WTI $105.71 +$5.95, Brent $107.51 +$5.05, Diff -$180.0 -90c, NG $7.64 +25c, UKNG 195.45 +22.45p
By Malcolm Graham-Wood
Oil had a big rally, a shortage is slowly appearing around the world particularly in products as shown by the EIA inventory stats.
Genel has issued the following trading and operations update ahead of the Company’s Annual General Meeting, which is being held today.
- $95 million cash proceeds received in Q1 2022 from the Kurdistan Regional Government
- Free cash flow of $43 million in Q1 2022
- Margin of $30/bbl in Q1 2022 (2021: $24/bbl), with Brent averaging $102/bbl (2021: $71/bbl)
- Capital expenditure of $35 million in Q1 2022, of which $19 million was spent at Tawke, and $12 million at Sarta
- Of the $35 million total invoiced for December 2021 oil sales, $17 million was received in Q1 2022, with $18 million of invoices being received after period end
- Cash of $356 million at 31 March 2022 ($314 million at 31 December 2021)
- Net cash of $86 million at 31 March 2022 ($44 million at 31 December 2021)
- Net production of 30,520 bopd in Q1 2022, in line with guidance
- Zero lost time injuries or Tier 1 losses of primary containment in Q1 2022
- Tawke PSC (25% working interest)
- Gross production of 106,470 bopd in Q1 2022, 26,620 net to Genel, of which Peshkabir contributed 64,500 bopd and Tawke 41,970 bopd
- A high level of activity was maintained at Tawke in Q1 2022, with five wells spud across the Tawke and Peshkabir fields, with a fourth drilling rig set to be added
- The Peshkabir-Tawke gas project has captured 12 billion cubic feet of otherwise flared gas, equivalent to 766,000 tonnes of CO2 equivalent, since start up in mid-2020 through the first quarter of 2022. Phase 2 is a $25 million expansion underway at the Tawke field to capture breakthrough gas, set to start in the fourth quarter of 2022. The operator, DNO, is also debottlenecking the Peshkabir gas plant originally designed for 50,000 bopd to handle larger volumes of associated gas from higher field production, which is now averaging 65,000 bopd
- Sarta (30% working interest and operator)
- Gross production of 5,590 bopd in Q1, 1,670 bopd net to Genel
- Sarta-1D was brought onto production on 8 March from the Mus and Upper Adaiyah reservoirs, the same zone on production at Sarta-2. On well test at Sarta-1D the Lower Adaiyah produced at low oil rates with a high water cut while oil was discovered in the Butmah, achieving flow rates of over 1500 bopd, but again with a high water cut. Since coming onstream, production from the Mus and Upper Adaiyah reservoirs at Sarta-1D has been choked back in order to manage pressure decline between the two adjacent take points of Sarta-1D and Sarta-2, and water cut at Sarta-1D
- Total field production has averaged c.6,150 bopd in May, as we continue to work through a programme to optimise production from the three producing wells
- Sarta-5 testing completed on 9 May and the well is now suspended. As previously stated, the presence of oil associated with both the primary and secondary Jurassic reservoir intervals, 12 km southeast of the Sarta pilot EPF, will be subject to further investigation and integration into the joint venture’s understanding of the Sarta field and future planning
- Test results from the Sarta-6 well, c.6 km to the west of the pilot EPF, are expected in Q3
- Taq Taq PSC (44% working interest and joint operator)
- Gross production of 5,070 bopd, 2,230 bopd net to Genel
- As the margins at Taq Taq have increased, planning is underway for the resumption of drilling, with a well expected to spud around the end of 2022
- Qara Dagh (40% working interest and operator)
- The evaluation of the QD-2 well and its results is underway, with a decision on licence next steps to be taken later this year
- Somaliland (51% working interest and operator)
- Following the successful farm-out in December 2021, preparation is under way for the drilling of a well on the highly prospective SL10B13 block around the end of 2023
- Morocco (75% working interest and operator)
- Petroleum Agreement and Association Contract expected to be signed with ONHYM in Q2 2022, with a farm-out programme scheduled to begin later this year
- Genel’s 2021 Sustainability Report has been issued today, detailing our environmental performance and the positive impact that we strive to have on the communities in which we operate. 2021 highlights include:
- 11 social investment and community projects funded and delivered in 2021
- Zero waste to landfill from operations at Sarta, with 92% recycled
- Renewable energy feasibility study progressing at Sarta
- Genel is marking twenty years of operating in the KRI with its Genel20 programme, increasing the scope of our social activities, including a new education initiative set to be launched next week at an event in Dohuk
2022 OUTLOOK AND GUIDANCE
- Guidance reiterated, with production for 2022 at around the same level as the 2021 average
- The Board is recommending the approval of a final dividend of 12¢ per share (2021: 10¢ per share) at today’s AGM, a distribution of $33.5 million, as we continue to fulfil our aim of paying a progressive dividend
Bill Higgs, Chief Executive of Genel, said:
“Our robust financial position continues to strengthen, supporting investment in our organic portfolio as well as our progressive dividend. Despite the result of Sarta-5, the well delivered useful data that we will incorporate together with the results of our next well, Sarta-6, into our forward plans for the field. As we look to add production and further bolster our progressive dividend and create value for stakeholders, we continue to review both organic and inorganic opportunities.”
Genel remains in a very strong position with guidance retained, finances very strong and future value substantial which means that returns to shareholders will be very rewarding. In addition the company has issued its latest sustainability report which puts the company at the front and centre of ESG best practises.
The recent dip in the share price after a poor result at Sarta-5 has only taken 11% off the peak which after a strong run is understandable but offers investors an opportunity to add to holdings at these levels.
First Quarter 2022 Financial and Operational Highlights
· Achieved quarterly average production volumes of 1,396 barrels per day, representing a 4 percent increase relative to the preceding quarter and an 8 percent increase from the 1,297 bbls/d produced in the first quarter of 2021.
· Realized petroleum sales of $10,496,000 from an average crude oil price of $83.55 per barrel compared to petroleum sales of $8,212,000 from average realized pricing of $66.81 per barrel in the fourth quarter of 2021.
· Generated an operating netback of $37.83 per barrel, a 26 percent increase from the fourth quarter of 2021 and a 72 percent increase from the $21.98 per barrel reported in the first quarter of 2021.
· Our funds flow from operations improved to $1,426,000 in the quarter compared to $1,291,000 recognized in the fourth quarter of 2021 and $538,000 reported in the first quarter of 2021.
· Recognized a net loss of $236,000 and comprehensive income of $164,000, compared to a net loss of $460,000 and comprehensive loss of $415,000 reported in the same period of 2021.
· Capital investments of $2,554,000 focused on continuing production testing operations on the Royston-1 well, expenditures related to the Coho-1 facility and pipeline and lease preparation costs for two Coora development well locations.
· Exited the quarter with cash of $10,148,000, a working capital surplus of $4,259,000 and $30,000,000 drawn on our term credit facility, resulting in a net debt position of $21,241,000.
· In March 2022, our field development plan for the Cascadura area was approved, which extends the exploration and production period for the defined 2,378-acre area through October 31, 2039.
Post Period-End Highlights
· Daily crude oil sales averaged 1,532 bbls/d in April 2022 with a realized price of $91.79 per barrel.
· Coho pipeline has been welded, with trenching operations progressing toward anticipated initial production within four to six weeks.
· The National Gas Company of Trinidad and Tobago (“NGC”) has agreed to purchase the Coho pipeline upon completion and commissioning.
· Received a review and assessment report in response to our Cascadura area Environmental Impact Assessment (“EIA”) application with no material deficiencies raised.
· NGC has received regulatory approval to construct a 20-inch natural gas pipeline from our Cascadura surface facility to their onshore transmission pipeline network.
Paul Baay, President and Chief Executive Officer, commented:
“Our first quarter results reflected a combination of increased commodity pricing and higher production volumes from our legacy crude oil properties. Our near-term priority is to bring our Coho and Cascadura exploration discoveries onto production, with a focus on converting our extensive Trinidad reserve base to sustainable long-term cash flows to fund our portfolio of future development and exploration opportunities. We are forecasting first gas from Coho imminently, which will represent the initial step change in our production profile. With the approval of our Cascadura field development plan and our EIA in the final stages of documentation and clarification, we are making progress toward bringing our Cascadura discovery onto production. We thank our shareholders for their continued support and look forward to providing further updates as we proceed to execute our 2022 strategy.”
Touchstone remains one of the outstandingly cheap stocks within this sector, after initial discoveries the market has taken its eye off the ball that should mean a substantial re-rating upwards from these levels. With exploration success feeding through to highly rewarding production of oil and gas which will themselves make TXP a self-financing and strongly financially secure investment.
I am looking forward to catching up with CEO Paul Baay on his upcoming visit to the UK at which time I will endeavour to book an interview and some ways to get this excellent message across to investors.
Predator Oil & Gas
Operations update and directorate changes
· Purchase orders being issued for sourced long-lead well items, including 4 wellheads
· Schedule for rigless testing MOU-1 to be aligned with mobilisation of drilling services with option to include additional shallower sand for perforating
· Environmental Impact Assessment for MOU-4, MOU-5 and MOU-NE well locations approved
· Civil works contract awarded to build first well location
· Star Valley rig option secured as previously negotiated for MOU-1 drilling contract
· MOU-4 and MOU-5 to potentially prove up High Estimate 708 BCF net recoverable
· MOU-NE Prospect seismic mapping confirms area of closure of 102 km² for Jurassic target
· Fully funded to meet all well planning and well preparation activities in Morocco.
· Two potential farminees for the Guercif Licence selected from initial responders for further discussions
· Company’s commercial proposal includes past costs; disproportionate share of costs for 3-well drilling programme and “Put Option” to buy out residual project equity
· Final information provided to the regulatory authorities for Ram Head and Corrib South applications for successor authorisations prior to a decision being made
· Commercial terms provided to FRAM Exploration Trinidad for an asset swap to settle issues relating to the terminations of the Inniss-Trinity Pilot CO2 EOR Project
· Green hydrogen option being pursued with initial focus on Romanian opportunities
· Board refreshed with two new Non-executive Directors with experience compatible with the medium-term financial requirements of the Company’s business development strategy
In respect of the 2022 Moroccan drilling programme the sources of long lead drilling inventory have been identified and purchase orders are being issued to secure critical items, including four wellheads, to enable the drilling programme to commence at the earliest opportunity. The drilling schedule will be updated only when there is certainty on the dates of delivery of long-lead items, for the reasons expanded upon below.
Rigless testing of MOU-1 will be aligned with the presence of in-country drilling services, materials and equipment mobilised from overseas for the start of the 2022 drilling programme. It will be carried out cost-effectively in conjunction with the testing in a success case of up to 3 wells.
The situation between Russia and Ukraine has meant that the supply chain of key pieces of inventory used by the oil and gas sector has been constrained and delayed by its impact on the manufacture of components that require steel. This is not just a problem for the oil and gas sector but also for the renewable energy sector and particularly wind turbines, as was reported at Ireland’s recent National Energy Summit.
The Company’s experienced management team has managed to secure critical inventory based on its network of industry relationships that has allowed the Company to progress as planned its three-well drilling programme in the Guercif licence.
Predator Gas Ventures Ltd. has received final approval for the Environmental Impact Assessment for the MOU-4, MOU-5 and MOU-NE proposed drilling locations.
The civil works contract to build the first of the three well locations has been awarded to Skayavers Sarl.
An exclusive option on the in-country Star Valley drilling rig has been secured as previously negotiated and announced for the MOU-1 drilling contract.
MOU-4 and MOU-5 will appraise the gas-supported seismic amplitude anomaly successfully penetrated by the MOU-1 well drilled in 2021. Geological interpretation of this feature integrating seismic, well and surface outcrop data supports the development of an over-pressured Tortonian submarine fan system covering at least 30km². MOU-4 and MOU-5 will target “sweet spots” where seismic character, basin position and geological interpretation support the potential development of a thick reservoir sequence analogous to the gas-bearing sequences penetrated in the offshore wells Anchois-1 and Anchois-2. This is interpreted by the Company to be in the same petroleum system as was proven by the MOU-1 well results in the Guercif Basin. Each well will be drilled to a provisional depth of 1,500 metres TVD KB with the primary target expected to be penetrated between 1,150 and 1,350 meters TVD KB. MOU-1 took 12 days to reach the proposed total depths for MOU-4 and MOU-5.
MOU-4 and MOU-5 are seeking to prove up the currently defined Best Estimate gross contingent gas resources of 295 BCF, net attributable to Predator’s 75% interest, which is based on a conservative 66% gas recovery over 13 years. SLR Consulting Ireland Ltd. also indicated a High Estimate of 708 BCF net attributable to Predator’s 75% interest based on a higher GIIP estimate for thicker reservoirs that are the targets for these wells.
Initial results of the seismic reprocessing by DUG Geophysical, applying high-end seismic technology, of 278 kms. of 2D seismic data in the area to be tested by MOU-4 and MOU-5 support the presence of two potential additional shallower gas targets for the MOU-5 well within a depth window of 750 to 950 metres TVD KB. The shallowest of which had a strong formation gas show in MOU-1 where a potential gas sand was indicated on the wireline logs acquired. This zone is currently not included in the Company’s proposed rigless testing programme for MOU-1 due to poor borehole conditions at this shallower level. The MOU-5 well design is incorporating an ability to rigless test the shallower targets too should this be warranted after wireline logging.
Analysis of the MOU-1 well cuttings has begun with the laboratory work being carried out by Petrostrat (biostratigraphy, sequence stratigraphy and QEMSCAN), Rockwash (sedimentology) and APT (geochemical source rock and maturity analysis). The purposes of these studies is to re-affirm and refine the intervals to be perforated in the rigless testing programme for MOU-1 and potentially to add additional shallower sands.
The Company is fully-funded to meet all the above well planning and preparation activities in Morocco.
The MOU-NE drilling lead has now been mapped at the base of the forecast reservoir sequence with a structural closure covering 102 km². The next step is to finalise a drilling location based on defining the highest point on the structure with the maximum potential for leached reservoir development (18 metres of reservoir were encountered approximately 2,200 metres downdip in well TRF-1 about 15 kms. to the southeast of the MOU-NE structure beneath a zone of gas shows. MOU-NE well will be targeting a gross reservoir sequence of approximately 200 metres within which the potential for good quality reservoir is increased due to its structurally elevated position relative to TRF-1. MOU-NE is adjacent to the gas-generating basin defined by the MOU-1 well results. Oil and gas shows are present on trend to the west of Guercif in the target reservoirs in the depleted Boudraa and Tselfat oil fields and in the DGR-1 and DGR-3 wells, demonstrating an active petroleum system to the west that will be tested by MOU-NE.
Two primary candidates for a potential farm-in to the Guercif Licence have been chosen from the initial responses to a targeted marketing exercise by the Company’s experienced management team. The Company is proposing to offer the successful candidate a sixty day period of exclusivity to complete technical due diligence and to negotiate commercial terms.
Given that the drilling programme is well advanced and taking into account the scale of the opportunity the Company has to offer in the 7,269 km² area of the Guercif Licence, equivalent to approximately 60 North Sea blocks; the de-risking of a new gas basin by MOU-1; the ability for early monetisation through sale of Compressed Natural Gas to the Moroccan industrial market; and the immediate proximity to infrastructure that could provide a link to the critical European gas market to support security and diversification of gas supply, the Company has defined that the granting of exclusivity will be based on the following commercial terms to form a basis for commercial discussions:
· farminee to pay a disproportionate share of the cost of the three-well drilling programme;
· the maximum equity available will be 25% (33.33% inclusive of ONHYM carry); past costs and a share of the Guercif Bank Guarantee must be reflected in the disproportionate share of the costs of the drilling programme;
· The Company to have a “Put Option” to the farminee for a buy-out of all or part of Predator Gas Ventures Ltd.’s remaining post-farm-in equity in the Guercif Licence to be exercised within six months of completion of the 3-well drilling programme.
There is no guarantee that a successful conclusion to the farm-out negotiations will be achieved and if any transaction were concluded it would be subject to regulatory and partner consent.
The Company attended Ireland’s National Energy Summit on 26th April 2022 at Croke Park Dublin in its capacity as a gold sponsor.
Links to feedback on the Conference are available on the Company’s website at https://www.predatoroilandgas.com
In summary, the National Energy Summit only served to highlight that immediate goals for increasing the renewable energy share of the electricity generation in Ireland by 2030 were not realistic following the development of the situation between Ukraine and Russia. The security and cost of gas supply in Ireland was not adequately addressed and there was no credible plan presented to determine how Ireland was to create an independent ability to meet the European Union’s guidance for Member States to have 80% gas storage capability by winter 2022/2023.
The Energy Transition was not addressed in detail and the role of LNG in support of Europe’s drive to diversify the sources of their gas away from Russia was not mentioned as an imperative action to be taken.
Following the Conference the Company was requested by a number of sufficiently interested parties to provide details of the Mag Mell FSRU LNG project.
On 1st April 2022 the Company was sent correspondence from the Geoscience Regulation Office (“GSRO”) of the Department of the Environment, Climate and Communications (“DECC”) stating that prior to concluding its assessment of the Company’s applications for successor authorisations to the Corrib South Licensing Option 16/26 and Licensing Option 16/30 Ram Head, the GSRO required one additional piece of supporting information. The DECC confirmed that it was not seeking any information in addition to that requested above. The information was relayed to the GSRO and an acknowledgement receipt was received by the Company on 19th April 2022.
Ram Head has been assuming greater significance in the context of European security and diversity of gas supply as a result of the Ukraine-Russia crisis. In particular Ireland’s requirement to independently meet the 80% gas storage guidance milestone set recently by the European Union for winter 2022/2023 has to be assessed in terms of how this will be achieved in the short- and medium-term.
The Ardmore field was previously discovered by Marathon Oil in the 1970’s but not developed after testing gas at a rate of 8 mmcfd. The discovery well 49/14-1 was drilled at the gas-heavy oil contact which impacted gas flow rates. The Company’s internal preliminary scoping storage capacity is targeted at 12 BCF with a maximum send-out rate of 80 mm cfgpd.
In 1998 RDS Resource independently assessed the Ardmore gas field as being capable of being developed by two wells, which based on P50 gas-in-place of 148 BCF, gave P50 gas resources of 47.4 BCF and P10 gas resources of 77.3 BCF based on a 30 mm cfgpd initial production profile.
For gas storage operations, 4 to 5 production/injector wells would be required but development costs could be financed by the blow down of gas in this virgin field to create the gas storage capacity.
The much deeper Jurassic gas reservoirs discovered by Marathon Oil in 1984/5 have the potential to create a larger gas storage facility in the future should the Ardmore gas field be successfully developed as a preliminary gas storage facility.
Gas storage is a critical element of security of energy supply.
Lease Operators Ltd. (“LOL”) has applied for a Certificate of Environmental Clearance (“CEC”) from the Environmental Management Authority in Trinidad for CO2 EOR operations using some data and an example template provided by the Company. Award of the CEC is expected shortly.
The Company has organised its first physical meetings in Trinidad since the COVID pandemic scheduled for 31st May 2022. Using the Company’s “Proof of Concept” for CO2 EOR and CO2 sequestration in Trinidad, achieved by the encouraging results from the Phase 3 CO2 injection in the first half of 2021 in Inniss-Trinity, the Company is now in a position to develop its CO2 EOR services business with LOL.
The preferred business development strategy that is being pursued is for a sale of the business and its technology, know-how, CO2 EOR surface equipment and its exclusivity arrangements for CO2 supply into an in-country entity with producing assets that are suitable fields for the application of CO2 EOR.
Separately, the Company has made a proposal to FRAM Exploration Trinidad Ltd. (“FRAM”), parent company Challenger Energy Group plc, based on its assessment of the value in the prematurely terminated Inniss-Trinity CO2 EOR project that is defined in the Inniss-Trinity Well Participation Agreement and subsequent amendments thereof.
The terms proposed by the Company are as follows:
· 60 day period for legal due diligence to complete any potential transaction
· Asset swap to terminate the Inniss-Trinity Well Participation Agreement with FRAM
reflecting mutually agreed values for the assets being swapped and with any adjustment in respective values for either or both parties being achieved by a sliding scale royalty
· Upon completion of any transaction the Company, through its wholly-owned subsidiary Predator Oil & Gas Trinidad Ltd., to provide CO2 EOR Advisory Services, and access to any surplus liquid CO2 supply not required by the Company, for the potential development of new pilot CO2 EOR projects if required by FRAM’s parent company.
The Company believes that this is a constructive and potentially mutually beneficial way forward that also aligns with the objectives of Trinidad’s CO2 EOR Steering Committee established in 2021.
There is no guarantee that a successful conclusion to the farmout negotiations will be achieved and if any transaction were concluded it would be subject to regulatory and partner consent.
Following Ireland’s National Energy Summit the Company is of the opinion that synergies can be created by considering hybrid developments of green hydrogen and natural gas using compatible infrastructure, subsurface storage reservoirs and in-house gas marketing expertise.
As a first step the Company will commission an independent valuation of the green hydrogen company targeted for a possible acquisition and, subject to the results of the independent valuation, will provide initially a modest investment for shares in the target company, subject to due diligence, to provide additional working capital to develop an opportunity for green hydrogen in Romania. The modest amount of investment at this time will not exceed £50,000 and can be funded by discretionary cash on the balance sheet.
Directorate changes and Board reorganisation
Effective on 31st May 2022 Mr. Louis Castro is stepping down from the Board. The Company’s activities have expanded to such an extent whereby they are impacting Louis’s other substantive commitments. The Board wishes to thank him for the significant contribution that he has made to the Company during its rapid development since his appointment on 14th July 2020.
The Board is pleased to announce the appointments of Mr. Tom Evans and Mr. Alistair Jury as Non-executive Directors with immediate effect.
A proposal will be put to the Board that Paul Griffiths, currently Chief Executive Officer, will move to Executive Chairman, and that Lonny Baumgardner, currently Chief Operating Officer, will move to Managing Director. Governance will be maintained by the Board resolving that the two Non-executive Directors will have the casting vote on all decisions and resolutions of the Board.
Paul Griffiths, CEO of Predator Oil & Gas Holdings Plc commented:
“Executing the Moroccan drilling programme simultaneously with the MOU-1 rigless testing remains at the forefront of the Company’s 2022 business development plans. Management has been proactive in taking all the necessary steps to ensure that we remain on track to deliver an exciting 2022 for our shareholders. This has been achieved against a background of a vastly different set of new post-COVID logistical challenges brought about by the situation between Ukraine and Russia by using management’s significant industry experience and professional network. No-one should be under any illusion that there will continue to be potentially significant challenges ahead for everyone in the energy sector, including renewables.
Management’s job is to rise to such challenges. We are pleased to be progressing potential partner participation in our projects, particularly Morocco, however we have set terms for a period of farm-in exclusivity that we believe reflect the value of the opportunity we present and will not cause the Company to waste valuable man-time pursuing parties that are not aligned with our commercial proposition.
There are positive developments too in Ireland and Trinidad. These projects are under-represented in the current perception of shareholder value.
The proposed venture into Green Hydrogen is an exciting development but is not a drain on the Company’s financial resources.
The Board has been refreshed with the addition of two Non-executive Directors who have a wealth of experience that complements the experience offered by the Executive Directors. Seeking areas of potential asset-based project funding and building relationships with financial institutions and equity markets based on a green dividend secured by a credible Energy Transition will be a key task going forward.
Our strengthened and refreshed team now has the tools to focus on the next stage of the business growth of the Company that builds on the success of MOU-1 and the niche positions patiently carved out and protected over time in Ireland and Trinidad. “
PRD is moving ahead in Morocco which is fully funded at present and they are sorting out Trinidad. In Ireland they were warmly welcomed at the recent conference but it is clear that the authorities there have not yet addressed energy security issues. This is an extensive update for PRD shareholders.
On Tuesday night Liverpool beat Villa 1-2 putting the pressure on the Noisy Neighbours last night, blues fans needn’t have worried they put 5 on Wolves at Molineux. At the bottom Leeds lost to Chelsea and the Toffees nicked a point at the Hornets.
York races continues today, yesterday saw the Musidora, how quick is that filly of John Gosden’s?
The opinions expressed here are those of the author
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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