Malcy’s Blog – Oil price, Gulfsands Petroleum, Reabold Resources, Union Jack Oil, SDX Energy, Predator Oil & Gas & finally

WTI (June) $74.76 +46c, Brent (June) $78.37 +68c, Diff -$3.61 +22c.

Author @mgrahamwood

USNG (May) $2.35 +23c, UKNG (June)* 91.99p +1.67p, TTF (June)* €39.145 +€0.79. * May expiry

Oil price

The fight between what have been pretty good inventory stats and the US ‘R’ word has been won in recent days by recessionary influences, yesterday US 1Q GDP was 1.1% which considering the whisper was for 2% was a big miss and showed a significant fall in private inventory investment.

Opec seems to share with me a pretty rank view of the IEA and its boss Fatih Birol, the cartel warns him about his comments that might ‘discourage investment’ in the oil industry and were ‘counter productive’. Birol you will remember shared a platform with Greta T at the waste of money that is the Dav-oh beano and his credibility is a one way street.

Both Chevron and Exxon report today which lead to the sector results season, and when we return next week, after the Bank Holiday it will be May with all that it brings. Just in, Exxon beat the whisper with $2.83 against expectations of $2.59.

Gulfsands Petroleum

In early 2017 Gulfsands was informed that its Block 26 fields in North-East Syria, currently under force majeure in order to comply with UK sanctions, had been returned to significant and regular production – unlawfully. We have subsequently become aware that the perpetrators of this illicit production were, and continue to be, entities affiliated with the self-proclaimed Autonomous Administration of North and East Syria (the “AANES”), the Peoples Defence Unit (“YPG”), the Syrian Democratic Forces (“SDF”) and the Syrian Democratic Council (“SDC”).
Today marks a sobering milestone: the estimated value of the hydrocarbons misappropriated since 2017 has surpassed US$3billion.

The illicit production from Gulfsands’ Block 26 assets continues at a rate of just under 20,000 barrels of oil equivalent per day, but this is just a portion of the total illicit hydrocarbon production taking place in the North-East of Syria. It is widely reported that production in this region is currently estimated to be around 80,000 barrels of oil per day. This means a lost value of approximately US$6.4 million per day (at current prices of around US$80 a barrel), and a total value of oil misappropriated since 2017 estimated to be around US$12 billion.
The biggest travesty of all is that only a minimal amount of this value finds its way to benefit the Syrian people. This unlawful oil trade takes place on the black market, away from regulation and oversight, meaning prices are depressed and the potential for corruption is high. The majority of this oil therefore benefits illicit actors, not the Syrian people. This also leads to unsafe, unregulated, and hugely environmentally damaging oil field practices which also have a catastrophic effect on the health of local communities.
It is immensely frustrating and disappointing that several influential countries appear to turn a blind eye to this illicit production which contravenes international law, sovereignty, international sanctions and the principles of UNSCR 2254.
This situation is not unique to Syria. Illicit oil trade is a global issue – the United Nations University World Institute for Development Economics Research (WIDER) estimates that illicit oil theft accounts for 5-7% of the global market for crude oil and petroleum fuel, valued at approximately US$133 billion each year. In some countries, including Syria, oil and gas are the main source of indigenous natural wealth. Illicit oil trade negatively impacts oil producing economies’ energy security, denies valuable revenue streams for its people and communities, prevents inward and outward investment, creates instability, and also damages both the local and global environment.

Project Hope

There is a desperate need for humanitarian and early recovery assistance in Syria, and the recent devastating earthquakes have only made the situation more acute. OCHA (the United Nations Office for the Coordination of Humanitarian Affairs) reports that 14.6 million Syrians are in need of aid, 90% live below the poverty line and 80% are assessed to be food insecure. It is also estimated that there are around 5.4 million people in need who are internally displaced within Syria and around 5.6 million Syrian refugees in neighbouring countries (Source: UKAid Syria Crisis response Summary – July 2022).
Gulfsands is pioneering a Humanitarian and Economic Stimulus initiative which would pave the way for international energy companies (which have all declared force majeure due to international sanctions) to return to operations in North-East Syria. Allocated revenues from oil sales would be deposited in an internationally administered fund and disbursed to finance early recovery, humanitarian and economic stimulus projects across the country – in line with UNSCR 2254 and for the benefit of all Syrian people who can, and should, benefit from their country’s national resource endowment to build self-sustainability and resilience for the future. We call this initiative Project Hope.
With investment and expertise, we estimate that hydrocarbon production in North-East Syria could be increased from 80,000 boepd to around 500,000 boepd and generate around US$15-20 billion per annum depending on the prevailing oil price. To put this into context, the US Government’s total funding available for the Syria humanitarian response in FY2021-22 was US$895 million (Source: USAID, “Complex Emergency Fact Sheet #7 FY22”- 6/10/2022), and the UK’s FCDO total funding in Syria during the crisis from Feb 2012 to March 2022 was £1.6 billion (Source: UKAid Syria Crisis response Summary – July 2022).
The Project Hope initiative has the potential to fund hundreds of medical and educational facilities and economic programs as well as create thousands of jobs.
Gulfsands continues to work to engage with international and regional stakeholders, including those from political, academic, humanitarian and civil society circles, to raise the profile of this issue and generate support for the Project Hope initiative.

Gulfsands makes it clear in its announcement, as it has to be fair all the way through the sanctions on Syria, quite how much money could be going to the humanitarian causes in Syria. Very little further comment from me is necessary. 

Reabold Resources/Union Jack Oil 

Reabold has announced a corporate and operational update covering the West Newton PEDL 183 licence and four of the North Sea offshore licences, and the commencement of a share buyback programme of up to £750,000.

KEY POINTS

·    PEDL 183 licence update:

·    JV partnership agreed specific well path for West Newton B-2 well

·    Potentially highly significant discovery in Crawberry Hill, part of the PEDL 183 licence and previously drilled by Rathlin Energy Limited (“Rathlin”) in 2013

·    Rathlin to potentially bring in an industry partner to support licence activity, with West Newton B-2 drilling targeted for H2 2023, subject to final regulatory approvals and rig availability

·    Reabold could provide additional funding solution for Rathlin upon receipt of the second tranche of net proceeds from the sale of Victory

·    CPR published on four of the Reabold North Sea licences; follows the announcement and publication of a CPR in February 2023 on licence P2478, which includes the Dunrobin West prospect and confirmed significant resource potential

·    Initiation of share buyback programme of up to £750,000 to commence on 28 April 2023

WEST NEWTON PEDL 183 LICENCE UPDATE

WN B-2 well

The joint venture partnership at PEDL 183 has continued to analyse the geophysical, petrophysical and test data from the West Newton A and B wells in preparation for drilling. The data analysis has already confirmed the likelihood of intersecting good reservoir quality that, when taken in conjunction with the optimised drilling and completion methods, is expected to deliver good well productivity from a horizontal well from the B site (“WN B-2”) and, as such, the JV partnership has committed to the specific, optimised well path for WN B-2. It is envisaged that WN B-2 will be followed by a multi-well development programme based on a 50 Mscf/d gas facility.

Potentially highly significant existing discovery in Crawberry Hill, part of the PEDL 183 licence, in the Zechstein play region

Alongside the development plans for the West Newton A and B wells, Reabold has continued to appraise other opportunities within the PEDL 183 licence. Reabold has undertaken a technical review of its Zechstein play prospectivity in the UK, including the licences acquired through the Simwell transaction and PEDL 183, combining the significant quantity of seismic data, historical wells, core analysis and other proprietary data and analysis assembled by the Company.

Through this analysis, Reabold has identified on PEDL 183 a significant potential discovery, Crawberry Hill, which was drilled by Rathlin in 2013. The Company’s priority now is to develop plans with the aim of making this a drill-ready appraisal opportunity. This could add materially to the already significant resource within PEDL 183 offered from the West Newton trend. The Crawberry Hill-1 well, drilled in 2013, intersected 141m of Kirkham Abbey Formation with good indications of gas shows and porosity. The well was originally drilled to test a deeper target and does not have a full suite of logs over the Kirkham Abbey interval.

ERC Equipoise Ltd (ERCE) has undertaken a petrophysical analysis of the conventional reservoir of the Kirkham Abbey formation in the Crawberry Hill and Risby-1 wells and interprets average porosities greater than 15% in the top 20m of the Kirkham Abbey formation in Crawberry Hill-1. ERCE also interprets probable gas saturations in the top 6m of the Kirkham Abbey formation in the Crawberry Hill-1 well.

The Risby-1 well was drilled in the water leg but good porosity was calculated from the well logs and the potentially very good permeability indicated from well cuttings, which is supported by a drill-stem test in the Kirkham Abbey Formation. Detailed seismic mapping is underway to define the extent of the Crawberry Hill accumulation, which could add materially to the already significant resource within PEDL 183 offered from the West Newton trend.

In conclusion, Reabold believes the apparent discovery at Crawberry Hill to be an exciting appraisal opportunity potentially significantly enhancing the already strategic asset that is PEDL 183.

Given the significant technical analysis that has been completed to date, culminating in the JV partnership agreeing the well path for WN B-2 and the emergence of the Crawberry Hill opportunity, and in line with prudent risk management, Rathlin has decided to reduce its significant working interest position in PEDL 183 with the aim of potentially bringing in an industry partner to participate in drilling on PEDL 183. 

Rathlin holds a 66.67% licence interest in and is operator of PEDL 183. Reabold has a ca. 56% economic interest in PEDL 183 via its 16.665% direct licence interest and through its ca. 59% equity ownership of Rathlin. Reabold is sufficiently funded for its 16.665% direct share of the costs for this well with its existing cash resources.

Should Rathlin’s efforts to reduce their working interest position not fully meet their objective, Reabold could provide additional funding for Rathlin upon receipt of the second tranche payment from Shell relating to the sale of the Victory asset,  which would allow WN B-2 to be drilled at the earliest opportunity, subject to Environment Agency permit approvals and rig availability.   The exact timing and amount of the second tranche payment from Shell is currently uncertain, however the second tranche payment will be ca. £9.5 million, assuming the development and production consent for the Victory gas field is secured from the North Sea Transition Authority by 1 December 2023. If consent has not been received by this date, then Reabold expects to receive £5.2 million within 3 business days of this date, with the balancing payment to come at a later consent date. The net proceeds to be received by Reabold would be sufficient to meet Rathlin’s share of the drilling costs of WN B-2, leaving Reabold financial flexibility for its capital allocation strategy of balancing portfolio investment with shareholder returns.

CPR ON REABOLD’S NORTHERN NORTH SEA ASSETS

A Competent Person’s Report (“CPR”) prepared by RPS Group (“RPS”) on four of Reabold’s UK North Sea licences is available on its website at the following link: www.reabold.com/investor-relations/reports-and-presentations/. The CPR covers licences P2464, P2504 and P2605, in which Reabold has a 100% working interest, and licence P2478, in which Reabold has a 36% working interest. A P2478 (the Dunrobin complex) specific CPR was announced on 16 February 2023 and is also contained within today’s published CPR. Reabold acquired these strategic off-shore North Sea licences from Corallian Energy for £250,000, as announced on 4 May 2022.

The CPR has been prepared in accordance with the June 2018 Petroleum Resources Management System (“SPE PRMS”) as the standard for reporting. The key points from the CPR and a summary of the gross and net technically recoverable prospective resources are set out below.

·    CPR highlights the potential across all of Reabold’s key central and northern North Sea assets, namely: the Inner Moray Firth, East Shetland Basin and the North West of Shetland

·    The opportunities comprise a number of play types of both gas and oil with proven potential from analogue fields

·    Confirmed material contingent resources at Oulton of 11 mmbbls (2C) with an associated NPV (10) at 30 September 2022 of £59 million¹

·    Mean Estimate aggregate² of unrisked net prospective oil resources is 148.5 mmbbls and Mean Estimate aggregate² of unrisked net prospective gas resources is 211.6 bcf or ca. 36.5 mmboe³

·    The Company believes that the CPR supports the ongoing farmout and marketing process for Reabold’s North Sea assets

_________________________

[1] Based on RPS assumptions.

2 The unrisked aggregation was performed by the Company and assumes that all prospects at all levels are successful.

3 The CPR reports oil and gas Prospective Resources. The oil equivalent value of the gas resources has been estimated by the Company using a factor of 5.8bcf per mmboe.

The table below summarises RPS’s independent assessment of the Prospective Resources, from which are derived the net technically recoverable Prospective Resources attributable to Reabold’s working interest, as derived from the CPR which has an effective date of 30 September 2022.

Notes:      

^a “Gross Attributable” are 100% of the resources attributable to the licence whilst “Net Attributable” are those attributable to Reabold’s effective interest in the licence before economic limit test.

^b Pmean totals are by arithmetic summation (in-house).

COMMENCEMENT OF SHARE BUYBACK PROGRAMME

Reabold is pleased to announce the launch of a share buyback programme (the “Programme”), in accordance with the authority granted by shareholders at the Company’s General Meeting on 28 February 2023.

As announced on 31 October 2022, Reabold stated that it intends to return £4 million of excess cash to Reabold shareholders upon receipt of the final £9.5 million net to Reabold from Shell, relating to the sale of the Victory asset.

However, the Company has decided to accelerate the timing of a portion of this return by commencing an initial share buyback programme for a maximum amount of £750,000. Reabold’s Board evaluates many investment opportunities consistent with its investing policy and believes that the current market value of the Company’s ordinary shares makes the buyback an attractive investment. Furthermore, the quantum of the buyback programme has been set by the Board after having considered the current capital position and future capital needs of the Company, such that it retains financial flexibility whilst maintaining an efficient balance sheet.

The Board will keep the Programme under review to ensure that it continues as an efficient and effective means of generating value for Reabold shareholders. While the Company has launched the Programme, there is no certainty on the volume of shares that may be acquired, nor any certainty on the pace and quantum of acquisitions.

Reabold will evaluate the mechanism of the intended return of the remaining £3.25 million upon receipt of the £9.5 million payment from Shell, with consideration to, inter alia, prevailing market conditions at that time.

The Company has entered into a buyback agreement with Stifel Nicolaus Europe Limited (“Stifel”), which will conduct the Programme and repurchase Reabold’s ordinary shares of 0.1 pence each (“Ordinary Shares”) on Reabold’s behalf for a maximum amount of £750,000 worth of Ordinary Shares. During any closed periods of the Company, the buyback agreement will grant Stifel the authority to enact purchases of Ordinary Shares and make trading decisions concerning the timing of the purchases under the Programme independently of the Company. The purpose of the Programme is to reduce the issued ordinary share capital of Reabold.

The Programme will be conducted within certain pre-set parameters in accordance with the Company’s general authority granted to the Company at its General Meeting on 28 February 2023. In line with the authority, the Programme will not exceed acquisitions of more than 2,294,346,977 Ordinary Shares (representing approximately 25 per cent. of the Company’s issued ordinary share capital).  Share purchases will be carried out on the London Stock Exchange.  The average daily volume figure acquired under the Programme will be no more than 25% of the average daily volume traded in the 20 trading days preceding the date of purchase, and no more than 6 million Ordinary Shares in any one day.

Any Ordinary Shares acquired under the Programme shall be at a maximum price (excluding expenses) of the higher of: (i) 10% above the average of the middle market quotations for an Ordinary Share as derived from the AIM Section of the Daily Official List of the London Stock Exchange for the five business days before the date on which the contract for the purchase is made; and (ii) an amount equal to the higher of the price of the last independent trade and current independent bid as derived from the London Stock Exchange trading system.

The Ordinary Shares repurchased will be held in Treasury, to meet the obligations from employee share option programmes or other allocations of shares to employees of the Company, or to re-issue such Ordinary Shares held in Treasury outside of a pre-emptive offer.

It is intended that the Programme will be conducted within the parameters prescribed by the Market Abuse Regulation 596/2014 (as in force in the UK by virtue of the European Union (Withdrawal) Act 2018 and as amended by the Market Abuse (Amendment) (EU Exit) Regulations 2019) (the “Regulation”), the Commission Delegated Regulation (EU) 2016/1052 (as in force in the UK by virtue of the European Union (Withdrawal) Act 2018 and as amended by the FCA’s Technical Standards (Market Abuse Regulation) (EU Exit) Instrument 2019) (the “Delegated Regulation”).

The Programme is expected to continue until the Company’s next Annual General Meeting, which is expected to be held in June 2023.

Any market repurchase of Ordinary Shares will be announced no later than 7:30 a.m. on the business day following the calendar day on which the repurchase occurred.

Stephen Williams, Co-CEO of Reabold, commented:

“The ongoing technical work related to West Newton has given the JV a high level of confidence in the planned location for the upcoming B-2 horizontal well, with drilling targeted in H2 2023. That, combined with the exciting and highly material potential we have identified at Crawberry Hill, and the confirmation of the prospectivity of the North Sea assets as confirmed by the CPR, is reflected in today’s announcement that we are beginning the process of returning excess cash to shareholders by undertaking an initial up to £750,000 share buyback. We believe that this represents the most effective way that Reabold can access additional resource on a per share basis for its investors, whilst we await the drilling of West Newton B-2.“

News from Reabold that the West Newton well WN B-2 is planned to be drilled in H2 will come as good news to a  market starved of information from the area. But I have some concerns about the Crawberry ‘discovery’ which I can’t see being announced as such when it was drilled in 2013. 

Shareholders will be happy to see a £750,000 buy-back especially after the shares are some 65% off the high in the last year and that is one in which two attacks were made on the company, one a vote against the management and one a potential takeover bid so shareholders must be happy  with what’s going on. 

There is also plenty to look into within the CPR so the shares do look cheap as the fact that the company investing in its own shares shows, however I suspect that the money from Shell and perhaps even more importantly action from West Newton may be more what will deliver any outperformance. 

Union Jack Oil plc noted today’s announcement from Reabold Resources plc which includes an analysis Reabold independently commissioned in respect of an exploration well drilled on PEDL183 in 2013.

Worth noting that UJO felt it necessary to draw attention to the well on PEDL183 as it holds a 16.665% economic interest in PEDL183.

SDX Energy

SDX has reported its audited financial and operating results for the twelve months ended 31 December 2022. All monetary values are expressed in United States dollars net to the Company unless otherwise stated.

The Annual Report & Accounts of the Group for the year ended 31 December 2022 is now available on the Company’s website and on Sedar.

Full year 2022 key results:

·      Net Production, 3,723 boe/d (507 bbls/d and 19.3mmscf/d), marginally ahead of mid-point full year guidance of 3,480 – 3,795 boe/d.

·      EBITDAX of US$24.6 million and operating cash flow (before capex) of US$16.9 million.

·      Out of 14 wells completed across SDX’s portfolio in the year to date, twelve were put on production during 2022.

·      Capex US$27.6 million compared to revised full year guidance of US$26.5 – 28.0 million.

·      Net Cash of US$4.9 million as at 31 December 2022.

·      As at 31 December 2022, the Company’s working interest share of audited 2P reserves was 4.9 MMboe.

Jay Bhattacherjee, Interim Executive Chairman of SDX, commented:

“2022 was a busy year for the Company operationally and corporately. During the summer of 2022 the shareholders rejected a takeover attempt and the Company welcomed new shareholders to support the Company’s growth. Additionally, during the period there was significant personnel change at both a Board and Executive Management level and I joined the company as the non-Executive Chairman at the end of October and assumed the role as Interim Executive Chairman in December. SDX enters 2023 with a renewed focus on delivering long term sustainable returns to shareholders by pursuing opportunities both within and outside our current portfolio across the wider energy space.

In Egypt, the planned three well drilling campaign was completed during the year, as well as a necessary workover programme on several existing wells. While our Egyptian assets continue to produce, at present Egypt is a challenging operating environment for energy companies with sharp devaluation in the value of the currency, which has impacted the dollar value of the cash we hold there, and severe limitations on our ability to transfer funds out of the country due to capital controls. These are both outside our control. Historically our producing Egyptian assets have funded the Company’s growth initiatives and we are having to find other solutions, and minimising the risk associated with this has been a key focus in recent months. This is a dynamic situation and we will provide further updates in due course.

In Morocco, SDX drilled two new wells which were put into production during the year and the Company is currently maximising recovery from our existing wells to maintain customer supply.  It is our intention to have an expanded drilling programme later in 2023 to continue to meet existing demand and to produce to meet any increase or additional customer demand.  Morocco remains a core piece of the portfolio and as the country’s only gas producer, we maintain an opportunity to grow into a market that is hungry for every molecule of gas we can produce.

While the Company faces a number of challenges, the changes made in 2022 and the ongoing modifications we make as part of our strategic review are positioning SDX with a foundation from which to grow. We are revaluating our standing in the wider energy sector and will consider all reasonable avenues, including transition fuels and alternative energies, to deliver long term sustainable returns to shareholders. The Company has great strengths, and I’m confident that we can rise to and overcome the challenges faced and return to growth, and I thank all shareholders and colleagues for their support during 2022.”

These swathes of results are historic and can be ignored, I have spent a great deal of time in the last 24 months suggesting that the model was unlikely to make a decent return for shareholders and the various corporate manoeuvres last year confirmed that. 

Right now it is all about what new Chairman Jay Bhattacherjee and the team that he is assembling do about the SDX asset base and in what direction he will take it. This will inevitably mean new geographies and areas of the ‘energy space’ and I look forward to seeing what Jay might come up with. 

Twelve months to 31 December 2022 Operations Highlights

·    Entitlement production for the twelve months ended 31 December 2022 of 3,723 boe/d was marginally ahead of 2022 mid-point guidance of 3,638 boe/d, driven by strong performances in Morocco and at South Disouq, with West Gharib’s production lower than expected due to drilling delays and higher water and sand production from some wells drilled on the flanks of the Meseda field.

·      In South Disouq, the planned three-well drilling campaign has been successfully completed. The SD-5X and SD-12_East discoveries have been brought online ahead of schedule, delivering production and revenues. The MA-1X gas discovery well has been evaluated post year-end and the Company will progress with developing the area after it has finalised the area’s commercialisation strategy.

·      In West Gharib, eight wells have been successfully completed and are on production. One exploration well was a dry-hole and is waiting on a workover to convert it to a water-injector for the Rabul Field. Eighteen well workovers across the concession were completed during 2022.

·      In Morocco, both wells (SAK-1 and KSR-20) in the two-well drilling campaign discovered gas and have been tied into the Company infrastructure and were contributing to production at the end of 2022. During the year, several workovers were performed to access behind-pipe reserves.

·      As at 31 December 2022, the Company’s working interest share of audited 2P reserves was 4.9 MMboe. The Company’s 2P reserves and 2C resources estimates have been audited in accordance with the COGE Handbook & PRMS by Gaffney, Cline & Associates, an independent qualified reserves evaluator and auditor.

·      The Company’s operated assets recorded a carbon intensity of 3.6kg CO₂e/boe

Twelve months to 31 December 2022 Corporate Highlights

·      During the year a number of Board changes were announced. The Board is now led by Jay Bhattacherjee as Executive Chairman, with his fellow directors being Tim Linacre and Krzysztof Zielicki.

·      New shareholders were introduced to the register and have provided a clear mandate to the Board for growth.

Twelve months to 31 December 2022 Financial Highlights

⁽¹⁾         Refer to the “Non-IFRS Measures” section of this release below for details of Netback and EBITDAX.

⁽²⁾         EBITDAX for twelve months ended 31 December 2022 and 2021 includes US$4.8 million and US$5.3 million respectively of non-cash revenue relating to the grossing up of Egyptian corporate tax on the South Disouq PSC which is paid by the Egyptian State on behalf of the Company.

⁽³⁾         For the twelve months ended 31 December 2022 and 2021 US$23.9 million and US$12.3 million respectively of non-cash Exploration & Evaluation (“E&E”) write offs in total are included within this line item.

·      Netback for the year was US$33.2 million, 25% lower than during 2021. Netback contribution from South Disouq was US$15.2 million (YTD’21: US$16.5 million) due to lower gas and condensate production owing to natural decline being partly offset by higher realised price for condensate and lower opex. West Gharib Netback increased by US$1.5 million compared to 2021 due to the increase in the realised oil service fee, partly offset by lower production. Morocco Netback was US$11.1 million, which was lower compared to 2021 due to lower production as a result of the non-renewal of a customer contract, coupled with lower realised pricing due to the weakening of the Moroccan Dirham against the US Dollar.

·      EBITDAX for the year of US$24.6 million was 39% lower year-on-year due to lower Netback, as described above. 

·      The 2022 depletion, depreciation and amortisation (“DD&A”) charge of US$19.3 million was lower than the US$32.6 million in the prior year due to lower production in Morocco and a lower depreciable asset base in South Disouq, following the accelerated depreciation of the SD-12X borehole costs in 2021 and impairment recognised at year-end 2021. 

·      E&E expenditure and non-cash write offs totalled US$25.6 million, predominantly related to the non-cash impairment charge relating to four exploration wells in Morocco (US$21.5 million) and the write off seismic costs at South Disouq (US$1.3 million).

·      A non-cash PP&E impairment of US$4.8 million was recognised for the Gharb Basin (Morocco) Cash Generating Unit (“CGU”) as at 31 December 2022, following a downward revision in the anticipated recoverable reserves from the producing wells.

·      2022 operating cash flow (before capex) of US$16.9 million, was 41% lower compared to prior year (US$28.7 million), mainly due to lower EBITDAX as explained above.

·      Capex of US$27.6 million, reflects:

o   US$7.1 million for the three-well drilling campaign at South Disouq split between: US$1.8 million for the drilling, completion, testing and tie in of the SD-5X well, US$2.6 million for the drilling, completion and tie in of the SD-12_East well and US$2.8 million for the drilling, completion, and testing of the MA-1X well. In addition, US$0.9 million has been spent on several workovers and US$0.7 million on other exploration costs;

o   US$15.4 million in Morocco covering; pre-drilling and standby expenditure for the recommencement of the Morocco drilling campaign, the drilling and completion costs for SAK-1 and KSR-20, additional expenditure on the KSR-19 well and on various workovers and infrastructure works; and

o   US$3.5 million of West Gharib drilling costs across the eight wells drilled.

·      Liquidity: The Company’s net cash position as at 30 September 2022 was US$4.9 million, with cash balances of US$10.6 million offset by US$5.7 million drawn debt (incl. interest) from the European Bank of Reconstruction and Development (“EBRD”) credit facility. Given the ongoing liquidity needs for corporate G&A and to develop the Moroccan assets, the Company is exploring options to maintain and strengthen its liquidity.

·      The Directors have reviewed the cash flow projections prepared by management for the period ending 31 December 2024 and believe that a material uncertainty exists that may cast significant doubt over the ability of the Group to continue as a going concern. As a result of various geopolitical factors, US dollar transfers by the Central Bank of Egypt have been restricted and the Company is currently unable to expatriate any funds currently in Egypt and there can be no guarantee of timing on when funds will become available.  These factors have also impacted the Egyptian pound which has been devalued several times since March 2022 and is currently trading at less than half of its value compared with the USD since that date.  Whilst the company’s receivables are not impacted by this devaluation, the company’s cash balance in country is fully exposed to any additional currency fluctuations. In addition, the Board believes it has options to raise external capital, the Board however cannot guarantee on the final quantum and timings of any proposed financing. The Board would also note that there are no guarantees that current discussions with the EBRD will be favourably concluded and that arrangement with creditors will remain negotiable. Notwithstanding the material uncertainty identified, the Directors have concluded that the Group will have sufficient resources to continue as a going concern for the period of assessment, that is for a period of not less than 12 months from the date of approval of the consolidated financial statements.  Accordingly, the consolidated financial statements have been prepared in a going concern basis and do not reflect any adjustments that would be necessary if this basis were inappropriate.

Detailed Operations Update

Twelve months to 31 December 2022 Production

·      Average entitlement production as at 31 December 2022 of 3,723 boe/d,

⁽¹⁾         After completion of the South Disouq disposal with effect from 1 February 2022.

⁽²⁾         Net of minority interest. Gross of minority interest, production guidance is expected to be 3,500 – 3,700 boe/d.

⁽³⁾         31 December 2022 South Disouq entitlement production is shown at pre-disposal working interest of 55%/100%.

o  South Disouq: During 2022, the existing wells continued to exhibit natural decline and expected sand and water production, albeit this was partly offset by contribution from the two wells (SD-5X and SD-12_East) that came into production during 2022. Production guidance for 2022 reflects the disposal of 33% of SDX’s interest in the asset, 2-3% CPF and compressor downtime due to planned maintenance, the successful drilling of SD-12_East and SD-5X and several well workovers. At the year-end, the MA-1X gas discovery well was still in the process of being evaluated to determine a commercialisation strategy.

o  West Gharib: The existing well stock at the asset continued to produce steadily, albeit exhibiting natural decline as expected, partly offset by contribution from the recently drilled eight wells, all of which were on production during 2022, and successful well workovers. Some of the new wells that were drilled on the flanks of the Meseda field have exhibited higher water and sand production than previously expected. The goal of the development campaign is to fully exploit the volumes in the West Gharib fields.

o  Morocco: 2022 production guidance was lower than 2021 production as the Company evaluates its ability to deliver to new and existing consumers based on its current reserves base and pricing environment. 2022 saw strong demand from the customer portfolio.

2022 Drilling and Operations

Morocco drilling campaign update (SDX 75% working interest)

o  The Company concentrated on maximising recovery from its existing well stock, utilising its two compressors.

o  The 2022 drilling campaign commenced with the spudding of the SAK-1 well on 6 August 2022. The SAK-1 well reached TD of 1,196m MD on 24 August 2022 and encountered a gas sand at the primary target interval at 1,107m MD finding 3.7m of net pay with an average porosity of 31%. A secondary gas sand was found at 1,079.6m MD, with a net pay thickness of 1.1m and an average porosity of 28%. The well was subsequently tied into the Company’s infrastructure and was contributing to production at the year-end. The second well in the campaign, KSR-20, spud 12 September 2022 and reached TD of 1,410m MD post period-end on 1 October 2022, finding the primary target gas sands at 1,265m MD. The well was brought on production during the last quarter of 2022.

o  In addition to the drilling campaign, workovers were performed to access behind-pipe reserves in a number of wells.

South Disouq Egypt exploration drilling campaign update (SDX 55%/100% working interest pre-farm out, SDX 36.9%/67% working interest post-farm out)

o  One appraisal well, SD-12_East, and two exploration wells, SD-5X (Warda) and MA-1X (Mohsen), have been drilled during 2022.

o  The SD-5X well discovered gas in the basal Kafr El Sheikh sand, with EUR similar to the pre-drill expectation. SD-5X was tied-in and started production 13 May 2022 and is currently producing at around 10 MMscf/d of dry gas and c.100 bbl/d of condensate.

o  The second well in the campaign, SD-12_East (Ibn Yunus North development lease) was successfully drilled and brought onto production on 1 July 2022 and is currently producing at around 7 MMscf/d, with no condensate.

o  The third and final well of the 2022 South Disouq drilling campaign, MA-1X on the Mohsen prospect in the Exploration Extension Area, is a gas discovery in the primary Kafr El Sheikh Fm reservoir target finding 56.3ft of high-quality net gas pay. A well-test was conducted on MA-1X and has post year-end been evaluated. The Company will progress with developing the area after it has finalised the area’s commercialisation strategy.

o  Following the disposal transaction, all three wells have been drilled with partner participation. In addition to the drilling activity, several well workovers will be undertaken to maximise recovery from the fields.

West Gharib Egypt exploration drilling campaign update (SDX 50% working interest)

o  Much of the activity in the West Gharib concession during 2022 was centred around the aforementioned infill drilling campaign.

o  During 2022, eight infill wells and one exploration well (Rabul Deep-1) were drilled. The Rabul Deep-1 well was a dry-hole but is waiting on workover to convert it to a water-injector for the Rabul Field.

o  Eighteen well workovers across the concession were completed during 2022.

2022 ESG metrics

·      The Company’s operated assets recorded a carbon intensity of 3.6kg CO₂e/boe in 2022.

·      Scope 1 greenhouse gas emissions at operated assets were 9,600 tons of CO₂e. Scope 3 greenhouse gas emissions in Morocco were 93,900 tons of CO₂e, which is approximately 47,600 tons of CO₂e less than using alternative heavy fuel oil.

·      2022 was an incident and injury-free year for South Disouq, with the last Lost Time Injury (“LTI”) being in October 2020. There were no LTIs in our Morocco operations during 2022. A Health and Safety Management system was rolled out by the Morocco asset team, including safety training of all field and office-based personnel.

·      No produced water was discharged into the environment in Morocco (100% contained and evaporated) or at South Disouq (100% recycled).

·      There were no hydrocarbon spills at operated assets.

·      Continuing our engagement with local communities who are affected by our operations, in 2022 SDX was delighted to provide three hospitals near our South Disouq operation with a ventilator each to support the medical needs of the local population in Gharbia State. In Morocco, SDX supported the Dar Lekbira organisation, an NGO with no political or religious affiliation that aims to help children in distress in Kenitra and the surrounding region (within SDX’s operating footprint) with winter clothing, school supplies and non-perishable food items.

·      The Company continues to adopt high standards of Governance through its adherence to the QCA Code on Corporate Governance.

Twelve months to 31 December 2022 Financial Update

·      Netback was US$33.2 million, 25% lower than the Netback of US$44.1 million for the twelve months to 31 December 2021, driven by:

o  Net revenue decrease of US$10.1 million due to:

o  US$9.8 million lower revenue in Morocco compared to 2021 due to the non-renewal of an expired customer contract and lower realised pricing due to adverse FX movement;

o  US$2.0 million lower South Disouq revenue compared to 2021, due to lower production partly offset by improved condensate pricing; and

o  US$1.7 million higher revenue at West Gharib compared to 2021 due to higher realised service fees, partly offset by lower production.

o  Operating costs increased by US$0.8 million from the prior year due to significant one-off costs incurred for handling production and drilling water produced at one of the worked over wells in Morocco

·      EBITDAX was US$24.6 million, (down 39%) compared with US$40.0 million for the twelve months to 31 December 2021, mainly as a result of the decrease in Netback described above. 

·      The main components of SDX’s comprehensive loss (before minority interest) of US$35.1 million for the twelve months ended 31 December 2022 are:

o  US$33.2 million Netback;

o  US$25.1 million of E&E expense, of which:

§ US$21.5 million represents non-cash write off of exploration expenditure incurred in Morocco relating to the KSR-19, KSR-20, SAK-1 and BMK-1 wells, representing the total of their book value exceeding their recoverable amount; 

§ a US$1.3 million non-cash write off of seismic cost incurred in South Disouq as the result of the relinquishment of the Young area;

§ a US$0.6 million bonus payment to the Egyptian Natural Gas Holding Company (“EGAS”) as a result of the indirect assignment of part of the South Disouq concession;

§ a write off of US$0.5 million for an unsuccessful exploration well drilled in the Rabul area in West Gharib; and

§  other expenditure of US$1.7 million mainly for non-trade receivable write off (US$0.7 million), new business evaluation activities (US$0.6 million) and a provision for obsolete drilling inventory in Morocco (US$0.4 million).

o  US$19.3 million of DD&A expense;

o  US$4.8 million of impairment of the Gharb Basin (Morocco) CGU;

o  US$5.2 million of ongoing G&A expense;

o  US$3.7 million of transaction costs;

o  US$4.6 million of FX loss mainly due to the devaluation of the Egyptian Pound during the first nine months of the year; and

o  US$5.8 million of corporate tax.

KEY FINANCIAL & OPERATING HIGHLIGHTS

(1)  Refer to the “Non-IFRS Measures” section of this release below for details of Netback and EBITDAX.

Consolidated Balance Sheet

Consolidated Statement of Comprehensive Income

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Predator Oil & Gas

Predator has announced its audited financial statements for the year ended 31 December 2022, extracts of which are set out below.

Highlights of Financial Results for 2022

·    Loss from operations of GBP2,558,844 (2021: Re-stated loss of £1,517,571).

The increase in operating loss is entirely attributable to share based payments (the award of options).

·    Administrative expenses of GBP2,545,789 (2021: Re-stated £1,517,552).

Excluding share based payments for options and warrants corporate administrative expenses were GBP1,310,909 (GBP1,323,268 for the restated period to 31 December 2021).

·    Increased cash balance at period end of 2022 GBP3,323,161 (2021: Re-stated GBP1,523,035).

·    Additional, restricted cash of USD1,500,000 (USD1,500,000 for the period ended 31 December 2021).

·    Placed 66,500,000 new ordinary shares of no par value in the Company to raise GBP4,335,000 (before expenses).

·    Exercise of warrants Novum Securities Ltd. resulted in the issue of 5,949,210  new ordinary shares of no par value in the Company to raise GBP242,253.

·    Exercise of share options by directors and former directors resulted in the issue of 18,363,712 new ordinary shares of no par value in the Company to raise GBP837,852

·    Debt-free except for directors loans of GBP507,604

Highlights of key Operational Activities in 2022

·    Completed post-well geological desktop studies for MOU-1 drilled in 2021.

·    Validated the Moulouya Fan geological concept.

·    Validated a thermogenic gas source in MOU-1.

·    Re-evaluated the MOU-1 rigless testing programme to determine cost-effective ways to perforate additional potential targets for testing.

·    Reprocessed 278 kilometres of 2D seismic data in Guercif.

·    Completed geophysical studies for MOU-1 to confirm seismic amplitude response

Is in response to presence of gas at the top of the Moulouya Fan.

·    Mapped an area of stronger seismic amplitudes for the Moulouya Fan of at least 30km².

·    Technical work supports 2022 SLR CPR Best Estimate net  gas resources of 295 BCF.

·    Identified several potential drilling locations on the Moulouya Fan.

·    Completed all well planning, well inventory purchases and mobilisation of well services in preparation for commencing MOU-2 drilling operations.

·    Identified a drilling location for the MOU-NE Jurassic target.

·    Executed a binding term sheet with Challenger Energy Group Plc to settle historical issues and to acquire TRex Holdings Trinidad Ltd. and the Cory Moruga field subject to the consent of the Ministry of Energy and Energy Industries.

·    Continued to raise awareness in Ireland in respect of the Mag Mell offshore LNG import option and its applications for successor authorisations for Corrib South and Ram Head in the context of security of energy supply.

Highlights of Directorate Changes

·    Board was strengthened by the appointment of Alistair Jury and Carl Kindinger as Non-executive directors with additional financial experience to replace outgoing Non-executive directors.

Post Period End:

·    MOU-2 was drilled to 1,260 meters Measured Depth and suspended awaiting technical assessments for a potential re-entry.

·    Optiva Securities Ltd. exercised warrants resulting in the issue of 2,035,714 new Ordinary shares in the Company of no par value to raise GBP79,500.

·    An update on the proposed rigless testing of MOU-1 was provided.

·    Placed 14,174,056 new ordinary shares of no par value in the Company and a director loaned 22,189,580 existing ordinary shares  to raise GBP2,000,000 (before expenses).

·    Update on MOU-3 civil engineering well site preparations.

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

“We are pleased to have managed operating losses and administrative expenses in 2022, after allowing for share-based payments whilst increasing cash balances at the end of the period and maintaining a debt-free status. This has been achieved despite rising global cost inflation and maintaining momentum in our three areas of business operations in what again has been very challenging times due to the UK-Russian conflict.

Preparing for the drilling of MOU-2 and beyond has resulted in us having to establish a brand new operational base in Morocco to ensure that we can source well inventory and services in a competitive manner and continue to press forward with drilling operations at the pace required to avail of opportunities to sell gas to the Moroccan industrial market.

The Moulouya Fan has been identified as a sizeable asset capable of in itself potentially supplying all of the current industrial market’s CNG requirements. It will require additional wells over time to maintain and scale up the gas supply, but the priority at present will be to complete a drilling and rigless testing programme to validate the commercial CNG concept.

There will be geological and operational challenges to overcome which are no different to those faced by other operators along this particular trend of gas discoveries and fields.

Currently the Company is the only operator in Morocco preparing for imminent drilling.

We thank our shareholders for their continued support as always but particularly in what has been another volatile year in the financial markets coupled with unprecedented rises in modern times in inflation and cost of living. We will continue to focus on developing our Moroccan asset during 2023.”

Activity at Predator continues, particularly in Morocco where confidence is high about the MOU-2 well and proving up the Moulouya Fan which will be a company maker for Predator. 

And finally…

F1 returns this weekend in Azerbaijan at the Baku City circuit which I have been driven around, with magnificent views to the Caspian from the City.

Racing has what was the Whitbread Gold Cup at Sandown, historically the curtain downer on the jumps season with a mixed flat/jumping day.

In the Prem tomorrow sees the Eagles take on the Hammers, Forest go to the Bees and the Seagulls host the Wolves.

Sunday sees the Cherries hosting Leeds, the Noisy Neighbours go to the Cottagers, high rising Villa go to the Theatre of Dreams, the Bar Coders host the Saints whilst Liverpool entertain the Spurs. On Monday in a real big relegation battle the Foxes host the Toffees.

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