Malcy’s Blog – Oil price, IOG, Eco (Atlantic Oil & Gas) & finally

WTI $109.33 +$3.31, Brent $113.67 +$3.34, Diff -$3.34 -3c, NG $4.73 +10c, UKNG 280.0p u/c

By Malcolm Graham-Wood

Oil price

Last week oil fell by $6.35 for WTI and $5.44 for Brent but that actually hides some of the daily movements and with Brent nearly hitting $140 at one stage  predicting is for the birds and even refining margins are for the birds. Today oil is down another $4.50 but it might as well be back to $130.

Perhaps more importantly, this week sees the Fed meeting at which we know that rates will rise by a quarter of a point, we also know that it will not be the final rise of the economic cycle. We also have the remaining oil industry monthly’s, there is no chance that they will add any value.

It is worth looking out yesterday’s Sunday Telegraph and an article by Liam Halligan entitled ‘Time to crack on with shale gas in Britain’. Whilst he could go on a bit further it does remind readers that there is so much to go for that would substantially lessen our dependence on imported hydrocarbons.

IOG

IOG has confirmed First Gas from Phase 1 of its Saturn Banks Project.

IOG has released a new video to mark this milestone: https://youtu.be/kZBzzm01M8g

Phase 1 First Gas

After final commissioning of the Saturn Banks Reception Facilities (SBRF) at Bacton terminal, backgassing of the pipeline system was successfully completed over the past week. This enabled the planned start-up sequence, with Blythe the first well to be opened up and forward flow commencing into the SBRF on Sunday 13 March. The Elgood well is planned to start up in the next two days and an initial view on flow rates will be assessed once stable production has been established from both fields. The Company intends to analyse reservoir performance data over the initial months of production to inform an annual production guidance range.

The entire Saturn Banks offshore system, including the platforms, pipelines, associated subsea equipment and production wells, will be normally unmanned with remote operation from the control room at Bacton terminal, helping to minimise operating costs and carbon intensity over time.   

2021 Results

The Company expects to release its Final Audited 2021 Results and a full portfolio technical update on Thursday 17 March.

Andrew Hockey, CEO of IOG, commented: 

“I am delighted to confirm that Saturn Banks Phase 1 First Gas has been achieved. Yesterday the Blythe well was safely opened up and IOG gas has started to be delivered into Bacton and on into the UK market. The Elgood well is expected to follow in the next two days.

I am immensely grateful to the whole IOG team for their determined efforts to achieve this major target. My sincere thanks also go to our joint venture partner CalEnergy Resources and their owner Berkshire Hathaway Energy, to all our shareholders and bond investors, as well as to our many contractors, commercial partners and regulators.

Phase 1 First Gas is just the first step on a bigger journey, giving us the operational platform and financial capacity to deliver multiple further phases of growth. By delivering domestic gas supplies through our co-owned infrastructure on a Scope 1 and 2 Net Zero basis we can generate strong and sustainable returns for shareholders.”

Fiona MacAulay, Chair of IOG, commented:

“I am hugely proud of everyone in our team for overcoming the many challenges to deliver this historic milestone, going from Final Investment Decision to first production in under two and a half years. Through constructive collaboration, guided by our values of resourcefulness, innovation, drive, efficiency, resilience and safety, we have transformed IOG from an unfunded start-up to a gas producer expected to generate significant cashflow this year and into the future.

With heightened energy security risks across Europe and the continued urgency of the energy transition, there has never been a more important time to bring new UK gas resources onstream. This is especially true of IOG’s gas which has far lower carbon intensity than imports.”

Alistair Macfarlane, Area Manager – Southern North Sea and East Irish Sea at the Oil and Gas Authority, said:

“As the UK transitions to net zero it will need a stable and secure supply of domestic gas to reduce its reliance on imports, which often have a larger carbon footprint, and so first production from the Saturn Banks project is a positive development.”

Difficult to add much to the good and the great as IOG triumphantly announces first gas from Phase 1 of the Saturn Banks Project. The work has been completed in remarkably short time and now the company will be delivering home grown natural gas to customers in the UK market. 

The achievement is also peppered with good news, as we have heard it is supplying gas on a Scope 1 and 2 Net Zero basis which is a lower than imported gas. Shareholders can look forward to further growth as first the Elgood well comes onstream in the next few days then piece by piece the rest of the project.

Management and the whole team has spent the last few years putting Phase 1 together waiting for this day, indeed I remember seeing it on the wall of the office when, to be honest delivering the project took quite some act of faith but now it is here, delivering in the Bucket List as it promised it would. With so much potential acreage all around in the Southern North Sea I can see continuing scope for growth from IOG and I expect the shares to continue to display the characteristics of  a successful resources company. 

Eco (Atlantic Oil & Gas)

Further consolidating Eco’s position as an exploration business of scale

Eco has announced today that it has signed a Commercially Binding Term Sheet to acquire 100% of JHI Associates Inc., including JHI’s 17.5% Working Interest in the Canje Block offshore Guyana.

Highlights

·    A proposed cashless acquisition, with a value of approximately US$52 million at the Company’s current share price, which would make Eco the sole owner of JHI’s cash balance and its 17.5% WI in the Canje Block

·    The Canje Block, offshore Guyana, is directly adjacent to the prolific Stabroek Block where ExxonMobil has discovered in excess of 10 Billion Barrels of Oil

·    Eco will acquire JHI’s capital balance, which is expected to be a minimum of US$15 million upon completion of the Acquisition

·    Consideration in the form of new common shares issued to JHI’s shareholders based on an exchange ratio of 1.1994 new Eco common shares and convertible securities leading to JHI shareholders holding approximately 34% of Eco post Acquisition at current share count

·    The Acquisition adds to Eco’s strategic acreage position in Guyana and paves the way for further drilling activity on the Company’s blocks over the coming years

·    The Acquisition is currently expected to close in Q2 2022 subject, inter alia, to the signing of an Arrangement Agreement and satisfactory completion of due diligence by Eco and any requisite Government of Guyana, Canje Block partners, and stock exchange approvals

·    On closing, JHI has the right to appoint two non-executive Directors to Eco’s eight-member Board of the enlarged Group, bringing further exploration expertise to the Company

Information on the Acquisition

JHI is a private company incorporated in Ontario and headquartered in Toronto, Canada.   If and once completed the Acquisition provides the enlarged Eco Group with ownership of 17.5% PI in the Canje Block offshore Guyana. The Canje Block is Operated by Esso Exploration & Production Guyana Limited (35%), a subsidiary of ExxonMobil Corporation, with the remaining partners including TotalEnergies E&P Guyana B.V. (35%), JHI Associates (BVI) Inc. (17.5%) and Mid-Atlantic Oil & Gas Inc. (12.5%).  On closing of the Acquisition, JHI is to have a minimum cash balance of $USD 15 million, acquired as part of the transaction with Eco.  The Canje Block is approximately 4,800km2, located approximately 180 to 300 kilometres offshore Guyana in water depths ranging between 1700 and 3000 meters.

The Canje Block is a large and significant license which captures the lower slope and base of slope play fairways, channels and fans outboard of multiple ExxonMobil discoveries in the adjacent Stabroek Block which is immediately up-dip of Canje. Canje is covered with 6,100km2 of 3D seismic and holds over three dozen prospects in four proven plays in the Lower Tertiary and Upper Cretaceous confined channels, Lower Cretaceous Carbonate structures and, with recent drilling of Sapote-1 well and Stabroek discoveries, now offers the opportunity of yet deeper horizons.

Pursuant to the Term Sheet and subject, inter alia, to the signing of a binding Arrangement Agreement and completion of the Acquisition, Eco Atlantic will issue to JHI’s shareholders, along with the holders of any JHI options and warrants, such number of new common shares in Eco that at the above-stated exchange ratio and current share count (post the issue of the Azinam Group Limited acquisition consideration shares) will provide JHI’s shareholders with 34.1% of Eco’s issued share capital as enlarged by such issue (“Enlarged Share Capital”), or approximately 127 million new common shares of Eco, providing for a cashless acquisition, with a value of approximately US$52 million at the Company’s current share price, to become the sole owner of JHI’s cash balance and its 17.5% PI in the Canje Block. The Term Sheet provides Eco with a 90-day exclusivity period and terminates, or may be terminated, upon the occurrence of certain events.

Completion of the Acquisition is subject, inter alia, to the signing of an Arrangement Agreement and satisfactory completion of due diligence by Eco and any requisite approvals from the Government of Guyana, the Canje Block partners, and the TSX Venture and AIM exchanges.  In addition, certain shareholders of JHI will enter into a lock-up agreements to restrict the sale of the consideration shares. 

As of 31 December 2021, JHI’s audited financial statements provides that it had total gross assets of approximately US$30.7 million, of which approximately US$19.7 million is cash and cash equivalents and US$3.5 million is the book value of its interest in the Canje Block. These financial statements also provide that JHI had total liabilities to third parties of approximately US$500,000.

A further announcement will be issued on the execution of the binding Arrangement Agreement.

John Cullen, Founder and CEO of JHI commented:

“This transaction provides JHI’s shareholders access to Eco’s exciting portfolio of exploration opportunities in the emerging oil basins of Namibia and South Africa, and in Guyana with their Orinduik block, while maintaining their exposure to the Canje Block, where we have been working steadily with our partners to identify the next prospect to drill.  It also represents the culmination of a tremendous amount of work from JHI’s technical team which, over the last six years, saw two supermajors join the Canje Block, and three wells drilled providing valuable information towards unlocking the potential of the deeper water portions of the Guyana-Suriname Basin.

“JHI’s team has come to work well with Eco’s team since they became shareholders last year, and we know that they will continue to be good stewards of the Canje Block as they add it into their impressive and expanding exploration portfolio.”

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

“Being a shareholder of JHI since last year has given us a deep understanding of the Canje Block and its prospectivity. It has also given us the opportunity to get to know the great management team at JHI and their technical and business achievements to date.  Because of these facts, we believe that there is considerable strategic rationale in acquiring JHI. Eco’s ambition is to become the “go-to” small-cap exploration vehicle for investors seeking exposure to high-impact drilling programs in three of the world’s most exciting hydrocarbon provinces in Guyana, Namibia and South Africa. This acquisition gets us another step closer to that goal and builds on the Azinam acquisition we announced earlier this year.

“This transaction adds to Eco’s strategic acreage position in Guyana and ensures that there will be a number of drilling catalysts over the next couple of years on Eco’s eight offshore blocks. In addition, the enlarged Group will benefit from JHI’s current cash position, adding US$15million to Eco’s balance sheet, further strengthening the Company’s liquidity position.

Given Eco’s strategic investor base and proven access to the public capital markets, the anticipated addition of JHI’s interest in the Canje Block and its working capital, will further augment the enlarged Group cash position for its share of all near term exploration programs on its current blocks including: 2B in South Africa where drilling preparations for a late Q3 spud are underway and the Eco Orinduik Block offshore Guyana to follow, Block 3B/4B in Orange basin South Africa and elsewhere in the current and future portfolio of the enlarged entity.

“Ahead of our planned drilling campaign on Block 2B offshore South Africa in late Q3 2022, we are also looking to finalise drilling targets in Eco’s Orinduik Block, offshore Guyana. Demonstrating that, as ever, the Eco team are head down and focused on delivering value for shareholders. We look forward to providing further corporate updates as appropriate.”

Could Eco Atlantic really be now placed to be the ‘go-to’ exploration company in the energy mix? As I see it this company has in the last few months partnered up with key companies in some of the world’s most exciting and promising basins, in addition it is financed, particularly with this last deal, and can cover all its ‘near term’ exploration commitments. 

Add to that the quality of the basins they are operating in and the quality of their partners and you do get a very warm feeling about the company going forward. The Orange Basin in South Africa has been massively re-risked in recent weeks and of course in Guyana Orinduik looks promising and now with the Canje block could be huge. 

Partner wise they have been pretty smart too, in Guyana they have Total and now Exxon whilst in South Africa and Namibia they are working with Africa Oil, Africa Energy and Panoro. This means that in my view success with the drill bit, any finds will be sure to be developed by the big boys in the partnership. 

So, all being well Eco are in the process of becoming a very exciting oil company, with the current penchant for exploration drilling they have built a portfolio that will be the envy of companies a great deal bigger than themselves. Any success across the board will leave them strategically well placed, maybe even the go-to exploration company in the world…

And finally…

In the Prem Liverpool won at the Seagulls, Chelsea beat the Magpies, the Gooners beat the Foxes whilst the Noisy Neighbours are at the Eagles tonight. The Bees beat Burnley helping their relegation fight and Leeds beat the Canaries but the Toffees lost 0-1 to Wolves and are close to the bottom for the first time. The Hammers beat Villa 2-1 and the Hornets won at the Saints.

In the rugby Wales lost 9-13 to France who seem nailed on for the Grand Slam although Ireland could win the title if England win in Paris. England have lost two games because of red cards as for the second time this season a stupid player was red carded. This time it was Charlie Ewelsless who managed to get a red card after 82 seconds trying to head butt someone six inches taller than him, let’s hope it was his 29th and last cap for England. England did fight well under the circumstances but just faded in the last 10 minutes.

And would you believe it, Tom Brady has come out of retirement after just 40 days away from the game. It’s back to the Bucks for Brady and as he says, LFG!

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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