Malcy’s Blog – Oil price, Genel, Sound, Scirocco, UOG, President, Far & finally

WTI $103.01 -$6.32, Brent $106.90 -$5.77, Diff -$3.89 +55c, NG $4.66 -7c, UKNG 267.0p -13.0p

By Malcolm Graham-Wood

Oil price

The mention yesterday of Covid reappearing in China has got louder and has had the effect of cooling off the oil price, today sees another six bucks off putting Brent at $100 which is probably not a bad thing.

My weekly reporting of the retail gasoline price is coming into its own as the knock-on effect on the domestic front is colossal. Right now a gallon of Chevron’s best will rush you $4.315 that is up 21.3 cents week on week, 82.8p m/m and $1.462 y/y.

Genel Energy

Genel has announced its audited results for the year ended 31 December 2021.

Highlights

  • Net production averaged 31,710 bopd in 2021 (2020: 31,980 bopd)
  • $281 million of cash proceeds were received from the KRG in 2021 (2020: $173 million)
  • Capital expenditure of $164 million (2020: $110 million), with c.$45 million spent at the Tawke PSC and c.$105 million at Sarta and Qara Dagh
  • Free cash flow of $86 million in 2021, pre dividend payments (2020: $4 million free cash outflow)
  • Following the termination of the Bina Bawi and Miran PSCs by Genel on 10 December 2021, there has been a required accounting write off of $403 million arising from derecognition of associated assets and liabilities. Genel has consequently taken steps to bring a claim for substantial compensation from the KRG at a private London seated international arbitration
  • Dividends paid in 2021 of 16¢ per share (2020: 15¢ per share), a total distribution of $44 million
  • Cash of $314 million at 31 December 2021, net cash of $44 million ($6 million at 31 December 2020)
  • Carbon intensity of 16 kgCO2e/bbl for scope 1 and 2 emissions in 2021, significantly below the global oil and gas industry average of 20 kgCO2e/boe

Outlook

  • Production guidance for 2022 maintained at around the same level as the 2021 average
    • Sarta-1D entered production on 8 March, at an initial rate of c.2,500 bopd
  • Genel expects free cash flow of over $250 million in 2022, pre dividend payments, at a Brent oil price of $90/bbl
    • An increase or decrease in Brent of $10/bbl impacts annual cash flow by c.$50 million
    • Cash flow in 2022 benefits from 10 Tawke override payments, with the last one set to be paid relating to July 2022 production
  • 2022 capital expenditure guidance maintained as between $140 million and $180 million
  • 2022 marks 20 years since Genel signed its first PSC in the KRI. We will be marking the year by increasing the scope of our social investments under the Genel20 banner, in line with UN Sustainable Development Goals
  • Due to Genel’s robust financial position and confidence in the Company’s future prospects, the Board is recommending a final dividend of 12¢ per share (2021: 10¢ per share), a distribution of $33.5 million. This would bring ordinary dividends declared for 2021 as part of our sustainable and progressive dividend programme to 18¢ per share (15¢ per share relating to 2020 financial year), a total distribution of $50 million
    • Should the current oil price strength persist, Genel will consider incremental returns of cash to shareholders in addition to our commitment to a material and progressive dividend

Bill Higgs, Chief Executive of Genel, said:

“Our strategy and business model remain focused on cash generation. Prior to the invasion of Ukraine and the associated increase in the oil price, we were well positioned for our free cash flow to materially increase from $86 million in 2021 to around a quarter of a billion dollars this year. At the prevailing oil price, and given that there seems no quick resolution to the appalling events unfolding, this figure is expected to increase significantly.

The forecast extent of our cash generation, from an existing position of financial strength, provides the potential to deliver significant growth and further returns to shareholders. Our priority is investment in production to maximise the value of our existing assets, and continuing to develop Sarta. Given the strong outlook and ongoing cash generation, we have increased our final dividend by 20%, continuing to fulfil our aim of paying a material and progressive dividend.”

Unsurprisingly Genel is in a very strong position right now as the oil price exceeds $100 and cash is oozing out of the company, giving the opportunity to increase the dividend by 20% and to talk about scope to make acquisitions if the opportunity were to arise. Indeed the balance sheet is so strong that M&A and additional pay-outs are not an either or choice and that includes a very healthy capex budget for this year.

Production last year was in line with guidance as per 2020 and operationally I like the look of the upcoming  programme, expect a significant increase in drilling from DNO at Tawke, Taq Taq washes its face and at Sarta things are picking up sharply. This is important as the programme has had a slower than expected start but the 1-D well is on production, Sarta -5 is testing and Sarta-6 spudded in February. The 2 and 3 wells are providing cash and more importantly informing of development plans, Sarta is promising subject to testing. 

The Qara Dagh outlook appears to still be uncertain after the QD-2 result showed technical difficulties as yet unresolved and finally even Somaliland is on the timescale with a farm-out achieved and drilling planned for next year. 

I talked about M&A, there is money available for the right deal and priorities are unchanged for a ‘suitable add-on to the portfolio’ and as I said at the top a deal and a special dividend is not a one or the other situation. Overall there is much to like about Genel at the moment, with plenty of organic growth and potentially inorganic as well the upside is there and its low cost portfolio is now delivering in line with expectations. 

Sound Energy 

Sound has announced the entry of a pipeline tie-in agreement to the Gas Maghreb-Europe pipeline (the “GME Pipeline” or the “GME”) with ONHYM in respect of the Phase 2 development of the Tendrara Production Concession (the “Pipeline Tie-in Agreement”). The GME Pipeline, which was transferred to Moroccan state-owned entity ONHYM by the previous operator on 1 November 2021, is owned and operated by ONHYM. Pursuant to the Pipeline Tie-in Agreement, ONHYM has now approved the connection of the Tendrara Production

Concession via a gas export spur pipeline to the GME Pipeline.

Under the Pipeline Tie-in Agreement, following the provision of certain technical information by Sound Energy to ONHYM in respect to the Tendrara Production Concession export spur pipeline, and subject to Sound Energy’s approval thereafter of ONHYM’s proposed technical and financial terms for the construction of the tie-in infrastructure, ONHYM (the acting operator of the GME Pipeline) has committed to put in place the tie-in infrastructure between the Tendrara export pipeline and the GME pipeline, facilitating Tendrara gas to flow to all clients connected to the GME.

The entry of the Pipeline Tie-in Agreement fulfils one of the key remaining conditions to Sound’s binding gas sale and purchase agreement (the “GSA”) in respect of the Phase 2 development of the Tendrara Production Concession with Morocco’s state-owned power Company ONEE (Office National de l’Electricité et de l’Eau Potable) for the sale of natural gas from the Tendrara Concession in Eastern Morocco over a 10 year period, the terms of which were
announced by the Company on 30 November 2021.

Following the entry of the Pipeline Tie-in Agreement the GSA remains conditional upon, inter alia: (i) all necessary authorisations and permits having been granted for the construction of the Phase 2 gas installations; and (ii) the final investment decision, when taken, by the Tendrara JV partners, being approved by the Moroccan Ministry of the Energy Transition and Sustainable Development, and the Ministry of Economy and Finance.

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

“The completion of the tie-in agreement to the GME pipeline marks further progress on the various conditions required to reach final investment decision on the Phase 2 development of the Tendrara production concession. This development is a key element of the roadmap released by the Energy Ministry in August 2021 to supply future Moroccan energy. Sound Energy is addressing the remaining conditions with the many local stakeholders and is working with local and international funding partners to establish project funding. We thank ONHYM for their support in closing out this tie-in agreement”

Sound continue to tick off the conditions precedent in order to  get FID for the phase 2 pipeline away. With progress continuing on all fronts, executing the phase 1 project and bringing phase 2 to FID.  Sound have their eye on the ball and the regular newsflow is good to see and the key point is that it confirms that Sound have their eye on the Tendrara development as an absolute priority.

Scirocco Energy

Scirocco Energy has noted the below update provided by Helium One Global Ltd, in which the Company retains an interest of approximately 1%.

2D Seismic Interpretation

Helium One’s ongoing interpretation of Phase II 2D Seismic data has identified multiple areas of interest with potential closure at both the Lake Bed and Karoo Group levels.  The area surveyed was not previously covered by historic 2D seismic, so any newly identified closures would be additional to the Helium One’s current resource base and prospect portfolio.

Helium One intends to complete additional work on the areas of interest to identify drill-ready prospects.  This will be done through ongoing 2D Seismic interpretation integrating data from Airborne Gravity Gradiometry, Multispectral Satellite Spectroscopy, Electrical Resistance Tomography and QEMSCAN data.  This information will feed into risk weighting and volumetric analysis which will, in turn, feed into prospect prioritisation ahead of Helium One’s planned 2022 drilling campaign.

Drilling Rig Update

Helium One is in advanced discussions with a leading global drilling company for the provision of a containerised rig solution.  A containerised rig has the draw works capacity and capabilities of a conventional drilling rig but can be broken into modules with the dimensions of standard ISO containers. This enables the rig to be transported quickly and economically by any container ship, train or truck and is ideal for drilling in Africa with reduced transportation costs.

Commenting on the update, Tom Reynolds said 

“It is pleasing to note that Helium One continues to make strong progress, with positive indications coming from the 2D Seismic interpretation which will enhance the portfolio of drill-ready targets.  Scirocco successfully monetised the majority of its investment in He1 last year at a significant premium to the current share price, but retains meaningful exposure to its ongoing progress through our remaining holding, meaning the upcoming drilling plans at Rukwa represent a good value catalyst for Scirocco within our diversified portfolio of assets.  We will continue to monitor the progress of this investment with a view to monetising the remaining value at the appropriate time.”

Scirocco keeping an eye on its investment in Helium One where it has a ‘meaningful’ investment. Time will tell but Scirocco has a broad range of interests now keeping it busy and full of growth. 

United Oil & Gas

United has announced an update on the drilling of the ASD-2 development well (ASD-2) in the Abu Sennan licence, onshore Egypt. United holds a 22% working interest in the licence, which is operated by Kuwait Energy Egypt.

Highlights

·      ASD-2 development well encountered a total of at least 25.5m of net pay across multiple oil-bearing reservoirs   

·      ASD-2 is the eighth consecutive successful well at Abu Sennan since United acquired its interest in the licence

The ASD-2 development well, which was drilled to test the north-western culmination of the commercial discovery in the ASD field last year, safely reached total depth  of 3,631 metres. The well has now been logged and is interpreted to have encountered at least 25.5 metres of net oil pay across the Abu Roash and Bahariya reservoirs. An estimated 20 metres of net pay was encountered in the Abu Roash-E reservoir, significantly above pre-drill expectations. The well will be tested and completed in the coming days and brought immediately onstream through the existing ASD facilities, adding additional production and revenue for United. United will provide a further update to the market once the well has been brought onstream and flow-rates have been established.

Next well in the Egypt Drilling Programme

ASD-2 is the first well in the 2022 Abu Sennan drilling campaign. After completion of ASD-2, the ECDC-6 rig will be released and the campaign will continue with the Sino Tharwa-1 rig. Technical work to finalise the drilling locations at the Al Jahraa and ASH fields is ongoing, and as a result, the ASV-1X exploration well has now been brought forward in the drilling programme as  the next well to be drilled. United estimate that the ASV-1X structure has the potential to hold over 2.5 million barrels gross mean recoverable resources. The well is expected to spud in the coming weeks.

United will be releasing its results for the full year ending 31 December 2021 on the 26 April 2022. In advance of this, the Company will provide its usual quarterly production update for Q1 2022.

United’s Chief Executive Officer, Brian Larkin commented:

“We are really pleased with the result from the ASD-2 well, which provides a very positive start to the 2022 drilling campaign. Our production is highly leveraged to the current higher oil prices and oil/gas discoveries can be quickly brought on stream through existing facilities, generating immediate revenue for the Company. There remains significant potential within the Abu Sennan licence, and we are looking forward to drilling the upcoming ASV-1X exploration well. This well is targeting a United estimate of over 2.5 million barrels gross mean recoverable resources.  The rig has been mobilised and we look forward to the well spudding in the coming weeks.”

Another regular report from UOG who are good at providing updates and are getting consistent results from the Abu Sennan licence. Not to forget the whole bunch in Brian Larkin’s in-tray but operationally they are sweet.  

President Energy

President has provided an update and information regarding Production Sales.

President is pleased to report the following positive production sales news:

·      The first material sales of oil from Louisiana for many months are taking place with one barge load planned of between 5000-5500 barrels of oil expected shipped this week with proceeds received as usual 20 days from the end of the month. The price of Louisiana crude as well as that of gas remain robust. With low opex and the continued use of ample tax losses, President anticipates significant net cash generation in the context of its Louisiana operations;

·      President has received approval from the regulatory authorities in Argentina to export approximately 19,000 barrels of oil being part of its Argentine production this month at or around international prices;

·      Long-awaited signals have been communicated to the market from the Argentine national oil production company YPF as well as from the Government that after many months domestic oil prices in Argentina will start to increase from April with already an announcement on Monday that prices at the pump will increase by 10%. President expects more of a gradual increase reducing the material gap to world pricing. As such the progressive step by step signs are welcomed and will have a positive effect.

President looks forward to the future beneficial impact of these developments.

Peter Levine, Chairman, commented:

“In Argentina, positive steps to raise in effect the net proceeds of our crude is welcome as is further export of our product “It is also satisfying to have Louisiana returning to make good bottom line contributions to Group.”

Continuing good news from President who should be way higher than the share price indicates at the moment.

Far

FAR has advised it has commenced steps to withdraw from its interests in the Esperanca Blocks 4A & 5A and Sinapa Block 2 offshore Guinea Bissau. FAR has provided its notices of withdrawal to the Government of Guinea Bissau and operator Petronor in accordance with the relevant agreements. Joint efforts by FAR and operator Petronor to collaboratively farm-down have been unsuccessful.
FAR has already met the minimum financial commitments associated with the license, and there are no 2022 commitments in place, therefore FAR does not expect to incur any new material expenses related to these interests. FAR has impaired US$2.7 million of capitalised costs associated with the Guinea Bissau project in the 2021 year.

FAR has previously disclosed a contingent liability of up to US$13 million payable in the event of production, and a contingent withholding tax liability of US$568k in the event of development, relating to the Guinea Bissau interests (see most recently Note 21 to the Condensed Consolidated Financial Statements for the half-year ended 30 June 2021). In the event of withdrawal FAR will not participate in any future development and production relating to these interests therefore the contingent liabilities will no longer exist.

Without any sign of farm-inees Far have had to return the GB acreage to the Government, sometimes all you can do is run with your best prospects.

And finally…

In the Prem last night the Noisy Neighbours went to the Eagles and were held 0-0 which leaves the top of the table very tight. Tonight Athletico Madrid go to the Theatre of Dreams 1-1 from the first leg.

And I was drawn to the Sky Sports match report after the England v Ireland match at Twickenham. In his player assessment to worthy journo gave Charlie Ewelsless a 4, can you see what he should have written, ‘this player was sent off after 82 seconds which ruined the match for the spectators and probably lost the 6 Nations title for England. Nevertheless he gets a point for turning up to the right ground, with the right kit at the right time and was blameless for 81 seconds so a 4…..

And the Cheltenham Festival starts today after pretty much two years to the day after the pandemic started.

And I would like to give a quick plug to the Energy Rocks gig coming up on Thursday, always a great night out if you can get tickets…

Energy Rocks Welcome 

It has been almost five years since we were last at this fabulous and iconic venue. In December 2017, the second iteration of what was then known as Rock’n’Oil helped take our total charitable contribution for the series to over £100k. On Thursday, we are aiming to double that total, and you all deserve our thanks for supporting the event and this year’s charity partner: https://www.momentumcharity.org/  As ever, 100% of tonight’s profits will be going to charity.

It has been five years that has Rocked both the Energy sector and the world. Commodity prices have fluctuated like a Wild Thing, climate change is finally being taken seriously, the energy transition is accelerating, we have experienced a global pandemic and are now witnessing a war in Europe.

The distressing scenes we have witnessed in Ukraine in recent weeks have affected us all and I’m sure everyone here tonight sends our hopes and prayers to all those affected.

In such circumstances, the work of charities to support those less privileged than ourselves becomes even more important. But it is also important to remember one of the fundamental joys of the human spirt and that is the universal love of music – a truly global language. I know, it’s only rock n roll, but I love it.

The original vision remains, an informal corporate event for our sector but with added glitz and glamour. Tonight, we have a fantastic line-up of bands, comedians and special guests.

Our headline band tonight, featuring some guitarists from the energy industry that you might recognise, will be fronted by West End star Gio Spano who has appeared in numerous shows including: Bat out of Hell, The Who’s Tommy and Jesus Christ Superstar.  He also appeared on X Factor.

You have gotta to fight for your right to party, so please don’t be afraid to step onto the dance floor, and make this a fantastic, fun night to remember. It will, once again, be the energy sector’s event of the year.

The Energy Rocks Team

Alice Carroll | Ben Brewerton | Ed Westropp | Graham Stewart | Spike Evans

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


Linking Shareholders and Executives :Share Talk

If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates. Terms of Website Use All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned
Share Talk
Share via
Copy link
Malcare WordPress Security