Malcy’s Blog – Oil price, IGas Energy, Reabold Resources, Empyrean Energy, Gran Tierra Energy & finally

WTI $102.41 -$2.76, Brent $104.97 -$2.61, Diff -$2.56 +15c, NG $7.95 +47c, UKNG 157.0p +12.98p

By Malcolm Graham-Wood

Oil price

Oil fell yesterday as more problems emerged in Beijing, more lockdowns which panic economic forecasters. Long term is better as infrastructure will be needed but the vaccine is clearly caput.

Today the price is up as the EU have, albeit slowly got round to thinking about stopping buying oil and products from Russia, over a year though so no hurry! Also Hungary and Slovakia may be allowed out of the deal and obviously gas is not on the agenda quite yet, we have to think about Germany you know.

Opec+ is tomorrow but whilst I expect the addition of 432/- b/d as time wears on fewer countries can make the total so I would guess it won’t be adding much to overall output.

IGas Energy

Yesterday I interviewed  IGas Energy CEO Stephen Bowler, I wasn’t disappointed as I had expected a really interesting story in current market conditions. The link to the interview is below.

Core Finance CEO interview: Stephen Bowler, IGas Energy

Reabold Resources

·    Corallian Energy Limited ( 49.9% owned by Reabold) has received a non-binding, conditional offer from a credible party for the acquisition of its entire issued share capital

·   Corallian’s board considers the Potential Sale to be sufficiently attractive to seek to conclude a sale process and is progressing negotiations with the potential purchaser                                                                                    

·    Reabold to acquire Corallian’s portfolio of six attractive exploration and appraisal licences, excluding the Victory licence, for £250,000 

o  Significant prospective and contingent resources

o  Opportunity to de-risk, then monetise prospects

o  Low work programme commitments

o  Corallian’s only remaining asset, at the time of completion of the Acquisition, will be licence P2596 (containing the Victory gas development opportunity)

·     Reabold is a 49.99% shareholder in Corallian

Reabold, the AIM quoted investing company which focuses on investments in upstream oil and gas projects, is pleased to announce that, as part of the ongoing strategic review of Corallian, as announced on 20 October 2021, Corallian has received a non-binding offer from a credible party for the Potential Sale. The Board of Corallian is progressing negotiations with the potential purchaser, including the purchaser finalising its due diligence process. The Corallian board of directors currently considers the offer sufficiently attractive for all shareholders to commence a sale process. A further update will be provided in due course.

Reabold is a 49.99% shareholder in Corallian. As part of the Potential Sale process, Reabold is pleased to announce that it has entered into a conditional sale and purchase agreement to acquire Corallian’s working interest in all the non-Victory licences within the Corallian portfolio for a cash consideration of £250,000, which is immediately payable. The licences that will be acquired are P2396, P2464, P2493, P2504 and P2605 (all at 100% working interest) and P2478 (36% working interest). Accordingly, at the time of completion of the Acquisition and the Potential Sale, Corallian’s only remaining asset will be licence P2596, which contains the Victory gas development opportunity. Reabold will become Licence Administrator but does not intend to become Licence Operator and will therefore seek appropriate farm-out opportunities with third party operators following completion of the Acquisition, in order to de-risk and monetise the prospects.

The Acquisition is conditional, inter alia, upon (1) Corallian receiving notice from the purchaser that the Potential Sale may proceed to completion and (2) approval from the North Sea Transition Authority. If the Acquisition does not complete before 31 August 2022, either party may terminate the SPA and Corallian will be required to repay the Cash Consideration to Reabold within 90 days.

Sachin Oza, co-Chief Executive Officer of Reabold, commented:

“This is potentially a very exciting transaction for Reabold. As part of the Corallian strategic review, which has reached the stage of a non-binding, conditional offer for Corallian based on its Victory asset, we have agreed to acquire six licences from Corallian. Four of the licences in particular have significant prospective potential in addition to the de-risked contingent resources associated with Oulton, which we believe, can be progressed in a low-cost manner given, inter alia, the low spending commitments.”

“We look forward to providing further updates in the weeks ahead.”

So, this is a very interesting deal indeed, made more interesting as we don’t know who the buyer of Victory is or how much they are paying for it. As a result the 23% increase in the RBD price must be somewhat of a stab in the dark. But the one big plus for Reabold is that by doing this deal they have freed up capital that was bound for Victory even though that was one of their juiciest assets in the portfolio.

Firstly the bits we do know. RBD are paying what must be a token £250/-  for six licences from Corallian of which four in particular have ‘significant prospective potential’ in addition to Oulton with its de-risked contingent resource, which seems like a sensible deal given that they are getting rid of a class asset in Victory for it.

RPS estimates a total Victory field 2C or best / mid case technically recoverable contingent resourced of 179bcf dry gas and as the field will be ‘economically developed as a direct subsea tie-back to the Total operated Greater Laggan Area gas pipeline’, which has an access tee for third party business located 17km south of the Victory discovery well 207/1-3 looks like a no-brainer for somebody. If, for example it wasn’t someone who had the best access to Greater Laggan I would want to know why…

Reabold clearly like Victory as they have said often enough, but they also like West Newton which means making a choice of which horse to back given the tall order of financing both projects. Their  policy to ‘identify the optimal time to exit a project is critical to Reabold’s strategy. Doing so effectively will allow the Company to scale and deploy more capital over time’. 

So, with bidders for Corallian only wanting the Victory asset and Reabold happy to take on the licences primarily to ensure the deal was consummated, it looks like it all works. RBD will get half the cash from the sale less the £250/-  for the detritus, which I am reliably informed will rebuild the cash situation ready to spend at West Newton. All we need now is to see who the buyer is and how much Victory has gone for…

Empyrean Energy

Empyrean has provided the following update on Block 29/11 offshore China.

Empyrean is the operator of Block 29/11 in China and has a 100% working interest during the exploration phase. In the event of a commercial discovery, its partner CNOOC, may assume a 51% participating interest in the development and production phase.

Based upon the preliminary assessments of the Jade well results and the ongoing agreement with its partner, China National Offshore Oil Company, to further cooperate with regards to follow up post well analysis, it is Empyrean’s current intention to proceed with the second phase of exploration at Block 29/11 and to participate in the drilling of the Topaz prospect.

Jade Well results – Preliminary interpretation

Final logs have been run with demobilisation of the China Oilfield Services Limited owned NH9 rig to take place over the next few days.

The final log data confirmed several elements of the pre-drill prognosis:

·      292 metres of excellent quality reservoir was intersected;

·      more than 2330 metres of regional marine clay seal formation; and

·      validity of the trap confirmed by intersecting the reservoir top within the anticipated depth

Pre-drill, Jade was chosen over Topaz to drill first because it was a 4-way dip trap with less structural risk, had a slightly higher geological chance of success and was situated closer to the proven Bayiun Sag East source rock in the basin. Effective hydrocarbon charge was recognised as a key geological risk of the Jade prospect. As a result, comprehensive “gas cloud” analysis of Empyrean’s 3D seismic data as well as that of CNOOC oil discoveries and dry wells was conducted to help assess the potential for hydrocarbon charge to the Jade prospect. The drilling of Jade has proven that there was no oil migration into the Jade trap, yet oil migration has effectively charged the four CNOOC light oil discoveries to the immediate west and south-west of Empyrean’s permit. Empyrean has immediately teamed with CNOOC to analyse and assess the reasons for this and the implications that all of the data, including the positives and negatives, now have for the prospectivity at the Topaz prospect, in particular oil migration pathways.  

The Jade well recorded elevated gas (C1) from 1550 metres to 1800 metres MD which was interpreted pre-drill to be a “gas cloud” zone. Post-drill analysis of 3D seismic data in light of the results of the Jade well indicates the presence of gas clouds over the Jade trap was potentially a result of gas migrating from the Bayiun Sag East kitchen vertically via a large basinal fault followed by lateral migration through coarser clays in the 1550 metres to 1800 metres MD zone. Preliminary post-Jade assessment of the gas clouds over the nearby CNOOC discoveries indicates that there is no linkage to the basinal faults for those CNOOC discovery gas clouds. The Topaz prospect has a similar structural setup to the CNOOC discoveries with no apparent linkage to basinal faults.

Implications for the Topaz Prospect

The 2017 seismic data analysis matured two prospects – Jade and Topaz – along the western block boundary. Pre-Jade drilling, comprehensive analysis confirmed Topaz as a large and genuine exploration target in Block 29/11, with Gaffney Cline independently assessing a target in place oil estimate of 506 mmbbls (Mean case) of oil and an upside of 891 mmbbls (P10 case) with a 30% Geological Chance of Success (“GCoS”).

The Jade well data has validated Post Stack Acoustic Impedance conclusions for reservoir and seal facies at the Topaz prospect. At the same time, the penetration of reservoir top within the pre-drill depth prognosis confirms the reliability of the depth conversion approach Empyrean used and confirms the trap definition of the Topaz prospect. As a result, the Jade well results have helped provide confidence in Reservoir, Trap and Seal of the Topaz prospect.

Similar to Jade, effective hydrocarbon charge has been recognised as a key remaining geological risk for the Topaz prospect.

Jade had relied on relatively long-distance direct oil migration from Baiyun Sag East source rock that is located over 26 km to the south. The Topaz prospect relies on more local oil charging mechanisms. Firstly, it has the potential to be charged by the newly identified – Baiyun Sag North – located less than 6 km to the southeast of Topaz. The Baiyun Sag North kitchen was identified by Empyrean’s own 3D seismic data, is entirely covered by this 3D and provides the mapping of direct migration pathways to the Topaz prospect. Secondly, cooperation between CNOOC and Empyrean on the respective data sets shows there is a potential migration pathway from the CNOOC LH16-2 discovery well spilling on to the Topaz prospect.

Drilling of the Topaz prospect

Under the PSC, Empyrean must elect to enter the second phase of exploration period by 12 June 2022. The second phase of exploration involves the commitment to drill the Topaz prospect before 12 June 2024.

Following the Jade well results, Empyrean has held several technical meetings, including with the CNOOC technical team in China, to review the well results and its implications for Block 29/11 prospectivity and, in particular, the pros and cons of the well results for the much larger Topaz prospect. In this regard, CNOOC has already been very cooperative in sharing its regional data and assisting by passing on a greater technical understanding of the basin.

Based upon these preliminary assessments of the Jade well results and the ongoing agreement with CNOOC to further cooperate with regards to follow up post well analysis, it is Empyrean’s current intention to proceed with the second phase of exploration at Block 29/11 and to participate in the drilling of the Topaz prospect, subject to availability of financing.

Forward Plan

It is Empyrean’s intention to maximise the value of its interest in the Mako Gas Discovery on the Duyung permit in Indonesia and position itself for participation in the drilling of the high impact Topaz prospect. Demand for oil and gas in the South East Asian region is strong and growing. Demand and prices for pipeline quality gas that the Mako Gas Discovery offers is strong into the Singapore energy hub.

China is the largest importer of oil in the world. Exploration throughout the region has gathered momentum and CNOOC is drilling a large number of domestic exploration wells. Empyrean is currently considering its alternatives to funding the Topaz prospect drill and is preparing a work program that it believes can see the Topaz well drilled within the next drilling weather window in the Pearl River Mouth Basin in 1H 2023. Topaz is a slightly shallower target depth. Given the very large target size at Topaz, Empyrean will also investigate potential risk share alternatives and farm out possibilities.

The information contained in this announcement has been reviewed by Empyrean’s Executive Technical director, Gaz Bisht, who has over 31 years’ experience as a hydrocarbon geologist and geoscientist.

Empyrean CEO, Tom Kelly, stated:

“Whilst we are extremely disappointed with the results of the Jade well, we have made significant investment of resources and time in systematically maturing the prospectivity of this large block. Empyrean’s early assessment is that the much larger Topaz prospect remains a world class conventional light oil target that, based on existing understanding of available data, will be drilled.

Over the past 6 years, Empyrean has built a deep and strong relationship with CNOOC and has found an experienced team in CNOOC EnerTech that, together, has proven to be able to execute a safe drilling campaign in an offshore environment. The COSL team has been extremely professional and effective in managing various aspects of the drilling operations including a Covid-safe campaign. I would like to thank our partner and consultant teams for their support and we now look forward to their ongoing assistance with the proposed drilling of the Topaz prospect.”

 The team always wanted to do Topaz and since the disappointing result at Jade I am not surprised that they want to shake the dice another time, as with Jade I wish them every success at Topaz. 

SDX Energy

SDX has announced the completion of the tie-in of the SD-5X Warda well (SDX Working Interest: 36.85%) to the CPF via the SD-4X flow-line approximately one month ahead of schedule.

The well is now under production test, with first gas achieved on 27 April 2022. After the initial flow period, there will be a short shut-in of 12 hours, followed by the main flow period of five days at rates of 8, 10 and 12 MMscf/d. Post the main flow period, SD-5X will be shut-in for 10 days to monitor the pressure build-up before being opened up to flow continuously to the CPF.

Mark Reid, CEO of SDX, commented:

“I am pleased to announce the tie-in of the SD-5X well so soon after the well was completed. The well is now contributing to production and cash flow from this asset much earlier than originally anticipated and is testament to the ability of the SDX operations and field teams. Once the long-term production profile for the well has been established, we will revise our 2022 production guidance if appropriate.”

I have said plenty recently about SDX who are continuing to deliver the goods operationally, what else is going on is anybody’s guess but right now sticking to the knitting is the best bet.

Gran Tierra Energy

Gran Tierra today announced the Company’s financial and operating results for the quarter ended March 31, 2022. All dollar amounts are in United States dollars, and production amounts are on an average working interest before royalties basis unless otherwise indicated. Per barrel and bbl per day  amounts are based on WI sales before royalties. For per bbl amounts based on net after royalty (“NAR”) production, see Gran Tierra’s Quarterly Report on Form 10-Q filed May 3, 2022.

Key Highlights of the Quarter:

  • Net Income: Gran Tierra generated a net income of $14 million versus a net loss of $37 million in first quarter of 2021.
  • Significant Growth in Net Cash Provided by Operating Activities: The Company realized net cash provided by operating activities of $104 million, up 148% from the first quarter of 2021.
  • Material Growth in Funds Flow from Operations(1)Funds flow from operations(1) increased to $87 million, up by 34% from the fourth quarter of 2021 (“the Prior Quarter”) and up by 201% from the first quarter of 2021.
  • Strong Free Cash Flow(1): Gran Tierra generated free cash flow(1) of $46 million, the highest quarterly amount in almost a decade.
  • Rapid Debt Reduction: Gran Tierra has been utilizing its free cash flow(1) to strengthen the Company’s balance sheet by paying down its credit facility and building its cash position. During the Quarter, the Company paid down its credit facility balance by $27.5 million to $40 million and had a cash balance of $59 million. These figures compare to a credit facility balance of $67.5 million and a cash balance of $26 million at the end of the Prior Quarter. As of May 3, 2022, Gran Tierra has paid down its credit facility to a balance of $10 million and expects the facility to be fully repaid before the end of the second quarter 2022.
  • Annual Production Growth: The Quarter’s production was in-line with management expectations and averaged 29,362 BOPD, up 20% from the first quarter of 2021 and approximately flat compared to the Prior Quarter.
  • Expects to Meet 2022 Production Guidance: Gran Tierra believes its ability to keep production flat compared to the Prior Quarter demonstrates the ongoing successful results from the Company’s waterflooding efforts in all major assets. The ongoing infill development drilling campaigns in the Acordionero and Costayaco oil fields are expected to increase the Company’s full year 2022 average production into the guidance range of 30,500-32,500 BOPD. The ramp-up in production from the Quarter’s level is expected to begin in the latter half of second quarter of 2022 as new Acordionero and Costayaco oil wells are brought online.
  • Revised 2022 Financial Guidance: As previously announced on April 19, 2022, Gran Tierra has updated the Company’s 2022 financial guidance in light of the significant increase in world oil prices this year. The Company has increased its 2022 Brent price forecast to $95/bbl. At this higher oil price, the Company would maintain 2022 capital at $220-240 million with a forecast 2022 cash flow(1) of $410-430 million, free cash flow(1) of $180-200 million, EBITDA(1) of $550-570 million and a 2022 year-end cash balance of $210-230 million.
  • Additional Key Financial Metrics:
    • Capital Expenditures: Capital expenditures of approximately $41 million were relatively flat with the Prior Quarter’s level of $40 million, as Gran Tierra maintained capital discipline and its focus on driving down drilling and completion costs.
    • Increased Oil Sales: The Brent oil price averaged $97.90/bbl, up 23% from the Prior Quarter and up 60% year-on-year. Gran Tierra generated oil sales of $175 million, up 19% from the Prior Quarter and up 83% from the first quarter of 2021. The significant annual increase in oil sales was driven by the Company’s 20% increase in quarterly production year-on-year, combined with the large rise in the Brent oil price over the same period.
    • Strong Operating Netback(2): The Company’s operating netback(2) of $52.45/bbl was up 39% from the Prior Quarter and up 80% year-on-year. This strong annual increase was driven by Gran Tierra’s 20% increase in quarterly production year-on-year and increased Brent pricing.
    • Decreased Operating Expenses: Compared to the Prior Quarter, Gran Tierra’s operating expenses decreased 9% to $13.14/bbl, down from $14.46/bbl, due to lower workover, environmental and administration costs, which were only partially offset by higher expenses for chemicals used in the Company’s waterflood projects. Compared to first quarter 2021, operating expenses decreased by 4% on a per bbl basis, primarily as a result of Gran Tierra’s higher production.
    • Other Expenses:
      • The quality and transportation discount dropped 2% to $12.57 per bbl, compared to $12.78 per bbl in the Prior Quarter, because of higher world demand for Colombian oil.
      • General and administrative (“G&A”) expenses before stock-based compensation were $2.97 per bbl, down from $3.08 per bbl in the Prior Quarter and $3.14 per bbl in the first quarter of 2021, due to a lower accrued performance bonus.
    • Oil Price Hedges: The Company continues to have Brent oil price hedges in place for 9,000 BOPD in the first half of 2022, with an average ceiling price of $87.62/bbl on 8,000 BOPD. Therefore, approximately 73% of Gran Tierra’s oil production, which is unhedged, has fully benefited from the current high oil price environment.
  • 2021 Sustainability Report Highlights:
    • Gran Tierra plans to issue the Company’s “2021 Sustainability Report: Creating Long-Term Value and Delivering on Our Environmental, Social and Governance Commitments” tomorrow, May 4, 2022, at which time the report can be found on the Company’s website at www.grantierra.com/esg. Highlights from this report are:
      • As of 2021, Gran Tierra has reduced its scope 1 and scope 2 greenhouse gas emissions by 55% compared to the benchmark year of 2019 through operational efficiencies such as its natural gas-to-power projects.
      • Over the last 5 years, Gran Tierra has reduced its surface water used by 41%. In addition, the Company has implemented a comprehensive roadmap to further reduce the use of surface water where possible, with the goal of achieving zero surface water usage in the coming years.
      • The Company had a Lost Time Injury Frequency(3) of 0.02 in 2021, which was well below the 2020 industry averages of 0.08 for Latin American and 0.04 for North American exploration and production companies, as reported by the International Association of Oil and Gas Producers, and was in the top quartile in any region globally.
      • In 2021, Gran Tierra invested approximately $60 million into local economies and created about 3,200 job opportunities.
      • Gran Tierra actively promotes diversity in its workforce of which 39% are female versus the industry average of 22%.
      • In Colombia over the last 5 years, the Company has planted approximately 1.2 million trees and conserved, preserved or reforested about 3,100 hectares of land.

Message to Shareholders

Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented:

“The strong recovery for the energy industry and Gran Tierra, from the challenges of 2020, continued into the first quarter of 2022. Our top tier, low-decline, onshore, conventional asset base continues to prove its high quality, as shown by the Company’s production growth of 20% over the last year. At the same time, we have significantly strengthened our balance sheet and expect to completely pay off our entire credit facility before the end of the second quarter of 2022, which will be a major milestone for Gran Tierra. Looking to the end of the year, we are forecasting a net debt(1) to EBITDA(1) ratio of under 0.8 times.

We are pleased with the results so far of our ongoing development drilling campaigns in the Middle Magdalena Valley and Putumayo Basins in Colombia with record drilling performance in both Acordionero and Costayaco. In addition, we plan to allocate capital to prioritized, high-impact exploration drilling opportunities as we restart our exploration campaign during the second half of 2022. We plan to drill our first ever exploration wells in Ecuador, in addition to our first exploration wells in Colombia in more than two years.

We believe Gran Tierra is in an excellent position for continued development and enhanced oil recovery activities in 2022 to optimize value from each of our assets. Our waterflood programs across all of our assets continue to perform well, and we expect another strong year of free cash flow(1) from these high quality, low decline assets.

As always, our “Beyond Compliance Policy” continues. Where Gran Tierra identifies significant opportunities and benefits to the environment and communities, we voluntarily strive to go beyond what is legally required to protect the environment and provide social benefits because it is the right thing to do. Through operational efficiencies, including gas-to-power projects, we have also been able to reduce our greenhouse gas emissions by 55% for 2021 compared to our 2019 baseline.”

I have been following Gran Tierra for some months now and this is exactly why I like them so much. Throwing off cash in Colombia has been more than efficient and $104m is up 145% Q/Q and is paying off debt like there is no tomorrow. 

Production has been better than expected and new guidance is 30,500-32,500 b/d which of course boosts financial guidance as well. The shares have almost tripled from the October low and are likely to go higher again.

And finally…

Last night Liverpool moved seamlessly into the Champions League Final beating Villareal 2-5 on aggregate. Tonight the Noisy Neighbours are at the Santiago Bernabéu 4-3 ahead from the first leg.

Apparently the £4bn + bid from Sir Jim Ratcliffe for Chelsea has been ‘rejected out of hand’?

And in the Championship the Cherries beat the Garibaldi 1-0 to take them and manager Scott Parker back into the grown-ups league.

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


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