Malcy’s Blog – Oil price, Genel/GKP, Touchstone Exploration, Predator Oil & Gas & finally

WTI (June) $70.87 -$1.69, Brent (July) $74.98 -$1.43, Diff -$4.28 +43c. 

Author @mgrahamwood

USNG (June) $2.19 u/c, UKNG (June) 79.61p -0.11p, TTF (June) €34.225 -€0.38.

Oil price

Oil fell sharply yesterday as a number of factors impacted the direction in differing ways. Pushing down was the postponement of the meeting of lawmakers, due today but now next week. Jobs data in the US was poor with benefit claimers up but inflation is down, albeit modestly, the feeling that the Fed has no idea what tools in the box to use is an easy one to draw.

Ongoing troubles with US banks don’t make life any easier, made worse when the highly self-opinionated Jamie Dimon says that the problem is behind us, PacWest was down another 23% yesterday…although he then said that a credit crunch ‘could take a few banks down’….

But…the Opec report yesterday didn’t change any forecasts materially and they see supply unchanged and even raised Chinese demand growth modestly, if that is anywhere near right then we are in for a might rise in the ol price later in the year.

After all, Opec will be supplying just 28m b/d this month, down another 500/- b/d and call for its crude in 2H 2023 will be nearer 500/- b/d. I don’t know about you but I know which side I would be on. But seriously these are indeed times when impacts of some relatively modest factors have the biggest impact.

And that may be what has happened in this final point, reports have been coming in overnight saying that the authorities in Baghdad and Erbil are together and have asked Turkey to reopen the pipeline at Ceyhan which has been shut for a bit longer than expected.

Should that be correct then the pipeline can come back onstream with immediate effect and should it restart over the weekend then 450/- b/d will be back on the market by Monday morning. Clearly this will have a modest effect on the market at least in the very short term. So that’s a lot of impacts, ranging from the longest to the shortest, quite possibly starting tomorrow…

Genel/GKP

Of course the pipeline reopening will be of significant importance to both Genel and Gulf Keystone and whilst they will have lost production since the end of March nothing else will have changed. Both companies are financially strong and will have weathered the storm, some things will have changed but not in my view meaningful. 

Understandably neither companies were able to formally comment this morning, I suspect provided the pipeline opens we will have something to see on Monday morning. 

Touchstone Exploration

Touchstone has reported its operating and financial results for the three months ended March 31, 2023. Selected information is outlined below and should be read in conjunction with our March 31, 2023 unaudited interim condensed consolidated financial statements and related Management’s discussion and analysis, both of which will be available under our profile on SEDAR (www.sedar.com) and on our website (www.touchstoneexploration.com). Unless otherwise stated, all financial amounts herein are rounded to thousands of United States dollars.

First Quarter 2023 Financial and Operational Highlights

·      Produced quarterly average volumes of 2,139 boe/d, representing a 53 percent increase relative to the 1,396 boe/d produced in the prior year equivalent quarter and a 4 percent decrease compared to the fourth quarter of 2022.

·      Natural gas production from our Coho-1 well averaged net volumes of 5.1 MMcf/d (854 boe/d) in the quarter and contributed $976,000 of net natural gas sales at an average realized price of $2.12/Mcf.

·      Realized petroleum and natural gas sales of $8,476,000 compared to $10,496,000 in the 2022 comparative quarter, as the incremental $976,000 in net natural gas sales were offset by decreased crude oil sales of $2,996,000, reflecting a 22 percent decline in realized crude oil pricing and an 8 percent decrease in crude oil production.

·      Generated an operating netback of $3,652,000, representing a 23 percent decrease from the 2022 equivalent quarter primarily attributed to a 19 percent decline in petroleum and natural gas sales.

·      Reported funds flow from operations of $803,000 in the quarter compared to $691,000 in the preceding quarter and $1,443,000 in the prior year equivalent quarter.

·      Recognized a net loss of $279,000 ($0.00 per basic share) in the quarter compared to a net loss of $236,000 ($0.00 per basic share) reported in the same period of 2022.

·      $9,019,000 in quarterly capital investments primarily focused on expenditures directed to the drilling of the Royston-1X sidetrack well and progressing construction of the Cascadura natural gas and liquids facility.

·      Exited the quarter with a cash balance of $10,859,000, a working capital deficit of $4,383,000 and a principal balance of $25,500,000 remaining on our term credit facility, resulting in a net debt position of $23,883,000.

·      Natural gas and liquids facility construction operations on the Cascadura A surface location have progressed and we continue to target completion and commissioning for first production at Cascadura on or about June 30, 2023.

·      Construction of the Cascadura C surface location is complete, which will be the location of our first Cascadura development well.

·      The second production test of the Royston-1X well is expected to commence in late May 2023 once the service rig has moved onto the lease following the drilling rig being moved to the Cascadura C location.

Financial and Operating Results Summary

Notes:

(1)    In the table above and elsewhere in this announcement, references to “crude oil” refer to light and medium crude oil and heavy crude oil product types combined and references to “natural gas” refer to conventional natural gas, all as defined in National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Refer to “Advisories – Product Type Disclosures” for further information.

(2)    In the table above and elsewhere in this announcement, references to “boe” mean barrels of oil equivalent that are calculated using the energy equivalent conversion method. Refer to “Advisories – Oil and Natural Gas Measures” for further information.

(3)    Non-GAAP financial measure. See “Advisories – Non-GAAP Financial Measures” for further information.

These 1Q figures are of course very important in themselves but to me, and I suspect investors, not particularly relevant. We know that the company is in good shape right now but we also know that there are more exciting things coming down the track. 

The development of the Cascadura gas plant will be a game changer for TXP and as I have said a number of times this year my premise that this is its time is made on the back of the facility coming onstream. With drilling to come at Royston, also a meaningful event for the company I am still highly confident that Touchstone’s time to shine is not far away…

Predator Oil & Gas

Predator Oil & Gas Holdings Plc

Exercise of Share Options by Directors, Placing to raise £1,449,764 before expenses to advance Financial Investment Decision for a CNG development and subsequent reimbursement to Directors       

Highlights

·    Drilling and testing operations to recommence beginning of June

·    Targeting potential FID for CNG “Proof of Concept” by September

·    Sandjet perforating technology introduces exciting new additional opportunities for unconventional gas

·    Executive directors backing the operating strategy by foregoing £507,599 of Directors’ Loans in favour of compensation based on well testing results.

Exercise of Share Options

Predator Oil & Gas Holdings Plc (LSE: PRD), the Jersey based Oil and Gas Company with near-term gas operations focussed on Morocco, announces that it has received exercise notices from Paul Griffiths, an executive director, in respect of 11,183,605 share options and Lonny Baumgardner, an executive director, in respect of 7,928,444 share options issued to them pursuant to the Company’s unapproved share option scheme:

·    dated 9 November 2022 (to subscribe for 15,000,000 new ordinary shares of no par value each in the Company (“New Ordinary Shares”)) at 10p per share. 3,401,077 of these options are being so exercised; and

·    dated 23 November 2022 (to subscribe for 15,710,972 New Ordinary Shares) at 8p per share. All of these options are being so exercised, with the vesting condition amended with the approval of the independent non-executive directors to facilitate the exercise of the options before the original vesting date of 22 May 2023.

The Company has therefore allotted and issued the total of 19,112,049 New Ordinary Shares (the “Option Exercise Shares”) following receipt of the aggregate £1,596,986 subscription price from Paul Griffiths and Lonny Baumgardner. These shares rank pari passu with the existing ordinary shares of the Company. Application will be made to the Financial Conduct Authority (“FCA”) for the Option Exercise Shares to be admitted to listing on the Official List (standard listing segment) of the FCA and to the London Stock Exchange for the Option Exercise Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities (together “Option Exercise Admission”).  It is expected that the Option Exercise Admission will become effective at 8.00 a.m. on or around 22 May 2023.

It is intended that the Option Exercise Shares issued pursuant to the Option Exercise Admission will be transferred to various investors for the price of £0.057.

First Tranche Placing

In conjunction with the exercise of the options in respect of the Option Exercise Shares and Option Exercise Admission noted above Predator announces that it has also conditionally placed 2,500,000 of New Ordinary Shares (“First Tranche Shares”) at a placing price of £0.057 to raise £142,500 before expenses (the “First Tranche Placing”).

The First Tranche Placing utilises the Company’s existing headroom shares pursuant to the Financial Conduct Authority (“FCA”) restrictions for companies on the Official List (standard listing segment) of the London Stock Exchange’s main market for listed securities.

The shares to be admitted pursuant the First Tranche Placing rank pari passu with the existing ordinary shares of the Company. Application will be made to the FCA for the First Tranche Shares to be admitted to listing on the Official List (standard listing segment) of the FCA and to the London Stock Exchange for the First Tranche Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities

It is expected that admission of the First Tranche Shares will become effective at 8.00 a.m. on or around 22 May 2023.

Second Tranche Placing

Subject to the admission to trading of the Option Exercise Shares and the First Tranche Shares on the Official List (standard listing segment) of the London Stock Exchange’s main market for listed securities Predator intends to place 3,822,410 additional New Ordinary Shares (“Second Tranche Shares”) at a placing price of £0.057 to raise £217,877 before expenses (the “Second Tranche Placing”). The Second Tranche Shares must be issued separately to the First Tranche Shares as they utilise an increase in the headroom of the Company pursuant to the FCA restrictions for companies on the Official List (standard listing segment) of the London Stock Exchange’s main market for listed securities.

The shares to be admitted pursuant the Second Tranche Placing rank pari passu with the existing ordinary shares of the Company. Application will be made to the FCA for the Second Tranche Shares to be admitted to listing on the Official List (standard listing segment) of the FCA and to the London Stock Exchange for the Second Tranche Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities

It is expected that admission of the Second Tranche Shares will become effective at 8.00 a.m. on or around 26 May 2023.

Directors’ Repayment and Use of Funds

Use of proceeds

The net proceeds of the Placing are targeted at Morocco to cost-effectively maintain the momentum of the current drilling and testing programme to accelerate a potential Financial Investment Decision (“FID”).

Morocco

MOU-1 testing

The Company is seeking to coordinate for the beginning of next month the rigless MOU-1 well testing with the commencement of drilling at the MOU-3 well site, for which the civil works have now been completed,

The rigless testing at MOU-1 will now be carried out using a patented power jet perforating tool provided by TD Tools Inc. (https://www.tdtoolsinc.com/ ) out of the United States through their European agent Energy Consulting Services, an innovative upstream provider specialized in engineering consultancy. This perforating technique is very common in the United States but has not been used in Morocco before.

Sandjet perforating technology uses a pressurised sand slurry which avoids the requirement for explosives. It increases communication between the reservoir and the wellbore and allows for multiple perforations in thinly bedded reservoirs that would otherwise too costly to consider perforating by conventional methods.

With the Sandjet perforating option an additional zone in MOU-1 can now be added to the MOU-1 rigless testing programme. This will test an interval of 45 metres with good background gas readings and low gas saturations based on NuTech log analysis within a gross interval of at least 300 metres. Any flow of gas from this interval would be significant as it would establish the potential for a new unconventional gas play covering an area of at least 30 km² tested by MOU-1.

MOU-3 drilling and testing programme

MOU-3 is forecast to penetrate three potential gas reservoirs which if confirmed would require a contingency for a greatly expanded Sandjet perforating programme. Reservoir development is expected to be significantly greater than at MOU-1 based on indirect geological information for the debris slide from the suspended well MOU-2.

CNG “Proof of Concept” development option

MOU-1 and MOU-3 testing and drilling results in combination with the Company’s CNG development plan and internal project economics  may provide the necessary information to complete the desktop work to enable a Financial Investment Decision (“FID”) to be taken based on two gas delivery wells and for a Gas Sales Agreement to be entered into.

A FID gives the Company flexibility and a variety of options to progress and execute a “Proof of Concept” CNG development with potential gas deliveries at the earliest opportunity in 2024.

MOU-4 drilling programme

The Company intends to be “drill-ready” to commence MOU-4 well operations at the earliest opportunity following a review of the MOU-1 and MOU-3 drilling and testing results in order to be in a position to scale up potential CNG gas deliveries as the market expands through the de-risking “Proof of Concept”.

Whilst there is an opportunity and before additional supply chain issues develop, the Company seeks to secure the remaining long-lead well inventory items for MOU-4. In addition it will commence the permitting for MOU-4 and begin the civil works at the MOU-4 well location.

The MOU-4 well is also being programmed to test the Jurassic, which will require some specific well inventory items that are not included in the Company’s current well planning process.

The Jurassic target covers an area of 126 km²and is interpreted by the Company to evaluate an interval drilled by Phillips in 1979 in the TAF-1X well, approximately 25 kilometres to the southeast of the proposed MOU-4 well location, within which there were minor gas shows. MOU-4 will test the potential for improved reservoir development and hydrocarbon charge in what may be a more favourable geological setting.

Directors’ Compensation Arrangements

As the Company is currently unable to issue sufficient shares to fund this program itself without publishing an FCA approved prospectus, the executive directors Paul Griffiths and Lonny Baumgardner have therefore agreed, with the approval of the independent non-executive Board members and Novum Securities Limited, to transfer their 19,112,049 Option Exercise Shares, resulting from the exercise of the share options noted above, to Novum Securities Limited at a price of £0.057 to raise £1,089,387 before expenses.

The exercise price of the share options to be exercised by Paul Griffiths and Lonny Baumgardner, being £0.08 and £0.10, is of a lesser amount than the placing price. To deal with the shortfall the independent non-executive Board members have approved that the existing Directors’ Loans dated  1 December 2022 in respect of the loan from Paul Griffiths and 2 December 2022 in respect of the loan from Lonny Baumgardner (the “Loans”) of, in aggregate, £507,599 are capitalised and offset against the shortfall in the exercise prices of the share options against the funds received from the transfer of their respective Option Exercise Shares to investors.

The Company will therefore utilise all of the net proceeds after expenses  from the exercise of the Options and the funds raised from the First Tranche Placing and Second Tranche Placing, to fund the further development of the drilling and testing programme in Morocco to advance the stage at which an FID can be taken for a “Proof of Concept” CNG development.

The independent non-executive Board members have agreed that the executive Directors will be compensated for prematurely exercising their share option incentives and subsequently selling those Option Exercise Shares to investors and for capitalising the Loans to their disadvantage by the grant of:

·    7,855,486 new share options exercisable at £0.08 pence per share and 3,328,119 share options exercisable at £0.10 pence per share to be issued to Paul Griffiths (Executive Chairman) with no vesting conditions; and

·    7,855,486 new share options exercisable at £0.08 pence per share and 72,958 share options exercisable at £0.10 pence per share to be issued to Lonny Baumgardner (Managing Director) with no vesting conditions,

both pursuant to the Company’s current share incentive scheme.

In addition to the grant of replacement options noted above, to compensate for the capitalisation of the Loan, Paul Griffiths will receive a cash payment from the Company of £323,785 upon either:

·    a flow rate of 1 million cfg/day being achieved from any well within the area of the Guercif Petroleum Agreement; or

·    a flow rate of 100 bopd being achieved from any well in Trinidad for which the Company is a participant.

In addition to the grant of replacement options noted above, to compensate for the capitalisation of the Loan, Lonny Baumgardner will receive a cash payment from the Company of £183,813 upon either:

·    a flow rate of 1 million cfg/day being achieved from any well within the area of the Guercif Petroleum Agreement; or

·    a flow rate of 100 bopd being achieved from any well in Trinidad for which the Company is a participant.

Related Party Transaction

Paul Griffiths and Lonny Baumgardner are executive directors of the Company. The agreement between the Company and Paul Griffiths and Lonny Baumgardner to be compensated following their early exercise of their share options, referred to above, are considered to be related party transactions.

Alistair Jury and Carl Kindinger, being the independent directors for the purposes of the related party transaction, consider that the terms and conditions of the reimbursement are fair and reasonable insofar as the shareholders of the Company are concerned.

Completion of the Placing

Completion of the Placing is conditional upon, inter alia:-

The Option Exercise Shares and First Tranche Shares being admitted to listing on the Official List (standard listing segment) and to trading on the London Stock Exchange’s main market for listed securities (“First Admission”) on or before 22 May 2023 (or such later date as may be agreed by the Company and Novum Securities) and the Second Tranche Shares being admitted to listing on the Official List (standard listing segment) and to trading on the London Stock Exchange main market for listed securities (“Second Admission”) on or before 26 May 2023 (or such later date as may be agreed by the Company and Novum Securities).

Total Voting Rights

Following the Option Exercise Admission, First Tranche Admission and Second Tranche Admission, the Company has 425,403,414 ordinary shares of no par value in issue, each with one vote per share (and none of which are held in treasury). The total number of voting rights in the Company is therefore 425,403,414. This figure of 425,403,414 may be used by shareholders in the Company as the denominator to determine if they have a notifiable interest in the share capital of the Company under the Disclosure Guidance and Transparency Rules, or if such interest has changed.

Paul Griffiths, Executive Chairman of Predator Oil & Gas Holdings Plc commented:

“Whilst we have Star Valley’s Rig 101 on location and a smoothly-run, cost-effective operations base established in the city of Guercif there are significant savings to be made in drilling costs through economies of scale. Furthermore the Company can seek to accelerate its timeline for establishing a commercial CNG project with a capability of being upscaled through organic cash flow by being “drill-ready” at all times.

Predator currently is the only company in northern Morocco with an active imminent drilling and testing programme. We need to maximise this competitive advantage.

Identification of proven, North American Sandjet perforating technology for introduction into Morocco for the first time is an exciting new development. Combining our expeditious use of North American, AI-driven NuTech high resolution petrophysics to identify additional potential gas pays with Sandjet allows us to evaluate much larger intervals for potential gas flow relative to the very much more expensive use of conventional ways of perforating with explosives. This strategy is ideal for the near-term CNG-supplied industrial market.

The Company has the expertise in designing, engineering, developing, logistically managing and operating the movement of pressurised gas by truck following the successful execution of its pilot CO2 EOR project in Trinidad. Our management also has specific expertise in previously helping to develop the industrial gas market in Morocco.

We have also made preparations to drill the exciting but higher risk potential of the Jurassic in a potentially very large structure. Our immediate focus however is to complete the drilling and testing operations necessary for a CNG FID.

We have taken the opportunity today in a financial market that is becoming increasingly more restricted for oil and gas companies, who will nevertheless form an essential and inescapable element of the Energy Transition, to top up our available funds to ensure that we can keep momentum going through what is a period of very intense operational activity.”

This money, being raised via directors exercising options makes a lot of sense if the company can do the MOU-1 test, follow it with Drilling MOU-3 and if successful MOU-4. FID is of key importance and the sooner that can happen the better it is for PRD shareholders, exciting times…

And finally…

As the footy season draws to a close lots is about to be decided, in the Champions League second semi it was AC 0- 2  Inter . Last night the Hammers beat AZ Alkmaar 2-1 in the first leg of the Euro Plate, all to play for.

Tonight in the League 1 Play-offs it’s the Posh v The Owls and tomorrow it’s Bolton v Barnsley.

Tomorrow in the Prem Leeds need to beat the Bar Coders, Villa v Spurs, Chelsea v Forest also needing point, the Eagles v the Cherries, the Red Devils host Wolves and the Cottagers are at the Saints, who really do need the points.

In the Championship play-offs the Black Cats host the Hatters and in L 2 Salford play Stockport.

On Sunday a London derby sees the Hammers at the Bees, the Toffees, who …..ntp have an appointment at the Emptihad and what might be the match of the weekend the Gooners v the Seagulls.

In the Championship play-offs Covvo host  the Boro and in L2 play-offs Bradford host Carlisle.

Tomorrow sees the Oaks and Derby Trials at Lingfield Park, always a good day out.

RIP Webby

With great sadness, I have to report that Peter Webb, or Webby to his many friends and colleagues in the Square Mile died last weekend, suddenly. Peter was a legend in the Cable trading market at Stanchart and maybe even more of a legend on South West Trains where he was a founder member of the 1815 train club until his retirement a while ago.

Peter was an excellent rugby player all the way through from the City to Guildford and Godalming Vets as well as representing his county as a cyclist. Peter was always the life and soul of any party, never short of a word or two of intelligent conversation and sometimes more liquid. He will be sadly missed by the many people he met from all walks of life. RIP

Author @mgrahamwood

Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion