WTI $96.44 -$6.57, Brent $99.91 -$6.99, Diff -$3.47 -42c, NG $4.57 -9c, UKNG 274.4p +7.4p
By Malcolm Graham-Wood
Oil continued its fall yesterday as a number of stories did the rounds. The Covid situation in China worsens with its potential economic effects, the Iran talks may be back on as Russia ironically gets a break, today is Fed day with its first rate cut and maybe more importantly possible peace talks may be back on.
IOG has confirmed First Gas from the Elgood field, part of Phase 1 of its Saturn Banks Project.
Following the confirmation of First Gas at Blythe on Monday, the Company yesterday also brought Elgood into production. Elgood has been developed as a subsea tie-back to the Blythe normally unmanned platform, which is controlled from Bacton terminal.
As previously indicated, 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.
Andrew Hockey, CEO of IOG, commented:
“I am very pleased to confirm that Blythe and Elgood fields have now both been started up, adding further new gas flow straight into the UK market. We look forward to building up through this early phase of start-up to establish stable production rates so that we can assess production guidance in due course.
Developing further UK gas resources is the right thing to do both from an environmental and energy security perspective. We are encouraged by the recent government discussions with industry and ministerial comments on supporting further investment in domestic gas supply, which is exactly what IOG stands for.”
Further good news for IOG and indeed the UK’s supply and from what we are hearing there will be some further encouragement for drilling plans. The shares are now in line with other producers and whilst I might have asked for a bigger rise in the last few days a tripling of the share price in the last year is a decent reward. Having said that IOG to me looks like a definite stock to hold in these markets.
Pharos has announced its preliminary results for the year ended 31 December 2021.
2021 Operational Highlights
· Total Group working interest 2021 production 8,878 boepd net (2020: 11,373 boepd), in line with production guidance:
– Egypt production 3,318 bopd (2020: 5,270 bopd)
– Vietnam production 5,560 boepd net (2020: 6,103 boepd)
· In Egypt:
– Return to drilling with Batran-1X exploration commitment well and three-well development drilling programme
– El Fayum Phase 1B waterflood programme commenced with one workover rig, with a second workover rig dedicated to the maintenance programme
– Conditional agreements for the farm-down and sale of a 55% working interest and operatorship in each of the Egyptian El Fayum and North Beni Suef Concessions to IPR Lake Qarun Petroleum Co. (“IPR”)
· In Vietnam:
– Successful completion of Phase 1 of TGT four-well development drilling campaign, ahead of schedule and below budget
– HLJOC management committee approval of two additional TGT wells and 13 well interventions in November 2021
– Completion of 3D seismic acquisition programme on Block 125, with seismic processing underway and final results expected mid-2022
– Government approval for a 2-year extension of the initial exploration phase under the Block 125 & 126 Production Sharing Contract (“PSC”)
2021 Financial Highlights
· Group revenue of $163.8m*1 (2020: $118.3m*1)
· Cash generated from operations $51.5m (2020: $85.5m)
· Cash operating costs of $16.05/bbl2 (2020: $11.60/bbl2)
· Cash balances as at 31 December 2021 of $27.1m (2020: $24.6m)
· Net Debt as at 31 December 2021 of $57.5m2,3 (2020: Net Debt $32.6m2)
· Loss for the year of $4.7m (2020: loss $215.8m), including non-cash net impairment reversal after tax of $23.5m (2020: impairment charge after tax of $198.1m)
· Net Debt to EBITDAX of 1.00x (2020: 0.48x)2
* Egyptian revenues are stated post government take including corporate taxes
1 Stated prior to realised hedging loss of $29.7m (2020: gain of $23.7m)
2 See Non-IFRS measures on page 35
3 Includes RBL and National Bank of Egypt working capital drawdown
2021 Corporate Highlights
· Completion of equity placing, subscription and retail offering in January 2021 which raised gross proceeds of approximately $11.7m
· Refinancing of the Group’s RBL facility in July 2021, providing additional liquidity through access to a committed $100m with a further $50m available on an uncommitted “accordion” basis and extending the tenor of the facility by 22 months
· Signature of agreements in September 2021 for the farm-down and sale of a 55% working interest and operatorship in the El Fayum and North Beni Suef Concessions in Egypt to IPR, with Pharos shareholder approval secured in December 2021
· Reduction in salary of 50% from 1 April 2021 volunteered by all three Executive Directors in office on that date
· The Executive Directors also voluntarily reduce their bonus entitlement for 2021 by 20% from 72.5% to 58%
· Appointment of Sue Rivett to the Board as Chief Financial Officer (“CFO”) effective 1 July 2021
· London office reorganisation and c.50% reduction in headcount completed
2022 Highlights and Outlook
· Signature of the Third Amendment to the El Fayum Concession Agreement, with retroactive application of the improved fiscal terms from November 2020 and a three and a half year extension to the exploration period
· Modest hedging programme to capture the higher oil price environment
· Phase Two of Task Force on Climate-related Disclosure (“TCFD”) project completed in Q1 2022, with ongoing work on future TCFD alignment
· Appointment of Jann Brown as Chief Executive Officer (“CEO”) on completion of the transaction with IPR
· Additional directorate changes upon completion of the transaction with IPR and at the 2022 AGM, resulting in a reduction in the size of the Board from nine Directors to six, with a much lower cost base
· In Egypt
– Pharos and EGPC have finalised all necessary documents to be presented to the Minister of Petroleum and Natural Resources to approve the transaction with IPR and this approval is expected shortly
– The three-well drilling programme, which commenced in November 2021, is ongoing
– Commencement of the main El Fayum multi-year and multi-well development programme in Q2 2022
– Production forecast for 2022 will be evaluated following completion of the farm-down to IPR and transfer of operatorship. Guidance will be given at the AGM
· In Vietnam
– Vietnam 2022 production guidance : 5,000 – 6,000 boepd
– Drilling of two development wells in TGT and one in CNV to commence Q3 2022
– Processing of 3D seismic data on Block 125 ongoing
Jann Brown, Managing Director and Chief Executive Officer Designate, commented:
“It is truly an exciting time to take over the reins at Pharos. The completion of the deal with IPR, expected imminently, is a key step in reshaping the portfolio and 2022 will see investments made in both Vietnam and Egypt to deliver growth, value and cash flow. The key focus for 2022 is cash generation, through careful cost control, a rapid payback programme of drilling in Vietnam and in Egypt through our carry, which covers all but our own moderate corporate costs.”
“For the first time in some years, we have capital to allocate to an exciting work programmes in 2022, forming a clear roadmap to cash generation and value creation in the year ahead.”
Much has happened across the board at Pharos in the last year or so, proved by the extensive nature of the statement above and indeed in the presentation to analysts on the call this morning. I think that the strong position in Vietnam is of most excitement although Egypt is probably a bit better than just a funder for that programme in the East.
There have been management changes, strengthening of the balance sheet and of course the farm-out was delivered despite some concerns that it might not. It leaves Pharos looking in pretty good nick, I’ve always liked the Vietnam play, now it is backed up by Egypt which is sensibly structured so leaves plenty of upside. If the Bucket list was being changed right now I’m sure that Pharos would be in with a big shout to replace one of the disappointments…
Empyrean advises that it has received a conversion notice to convert 8,750,000 Ordinary Shares at a conversion price 8p per Share under the existing Convertible Loan Note Agreement as announced on 16 December 2021. The Partial Conversion reduces the amount owing on the Convertible Note by £700,000.
This is crucially important as the more that the shares go up and leave scope for conversion of warrants, such as this, the ‘cheaper’ the well becomes and in due course if a farm-out becomes necessary less will have to be given up.
Last week Empyrean reminded the market that the Jade Prospect has a GCA audited mean in place potential of 225 MMbbl and a P10 in place upside of 395 MMbbl. Four recent nearby discoveries by CNOOC immediately to the West of the Jade Prospect are filled to their P10 potential or better. All four CNOOC discoveries have gas clouds showing in the overburden on seismic.
Empyrean CEO, Tom Kelly, stated:
“After nearly 6 years of early stage exploration, including modern 3D seismic and rigorous geological studies we are finally ready to drill the exciting Jade well. We are literally weeks away from testing the 225-395 mmbbl light oil target at Jade. In terms of impact – and by that I mean the potential impact a discovery, within the 225-395 mmbbl range, would have in the success case upon our current market capitalisation – Jade is one of the most exciting wells to be drilled globally in 2022.
The challenges that have been overcome in order to get to this stage and be ready to drill are many and this achievement is a credit to Empyrean’s small team and a great reflection of the excellent teamwork, expertise, professionalism and cooperation carried out between the Company, its partner CNOOC, and its technical service providers CNOOC EnerTech and COSL. We are particularly appreciative of CNOOC facilitating a rig slot for Empyrean to drill Jade using the NH9 rig. Every effort and precaution is being taken to drill the Jade well safely. We now need to let the drill bit do the talking! We look forward to providing our shareholders with further updates as we get even closer to spudding the exciting Jade well.”
I had a long chat with Tom Kelly earlier this week following the recent update regarding potential drilling at the Jade prospect on its 100% owned Block 29/11 permit, offshore China. I have followed this company for many years and in particular ever since I had a private presentation by Empyrean’s Executive Technical director, Gaz Bisht who certainly persuaded me that Jade and other prospects in China are potential company makers.
So, some years later this real challenge for such a small company Empyrean is actually close to drilling and determining whether it was a wild goose chase or not. There have been times in recent years that followers such as me and more importantly shareholders who had on occasion almost doubted its continued existence as a pot of gold at the end of the rainbow.
The time is almost upon those shareholders to find out whether or not this dream is about to be realised, we have all seen too many wells recently that should have come in and didn’t for whatever reason deliver, I might be biased but as Tom Kelly says it is six years since permitting, time for the drill bit to talk…
Today sees the start of the 2nd test match between the West Indies and England, after a tame draw in the 1st test today England will play Mahmoud in place of the injured Mark Wood.
In the Champions League last night the Red Devils were dumped out by Athletico Madrid after another dire performance. Tonight Chelsea visit Lille comfortable enough with a 2-0 carry from the first leg.
In the Premier League the Seagulls host Spurs and the Gooners host Liverpool, these games in hand are going to be very important.
And Cheltenham continues today after a good day for Britain yesterday, today the feature race is the Queen Mother Chase.
The opinions expressed here are those of the author
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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