Malcy’s Blog – Oil price, Genel Energy, Sound Energy, Hurricane Energy & finally

WTI $104.25 +$3.65, Brent $108.78 +$4.14, Diff -$4.53 +49c, NG $7.00 +32c, UKNG 203.07p -10.93p

By Malcolm Graham-Wood

Oil price 

Another big up day, but the EIA inventory stats certainly fooled the teenage scribblers on the Street who were out by a whole decimal point…Mainly down to imports and of course the release of SPR crude oil.

Genel Energy

Genel has announced that it has received the notifications set out below from Türkiye İş Bankası A.Ş. (‘IS Bank’) and Focus Investments Limited (‘Focus’) pursuant to DTR 5 of the FCA’s Disclosure and Transparency Rules.

The Company also announces that Nazli K. Williams has tendered her resignation as a Non-Executive Director of the Company with effect from 13 April 2022, and accordingly the resolution relating to her re-appointment as a Director of the Company has been withdrawn from our 2022 AGM, to be held on 12 May 2022.

David McManus, Chairman of Genel, said:

“Nazli has been a Director of Genel since the merger with Vallares in 2011. She has provided both valuable contributions and important continuity to Board considerations during her time on the Board. I thank her for her commitment to the company over the last decade and wish her the very best for her future endeavours.”

The TR-1 indicates that following a law suit which had nothing to do with Genel, Focus Investments have transferred some 19m shares in Genel to IS Bank. This shouldnt make any difference to the company, IS Bank has been a substantial shareholder in the company since 2020 when it acquired the stake as part of a similar deal. Accordingly I consider the bank to remain long term shareholders.

On another note Genel is XD today which has gone pretty well, the shares falling 5.63p compared to the final of 12 cents, worth around 9.2p which will be confirmed by the company next week. 

Sound Energy

Sound has provided the following operational and strategic update.

Tendrara Phase 1 mLNG Development

Following the Company’s announcement on 15 February 2022 that Sound Energy Morocco East Limited, Sound Energy’s wholly owned subsidiary, had issued a Notice to Proceed to Italfluid Geoenergy S.r.l.  in respect of the Phase 1 mLNG development of the Tendrara Production Concession, the Company is pleased to provide the following update on project progress:

–     mLNG equipment and services provider Italfluid, has confirmed the issuance of purchase orders for the gas processing and liquefaction packages together with the LNG storage tank;

–     Site preparation activities by Italfluid and Sound Energy at the Tendrara site location have commenced and are ongoing;

–     Italfluid is advancing engineering in line with project schedule;

–     Selection, by SEMEL, of engineering contractors for flow assurance, flowlines and owner engineering nearing completion;

–     Wellhead servicing scope finalised and contractor appointment progressing; and

–     Contract awarded by SEMEL to Petroleum Equipment Supply Engineering Company Limited to undertake scheduled inspection and routine maintenance of the wellhead Christmas tree assemblies on TE-6 and TE-7, the wells to supply the raw gas to the mLNG facility, with planning now underway for inspection and maintenance.

Over the next 6 months, the following milestones are scheduled:

–     Completion of site access road improvements;

–     Placement of purchase orders for and execute flow assurance, flowlines and owners engineering scopes;

–     Execution of TE-6 and TE-7 wellhead inspection and servicing;

–     Flowline and associated equipment procurement process to commence; and

–     Italfluid will undertake the following:

Complete Preliminary Engineering and progress Detailed Design

Place remaining purchase orders for equipment/packages and bulks

Complete site preparation and commence civils (foundations) works

Tendrara Phase 2 Development Financing Update

Following the execution of the conditional binding 10-year gas sale and purchase agreement with ONEE announced on 30 November 2021 in respect of the proposed Tendrara Phase 2 gas development (“Tendrara Phase 2 Development”), the Company has been able to advance discussions with a broad range of financing partners.

Consequently, the Company has received non-binding terms sheets from a number of parties including banks and mezzanine financiers relating to potential capital provision for the proposed Tendrara Phase 2 Development. The Company is currently evaluating the term sheets and looks forward to providing further updates in due course.

In parallel, the Company is also progressing discussions with a number of international upstream service providers in relation to the potential provision of EPC services and vendor financing for the development of the proposed central processing facility (“CPF”) and gas export pipeline, associated with the Tendrara Phase 2 Development. There has been strong interest from credible counterparties offering the potential to mature alternative or complementary financing to debt and/or mezzanine financing.

Eastern Morocco Exploration Update

Whilst the Company has strategically prioritised its gas monetisation strategy through the phased development of the TE-5 Horst, the Company has also re-evaluated the extensive exploration portfolio within the Greater Tendrara and Anoual exploration permits surrounding the Tendrara Production Concession.  By integrating the acquired data and learnings from previous drilling campaigns with acquired and reprocessed seismic datasets, the Company has high graded several potential near term subsalt drilling opportunities within the Trias Argilo-Gréseux Inférieur gas reservoir, the proven reservoir of the TE-5 Horst gas accumulation. 

These targets include the exploration prospect ‘M5’ located on the  Anoual permits, together with the potential of the structures previously drilled on the Greater Tendrara permits, SBK-1 and TE-4.  Both SBK-1 and TE-4, drilled in 2000 and 2006 respectively, encountered gas shows in the TAGI reservoir. SBK-1 flowed gas to surface during testing in 2000 at a peak rate of 4.41 mmscf/d post acidification, but was not tested with mechanical stimulation.  Mechanical stimulation has proven to be a key technology to commercially unlock the potential of the TAGI gas reservoir in the TE-5 Horst gas accumulation and accordingly the Company believes this offers potential to unlock commerciality elsewhere in the basin. 

The Company looks forward to providing further updates on these near term drilling opportunities as further evaluation and planning progresses.    

Strategic Update

In 2020, Sound Energy announced that it was pivoting its monetisation strategy from predominantly high impact, frontier exploration towards a development-led commercialisation approach, as subsequently evidenced through progression of the phased development of the Tendrara Production Concession.

Since 2020, aside from the ongoing development of the Company’s existing portfolio, the Company has been assessing a basket of opportunities to build out, diversify and grow Sound Energy both organically and inorganically. These assessments have included potential further gas related opportunities and potential renewable energy projects, including wind and solar power generation, leveraging the Company’s skills, relationships and existing position in Morocco.  

Consequently, the Company is pleased to announce that its wholly owned subsidiary, Sound Energy Sustainables Limited, is in discussions with a number of Moroccan industrial scale farmers proximate to the Company’s Sidi Moktar exploration permits to evaluate the provision of 4.3MW of solar powered electricity (with realisable opportunities to scale beyond this area). Following completion of a feasibility study SESL now plans to further discussions with the farmers to seek to finalise a power supply contract(s) with a view to replacing carbon based, grid sourced electricity via the potential solar project. In parallel, the Company is maturing the capital funding alternatives to finance the modest solar development costs and further announcements in relation to this potential project will be announced, as appropriate, in due course.

SESL is also evaluating a number of additional renewables projects which may provide the opportunity to offer attractive returns to Sound Energy.

Whilst the Company is excited about the possibilities for growth in the renewables sector and believes that it is well-positioned to unlock such opportunities, Sound Energy remains committed to supporting the energy transition by continuing to develop its existing gas projects as well as additional gas opportunities. The recent strengthening of the global commodities market and the increased focus on energy security within Europe and North Africa has underscored the strategic rationale of developing gas resources and the attractiveness of the region. Consequently, the Company has developed a funnel of organic and inorganic opportunities within the gas sector, in Morocco and beyond. This includes gas storage and gas importation together with more conventional development of gas fields, all of which are characterised by offering the potential for immediate to near term cash generation. The Company looks forward to providing further updates on developments in this regard as the growth funnel matures.

Graham Lyon, Sound Energy’s Executive Chairman, commented:

“We are pleased to announce these updates today following a period of concerted focus on the future strategy of the Company. The updates highlight the significant progress that Sound Energy has been making to put the key elements in place to create sustained shareholder value through the development of a cash generative, self-financing business centred around society’s aspirations, and Sound Energy’s strategy to accelerate the energy transition. We are on a path to building a quality portfolio that fully reflects our aspiration to be a key player right across the energy transition landscape.

The Tendrara Phase 1 mLNG project is now well underway and the Tendrara Phase 2 Development, which is significantly greater in scale than Phase 1 and therefore offers the potential for greater rewards, but also presents more challenges from a financing perspective, is also moving forward. Following the execution of the binding gas sales and purchase agreement with ONEE in November 2021, we have been able to materially advance financing discussions and I am pleased that not only do we have strong interest from established international service providers but also from a number of Moroccan banks, which underscores the potential and strategic significance of this nationally important Moroccan gas development project.

Strategically, I am pleased with the progress we are making to deliver growth on the current portfolio but also in identifying and maturing a funnel of transition energy and renewable power opportunities that all have the potential to offer attractive returns for the Company whilst playing an important role in strengthening energy security of supply and decarbonisation. I am particularly pleased that we have been able to do so within an embedded culture of capital discipline which has only been possible through the commitment, focus, abilities and energy of our team”

This is a detailed and comprehensive analysis of what is going on at Sound at the moment and shareholders should be delighted at what they see. The operational and strategic update contains plenty of information on existing projects, some on the way and others which are further down the road. 

Take Tendrara Phase 1 where the mLNG project is ‘well underway’ with site preparation and Italfluid as well as other engineers are making good progress. At the Phase 2 development, which is bigger and potentially better than Phase 1 and needs substantial financing which is ‘moving forward’. 

Indeed on that point, in a long chat with Chairman Graham Lyon this morning, he explained that progress on financing was very encouraging and that Moroccan banks and other lenders are sending ‘multiple’ term sheets to Sound. This to me suggests that the FID maybe this year as the home institutions are very keen to get going and that the shortage of local gas is not lost on them. 

I am looking forward to having a longer chat with Graham Lyon, much of the last few months has been a closed period due to many corporate deals on the go and he assures me that the team has been very busy. In parallel with all that is going on above the water he says that shareholders can ‘rest assured’ that there has been progress across many fronts this year. 

The shares have had a good start today and are up around 15% as I write, if things go ahead as I would expect Sound is not only building a substantial business in Morocco but is taking a leading position in a number of existing, transitional and renewable businesses in the country, for that it is being made very welcome. That should be rewarded by a significant increase in the value of Sound. 

Hurricane Energy

Hurricane has announced that the updated Competent Person’s Report on the Company’s Lancaster Field by ERC Equipoise Ltd has been published on the Company’s website at:

ERCE’s work has been prepared in accordance with the June 2018 Petroleum Resources Management System as the standard for classification and reporting with an effective date of 31 December 2021.

As shown in the tables below, ERCE have increased the estimated Lancaster Reserves. The 31 December 2021 position is partly due to an improvement in the expected future production and to an increase in the economic life of the field aided by higher oil prices, offset by the increased production during 2021.

2022 Production Guidance

On 29 September 2021, the Company provided production guidance for the six-month period 1 October 2021 to 31 March 2022 of 8,500 – 10,000 bopd, based on FPSO production uptime assumption of 96.5% and production from the P6 well alone on artificial lift via ESP.  Production during this six-month period was 9,689 bopd, reflecting continued excellent uptime on the FPSO combined with production rates towards the upper end of the range.

Management’s production guidance for the full calendar year 2022 is 7,500 – 8,600 bopd.  This assumes FPSO production planned uptime of 96.5% and production from the P6 well alone on artificial lift via ESP.  Guidance includes the impact of an annual maintenance shutdown, anticipated to occur during Q3 2022.

Antony Maris, CEO of Hurricane, commented: 

“The efforts of the surface and subsurface teams in beating the mid-case performance target set at the start of the forecast period have been superb. Together with excellent uptime across all elements of the system has allowed the Company to benefit from the higher than expected oil prices and enabled more reserves to be added in the updated CPR. This supports management’s production forecast for the years to come.

Going forward we look to maintain the excellent performance of both the well and the FPSO while we also focus on the Company’s next steps.”

I’ve said it before and I will say it again, there is value in them there rocks and this CPR and indeed production guidance makes me think that Hurricane is worth much more than the market thinks at the moment…

And finally…

In the Champions League on Tuesday night Chelsea played a blinding game at Real Madrid, they won 2-3 on the night but lost 5-4 on aggregate after a poor 1st leg at home. Last night the Noisy Neighbours toughed it out, they got a 0-0 draw at Athletico and won 0-1 on aggregate. Liverpool had the comfort of a first leg lead and drew 3-3 last night winning overall by 6-4.

The two clubs meet again on Saturday in the FA Cup semi-final where a result will be needed. The other semi features Chelsea against the Eagles.

Tonight in the Boropa Cup the Hammers are in Lyon after a 1-1 home leg and have it all to do, Rangers are 0-1 down after the first leg against Sporting Braga for tonight’s home leg.

With the Noisy Neighbours, Liverpool and Chelsea in the cup the rest of the prem is quiet.

In rugby, the European Champions Cup continues with tough fixtures although the Tigers were outstanding last week.


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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