Malcy’s Blog – Oil price, Genel, Savannah, Touchstone, Eco, CEG, Petro Matad, Arrow & finally

WTI $107.62 +$3.35, Brent $113.12 +$3.07, Diff -$5.50 -28c.

Author @mgrahamwood

USNG $6.22 -2c, UKNG 170.0p -36.9p, TTF €134.33 -€1.33

Oil price

Very little to add at the moment, oil rose on Friday after a mixed week, the rig count was up 13 overall to 753 and up 10 in oil to 594. Libya production is falling again, and with the Independence Day holiday weekend coming up the AAA say that they expect 47m people to be on the roads.

Genel Energy

Genel has announced that all payments have now been received from the Kurdistan Regional Government relating to oil sales during March 2022.

Genel’s share of those payments is as follows:

(all figures $ million) Payment
Tawke 24.2
Tawke override 15.6
Taq Taq 2.5
Sarta 4.6
Receivable recovery 13.7
Total 60.6

Following the receipt of the receivable recovery payment, Genel is now owed $68 million from the KRG for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

Normal report from Genel following March payments from the KRG which puts them in line with peer group companies with some receivables still to come in due course. 

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter in Africais pleased to announce that Accugas Limited, the Company’s 80% indirectly owned subsidiary, has commenced gas sales to Central Horizon Gas Company Limited, a subsidiary of Axxela Limited, and a major gas distribution company situated in the South-South region of Nigeria.gas sa

As previously announced in February 2022, Savannah signed an interruptible gas sales agreement  with CHGC to supply up to 5 MMscfpd daily for an initial one-year period. CHGC operates a 17km gas pipeline infrastructure network with a throughput capacity of 50 MMscfpd, which provides natural gas to industrial and commercial customers in the Trans Amadi Industrial Area of Port Harcourt as well as the Greater Port Harcourt Area, Nigeria.

CHGC is majority owned and controlled by Axxela, which delivers natural gas to over 185 industrial and commercial customers via its gas infrastructure network across cities in Nigeria including Lagos and Port Harcourt.

Andrew Knott, CEO of Savannah Energy, said:

“We are very pleased to have operationalised our gas sales agreement with CHGC, our third new customer facility we have connected with this year. The rapid progress we have made to diversify and increase Accugas’ customer base since acquiring the business has been significant. I would like to thank and commend the Accugas and CHGC/Axxela teams for having worked together so well to achieve the first gas sales milestone so quickly after GSA signature.”

Commenting on behalf of Axxela, Chief Executive Officer, Bolaji Osunsanya, said:

“This interruptible gas sales agreement reinforces our continued commitment to be the energy partner of choice to our customers. We believe that with this partnership, CHGC can further provide flexibility and supply assurance to our growing customer base within the Greater Port Harcourt area and its environs”.

This is a welcome start to the previously announced GSA with CHGC and sees first gas sales to Axxela and cements another high quality relationship with a leading natural gas delivery network. As these deals continue to come through they move from signing to flowing with increasing speed and efficiency and are naturally good for earnings.

Touchstone Exploration

Touchstone has provided an update on the operational progress across the Ortoire block, onshore Trinidad. Touchstone has an 80 percent operating working interest in Ortoire block, with Heritage Petroleum Company Limited holding the remaining 20 percent working interest. 

Coho

·      The pipeline from our Coho facility to the Central block has been completed, and hydrotesting is scheduled to commence this week upon which the pipeline will be ready for first gas.

·      The surface facility is 98 percent complete with all infrastructure in place, including instrumentation, tanks and the communication tower, which will enable the transmission of gas meter data to our offices in Calgary and Trinidad.

·      Construction is underway on the 63-foot above ground pipeline to the Central block tie-in point, which is the final requirement of the project.

·      Upon completion of the tie-in, commissioning and handover of the pipeline, Coho natural gas production will commence with the expectation that production will increase over time to 10 MMcf/d (1,667 boe/d) gross, 8 MMcf/d (1,333 boe/d) net.

·      Coho will be the first onshore natural gas project to come onstream in 20 years, representing an important milestone for both Touchstone and the Republic of Trinidad and Tobago.

·      Based on the current contractor schedule and expected pipeline commissioning and handover process, we are targeting full production in August 2022.

Cascadura

·      Workstreams across the Cascadura area are progressing with several important deliveries, including the separators and vapour recovery units, scheduled to arrive in Trinidad in the coming weeks.

·      Surveying of the lease expansion, pipelines, roads, and future drilling locations has commenced, along with the treatment of drilling pits for reclamation.

·      Three major construction contracts for the Cascadura facility have been procured to date with local contractors and are consistent with our pre-design budget.

·      We continue to wait for the approval of the Environmental Impact Assessment (“EIA”), with all the relevant reports and information submitted for regulatory review. Following the anticipated approval and submission of the required notice periods, we intend to proceed with construction of the surface facility, access roads, liquids pipeline and future development drilling locations. The onstream date of the Cascadura facility will be determined by the timing of receipt of the EIA approval.

·      Initial gross aggregate natural gas and associated liquids production from our Cascadura-1ST1 and Cascadura Deep-1 wells has been budgeted at 11,500 boe/d (9,200 boe/d net), and the Cascadura natural gas processing facility has been designed for a maximum gross capacity of approximately 200 MMcf/d of natural gas and 5,000 bbls/d of associated liquids (38,333 boe/d).

Drilling

·      The Royston surface equipment has been repositioned to accommodate the future sidetrack of Royston-1 to test the intermediate and subthrust sheets of the Herrera Formation.

·      Upon approval of the Cascadura EIA, an additional drilling pad at Cascadura will be constructed to accommodate the first two future budgeted development wells.

·      The timing of our future Ortoire drilling program will be evaluated once Coho is on optimal production and we have received approval of the Cascadura EIA.

Environmental Incident

On Wednesday, June 22, 2022, an oil transfer line on our Fyzabad block was cut. We have determined that the cut line was an act of vandalism, and the local police and all relevant in-country authorities have been notified. Based on current information, we estimate that approximately 250 barrels of oil was released. No personal injuries were reported, and reclamation efforts are underway. All impacted residents are being assisted while cleanup activities are conducted. Touchstone has engaged a contractor to monitor air quality across the affected area, and  the return of residents to their homes will be guided by the ongoing test results. We will continue to support those affected during the duration of the cleanup and reclamation and do not expect a material impact to our base production expectations as a result of this matter.

Paul Baay, President and Chief Executive Officer, commented:

“We are pleased that we are nearing completion of the Coho project. We are currently focused on the final phase which is the tie-in at the Central block. The components required for the assembly have been designed and fabricated in Trinidad and are onsite being installed by a local contractor. Following installation, the assembly will require testing and commissioning prior to first gas, with  production volumes expected to double our current production on a boe basis. Concurrently, there has been consistent activity at Cascadura while we await receipt of the EIA approval. We would like to thank our stakeholders for their continued patience, and we look forward to updating the market in due course.”

This is very good news for Touchstone as it sets out the timetable for completion of the Coho project as well as updating on what will be a transformational development at Cascadura now looking imminent.

In addition there is an exciting drilling programme envisaged with the sidetrack of Royston-1 as well as two development wells at Cascadura. Touchstone shares peaked when exploration success first happened at the Ortoire Block and drifted as markets realised that a development would take time and significant investment. 

Now that development looks to be close to completion and we can see production and revenue from Coho and Cascadura as well as significant potential from exploration at Royston-1 as well as more development wells and of course Ortoire Phase Two exploration. 

I had a huge amount of faith when I first saw the potential at Ortoire and that has been proved by such success with the drill bit. This has continued by the swift execution of the development which will see a significant increase in revenue from production this year which of course will generate a great deal of cash. 

Accordingly the shares should rise significantly in the next few months, opportunities like this are pretty few and far between and should be grasped with both hands.

Eco (Atlantic) Oil & Gas

Eco has announced the successful completion of an equity fundraise of US$12.3 million.

A total of 33,406,531 new common shares in the capital of the Company  and 33,406,531 warrants to subscribe for Common Shares have been conditionally placed with, or subscribed for by new and existing institutional investors (including from South African focused investors), at a price of 30p (CAD0.48) per Placing Unit or Subscription Unit. Each 30p unit comprises one new Common Share and one warrant to purchase one new Common Share at a price of US$0.40625 (33p; CAD0.5215) for a period of three years. On settlement, the Equity Fundraise will raise gross proceeds of US$12.3 million for the Company, consisting of:

·    a placing of 27,500,000 new Common Shares  and warrants to subscribe for new Common Shares (on the basis of one warrant for every one Placing Share (the “Placing Warrants” and, together with the Placing Shares, the “Placing Units”)), at the Issue Price, raising gross proceeds of £8.25 million (US$10.1 million) (the “Placing”); and

·    a subscription of 5,906,531 new Common Shares (the “Subscription Shares”) and warrants to subscribe for new Common Shares (on the basis of one warrant for every one Subscription Share (the “Subscription Warrants” and, together with the Placing Shares, the “Subscription Units”)), at the Issue Price, raising gross proceeds of approximately US$2.2 million (£1.8 million) (the “Subscription”).

In aggregate, the Placing Shares and Subscription Shares represent 10.8% of the currently issued share capital of the Company and 9.8% of the Company’s issued share capital as enlarged by the Equity Fundraise (both percentages stated prior to the issue of new Common Shares pursuant to the acquisition announced earlier today).

In connection with this Placing, Fox-Davies Capital Limited and Fox-Davies Capital (DIFC) Limited (together “Fox Davies”) acted as the sole placement agent.

The Placing Shares and Subscription Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Common Shares of the Company, including, without limitation, the right to receive all dividends and other distributions declared, made or paid after the date of issue.

Gil Holzman, Co-Founder and CEO of Eco Atlantic, commented:

“We are pleased to be able to close this successful private placing. We are fortunate to be able to include some of the leading South African focussed funds in this financing, thus supporting the regional efforts to become energy independent and to promote the local partners and oil and gas exploration efforts in South Africa. The funds we are raising will be applied to our ongoing operations and will enable us to settle the cash consideration for the increased interest in Block 3B/4B announced earlier today, allowing us to retain our current cash resources to drill Gazania-1 well in Block 2B in South Africa in September. In addition, the proceeds will also be used to expedite exploration activities on Block 3B/4B and prepare for potential wells next year in Guyana and South Africa. The proceeds of this fund raise strengthen the Group’s cash resources following termination of the transaction with JHI and its cash component.

As always, we are thankful to Africa Oil, which is participating in this round with an investment of US$1.8m. With over U$38m now in treasury, we are in a very strong financial position to fund all our current planned exploration needs in both South Africa, Namibia and Guyana including the drilling of the Gazania-1 well in September and additional near-term wells on Guyana Orinduik Block and in Block 3B/4B.

This is very important deal for Eco Atlantic, it shows just how important South Africa is for the company and that Africa Oil and a small coterie of South African investors and done at a premium to the market price. But much more important in my mind is that to me Blocks 3/b and 4/b are like gold dust and here’s what CEO Gil Holzman said about the deal.

Gil Holzman, Co-Founder and CEO of Eco Atlantic, commented:

“We are extremely pleased to be increasing our interest in Block 3B/4B, which looks to be a very exciting licence for all the partners involved. We are upbeat about the prospectivity of the licence following the significant oil discoveries made earlier in the year offshore Namibia Orange Basin and we are pleased to be strengthening our working relationship with Ricocure and Africa Oil Corp.  We are seeing growing industry interest in the entire Orange Basin and in particular in Block 3B/4B, and are therefore very happy to have managed to increase our WI on the Block. We are working closely with our partners to progress the technical work required, which includes reprocessing the 3D seismic we have for the Block, in order to evaluate and identify drilling prospects and high grade leads for a drilling campaign we are contemplating for next year. We are set for an exciting couple of months and we look forward to keeping our stakeholders updated as we look to spud the Gazania-1 well on Block 2B, offshore South Africa, in early September 2022.”

My belief that this is the right call follows on from the recent success by Shell at Graff-1 and by Total at Venus 1-x in the spring. At the time the Shell discovery was estimated as a 2bn barrel find whilst WoodMack suggested Venus had 3bn b’s and could produce at some 250/- b/d. 

Since then Shell have apparently drilled to appraisal wells and whilst they are both tight, word on the street is very positive at least from the first drill. If the 3/B and 4/B region is up to best standards then industry watchers are suggesting as much as 7bn barrels there with all that entails, and Eco have yet to drill the Gazania-1 well very shortly. 

Every single major is knocking on this particular door, with Shell and Total already there and Exxon and Chevron rumoured to be in the area with the cheque book open. This makes the finding, and closure of this deal to be a spectacular success for Eco, the very thought of what a farm-out might look like makes me feel giddy. 

Whilst there is never anything remotely certain in this business I think that as the time comes for 3/B and 4/B to be drilled Eco shares may have increased by c.5X +.

Challenger Energy Group

Challenger notes recent commentary on the recent Uruguay licensing round and in relation to its AREA OFF-1 petroleum licence offshore Uruguay, and provides the following context:

·    On 23 June 2022 ANCAP, the Uruguayan state-owned petroleum company, advised publicly that three offshore blocks in Uruguay have been licenced following bids received in the most recent ANCAP 2022 Open Bidding Round.

·    Two blocks have been awarded to Shell – the shallow offshore block immediately adjacent to Challenger’s OFF-1 block (AREA OFF-2), and one deep-water block (AREA OFF-7). ANCAP has reported that the work Shell committed to undertake in relation to these blocks in the initial 4-year exploration period includes the acquisition of new 3D seismic.

·    One deep-water block (AREA OFF-6) has been awarded to APA Corporation (formerly Apache). ANCAP has reported that the work APA Corporation committed to undertake in relation to this block in the initial 4-year exploration period includes the drilling of an exploration well.

·    The award of these three blocks is in addition to the OFF-1 block previously awarded to Challenger. Of the three new blocks awarded, the OFF-2 block, which is directly adjacent to Challenger’s OFF-1 block, was the only block which received competing bids, with both Shell and APA Corporation having submitted proposals.

·    The aggregate value of work committed across blocks OFF-2, OFF-6 and OFF-7 by Shell and APA Corporation in the next 4 years, in respect of both technical and exploration activities including well drilling by APA Corporation, is stated by ANCAP to be approximately US$200 million.

·    The full text of the announcement by ANCAP is available on ANCAP’s website – www.ancap.com.uy

Challenger Energy considers the entry into Uruguay of two well regarded international companies, and the commitment by both to undertake sizeable and meaningful work programs during an initial exploration period (including 3D seismic acquisition and new well drilling), to be a highly positive development, validating both the Company’s decision to enter Uruguay in 2020 and underscoring the solid technical foundation and excellent value proposition represented by the OFF-1 block.

The Company’s considers its OFF-1 licence area and the broader offshore Uruguay play system to be analogous to the recent prolific, conjugate margin discoveries made offshore Namibia by TotalEnergies (the Venus well) and Shell (the Graff well), where reported multi-billion-barrel Cretaceous turbidite reservoirs have been encountered. The AREA OFF-1 licence exhibits the same Aptian play source rock and petroleum systems being present.

As noted in previous Company releases, the OFF-1 block contains a management estimated resource potential exceeding 1.5 billion barrels of oil equivalent recoverable (BBOE), based on current mapping from multiple exploration plays and leads in relatively shallow waters, and with significant upside running room. This estimate is corroborated by formal resource estimates provided by ANCAP of 1.35 BBOE as a P50 expected ultimate recoverable resource.

It is noted that in addition to work that will now be undertaken by Shell and APA Corporation on their Uruguayan blocks, various public statements and news releases indicate that relevant additional work and drilling activities are currently underway or being planned by multiple parties for the balance of 2022 and 2023, including additional exploration and appraisal wells being drilled in Namibia, and 3D seismic acquisition in Northern Argentina. These activities are expected to further the technical understanding of the OFF-1 block.

Readers will know that it was in the blog on Friday that CEG noted and that they have now put up a statement confirming my scoop. I won’t add anymore but just worth noting how important it is to have your frontier acreage liked by the majors and big explorers.

Petro Matad

Petro Matad has announced its audited final results for the year ended 31 December 2021. All dollar values are expressed in United States dollars unless otherwise stated.

2021 Operational Highlights

·    The Company secured approval for the Plan of Development for the Heron discovery and subsequently obtained the Exploitation Licence for Block XX.

·    Contract negotiations commenced with infrastructure service providers and procurement of equipment for the Heron development that targets first oil from the completion of the Heron 1 well in 2022.

·    Agreement was reached with the industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), to pursue export of Heron crude through PetroChina’s nearby processing and export facilities until Mongolia’s new domestic oil refinery begins operations in the coming years. Meetings were subsequently held with PetroChina to commence commercial negotiations.

·    The 2021 moratorium on Block V has extended the Exploration Period of the Production Sharing Contract (PSC) until July 2023. This allows the Company sufficient time to pursue further drilling opportunities on the acreage and, with success, time to secure an Exploitation Licence on any discovery made.

·    During 2021 the Covid-19 pandemic continued to have a significant impact on the Company’s ability to operate, but towards year end 2021 in-country travel restrictions eased. International travel remained problematic, and border restrictions imposed by China severely impacted the activities of other operators in Mongolia during 2021. Preparations are well advanced for operations in the 2022 drilling season to be executed once the border restrictions are eased or lifted and land access is resolved.

Current situation

·    The Covid-19 control restrictions imposed by China at its land border crossings with Mongolia have started to ease. On 20 June, the northerly of the two oil export border crossings at Bayankhoshuu was opened and oil export from the PetroChina operated fields has resumed. The southerly oil export crossing at Bichigt remains closed. China has not yet opened the border crossing to the passage of consumables and equipment, although the oil field contractors are hopeful that this will happen soon. Transfer of personnel across the land borders is not expected to be allowed by the Chinese authorities in the near future; therefore, service providers are looking at flying in their crews when internal travel restrictions within China allow.

·    Following the Cabinet resolution in April on expediting a solution to the land access issues for oil exploration and production companies, draft amendments to the Land Law have been prepared by the relevant ministries for presentation to Parliament to resolve the existing conflicts within the legislation. At the same time, Petro Matad is in dialogue with MRPAM to obtain the special purpose land certification for its areas of operation which will secure long-term land access. Until this certification is issued, land use permits are required to be granted by the local authorities and to date, in the province in which Petro Matad’s Block XX Exploitation Area is located, they have not done so. Petro Matad is not the only operator impacted in this way.

2021 Financial Highlights

·    As of 31 December 2021, the Group’s cash position was $8.2 million, including Term Deposits (Financial Assets) (31 December 2020: $1.0 million)

·    A successful fund raise totalling $10.4 million was completed by early August 2021.

·    The Group’s net loss after tax for the twelve months ended 31 December 2021 was $2.1 million (31 December 2020: loss $3.2 million)

·    No dividends have been paid or are proposed in respect of the year ended 31 December 2021 (2020: Nil).

Mike Buck, CEO of Petro Matad, said:

2021 was a pivotal year for Petro Matad as we obtained the Exploitation Licence for Block XX, which will see the Company transition from explorer to active producer.

In the spring and summer months of this year, Covid-19 has continued to affect operations with China’s zero Covid-19 policy slowing progress with contractors and all cross-border business. Similarly, the land access issue within Mongolia needs to be resolved before we mobilise to site and we are pursuing all avenues available to remedy this..

We continue the preparations for our 2022 work programme despite the bureaucratic delays, and our negotiations with infrastructure service providers are progressing. As we have said before, we are prioritising bringing Heron 1 into production and we are still targeting first oil this year.

Finally, I would again like to thank our loyal shareholders for their support during 2021 and into this year. I look forward to updating you in the coming months with our progress.”

Under the circumstances MATD is in remarkably good nick, the fact that the 2022 work programme is looking so positive and that Heron1 is going into production is a major credit to management. 

These factors by themselves make the market cap of some £23m hardly flattering and with Heron under way and with more drilling I would expect that to be much higher by the end of the summer.

Arrow Exploration Corp

Arrow has announced the results of the Rio Cravo Sur-1 (“RCS-1”) well testing on the Tapir Block in the Llanos Basin of Colombia.

The RCS-1 well was spud on May 23, 2022.  RCS-1 targeted a three-way fault bounded structure with multiple high-quality reservoir objectives on the Tapir Block in the Llanos Basin of Colombia. The well was drilled to a total measured depth of 8,656 feet (8,105 feet true vertical depth) and encountered six hydrocarbon bearing intervals totaling 55 net feet of oil pay.

Specific production test rates for the isolated new zones (shallowest to deepest) include:

·    Carbonera C7B:  tested 1872 bopd (net 936 bopd) peak rate of 30 API crude.

The zone was tested on June 22nd for 33 hours at an average rate of 1076 bopd (net 538 bopd).

·    Ubaque: tested 184 bopd (net 92 bopd) peak rate of 12-13 API crude.

The zone was tested June 13th for 38.5 hours at an average rate of 33 bopd (net 16.5 bopd).

Test results are not necessarily indicative of long-term performance or ultimate recovery.

After the C7B test performance, the decision was made to put the C7B on production.  Arrow decided not to test the up-hole C7 zones, and the Gacheta C, as they had been proven to be oil bearing in RCE-2.  The test of the Gacheta B zone was cut short due to formation water production.

Marshall Abbott, CEO of Arrow commented:

“We’re encouraged by the material results of RCS-1, the third well on the Tapir block. RCS-1 identified new zones for further exploitation with flowing results returning better than expected.”

“We’re currently completing the C7B zone, targeting to be on stream this week. This increases Arrow’s production and reserves. The Company intends to bring RCS-1 on slowly and increase production to best manage the oil reservoir.”

“Arrow’s current production is providing positive cashflow for the Company during a high commodity price environment.  Continued strong production rates from existing tied-in wells combined with the encouraging results from new drills in Colombia  support the Company’s objective of achieving a production rate of 3,000 boe/d within 18 months of its AIM listing (completed in October 2021).  This is an exciting time for Arrow, and we look forward to providing further updates on our progress.”

The RCS-1 well costs came in under budget.

This is another good result for Arrow, a stock which has become a favourite of mine since it appeared since when it has more than delivered. I will comment more tomorrow if necessary as I am speaking to CEO Marshall Abbott this afternoon. 

And finally…

The 3rd test match has provided yet more fantastic cricket from both sides, finely balanced with England chasing 296 it was raining all morning in Leeds. As I write it has just started, Pope out early for 82 and England are 220-3.

Wimbledon starts today, hence the rain but its lucky to get into the blog as it doesn’t carry ranking points

The opinions expressed here are those of the author

Author @mgrahamwood

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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