes.

Part of the text of Decklar’s announcement is set out below: 

·    Decklar and its co-venturer have commenced loading crude oil into trucks at the Oza Oil Field from storage tanks for delivery to the Umugini Pipeline Infrastructure Limited (“UPIL”) crude handling facilities for further transfer to the Shell Petroleum Development Company of Nigeria Limited (“SPDC”) Joint Venture Forcados Oil Export Terminal via the Umugini Pipeline.

·    When loading of crude oil from storage has reached 5,000 barrels, production from the Oza-1 well will start in order to enable ongoing shipments by truck to UPIL.

Calgary, Alberta — Decklar Resources Inc. is pleased to announce the commencement of the shipment of crude oil via trucks from the Oza Oil Field to the UPIL crude handling facilities for further transfer to the SPDC Joint Venture Forcados Oil Export Terminal via the Umugini Pipeline.

Oza Field Oil Export Operations

Decklar and its co-venturer Millenium Oil & Gas Company Limited have commenced loading crude oil into trucks at the Oza Oil Field from storage tanks for delivery to the UPIL crude handling facilities for further transfer to the SPDC Joint Venture Forcados Oil Export Terminal via the Umugini Pipeline.

The trucks are currently being loaded from crude oil storage tanks at the Oza site that hold approximately 22,000 barrels of oil. When loading of crude oil from storage to the trucks has reached approximately 5,000 barrels, production from the Oza-1 well into the storage tank will be re-started in order to enable ongoing shipments by truck to UPIL.

As previously announced, 2022 development plans for the Oza Field include:

–   finalizing arrangements with local communities and contractors to start construction of the access road and associated infrastructure for a new oil well drilling pad;

–     drilling the first new development well;

–     re-entry, re-completion, and flow testing of the other two existing wells (Oza-2 and Oza-4), including tie-in to existing production facilities;

–     installation of a Central Production Facility and infrastructure tie-ins for new well locations to replace the current Early Production Facility; and

–     drilling of up to two additional development wells.

Development plans for the Oza Field beyond 2022 also include up to five additional development wells.

Further good news today from San Leon that shows that its investment in Decklar Resources is proving wise and that before long shareholders will share the spoils of the Nigerian investments. 

Lamprell

Lamprell is pleased to announce that it is engaged with an international rig operator for major upgrade work on three jack-up drilling rigs in readiness for their deployment in the Gulf region. 

The first of the rigs will arrive at Lamprell’s Hamriyah quayside this month and work will begin immediately.  The second and third rigs will follow later.  The scopes of work involved represent a small* contract for the business.

Christopher McDonald, CEO of Lamprell said

“Our rig refurbishment activities are a mainstay for our Oil & Gas business unit; having an excellent reputation for delivery.  Over the last twelve months we have seen increasing demand in this business segment evidenced through the awards of drilling contracts by regional operators.  The entire team looks forward to delivering the upgrades safely and on time for our client.”

Maybe it’s a sign of the times that Lamprell announce the contract for three jack-up refurbs which in total are only valued at ‘less than $50m’. Imagine the salesman who got the order knowing that the upgrades were only worth such an amount. 

It also proves that moving its attention towards the renewables sector where project size are bigger and complexity demanding is a better bet for Lamprell, and its salesforce. Lamps has always been skilled at getting a mixed bag of work through its top quality yards and this is no exception so I am not dissing the refurb work but only noting where it is going in the future size wise. 

That future involves refinancing and also potentially splitting the company up should an offer for the oil and gas business become a reality. The most cyclical stock in the sector with historically swinging fortunes, Lamprell is on the verge of an upswing as long as it gets its house in order.

And finally

In the League 1 Play-offs last night the Black Cats just got the better of the Owls and will now play the Chairboys in the final.

In the Prem tonight the top spot will take another turn as Liverpool visit the Villa hoping to cut the Noisy Neighbours’ lead ahead of their visit to Molineux tomorrow night. Meanwhile City have announced that they have secured wonderkid Erling Haaland from Borussia.

Finally, news reports have said today that former Surrey and England batsman Graham Thorpe is seriously ill in hospital.

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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