Malcy’s Blog – Oil price, IOG, Savannah Energy, Genel Energy, Atome Energy & SDX Energy

WTI $71.29 -38c, Brent $74.39 -76c, Diff -$3.10 -38c, NG $3.80 -13c, UKNG 305.94p +12.79p

By Malcolm Graham-Wood

Oil price

Oil is happy enough and I’m not going to go through the same argument as yesterday about Omnicron as to be honest the market has probably decided that economies can’t afford  to keep closing down and better to get everyone jabbed and boosted. Jet fuel is probably the highest risk as people are happy to travel but not internationally in case foreign Governments change the rules mid holiday.

Retail gasoline in the states is still drifting, sleepy Joe called the short term top there, a gallon will rush you $3.315 down 2.6c w/w, a fall of 8.4c m/m and a rise of $1.157 y/y. Perhaps more importantly is that today sees the start of the two day Fed meeting at which inflation and tapering will be discussed, I mean hey if rates need to go up sometime after the last inflation print why not just go and raise rates now?

IOG

IOG has provided a further operational and portfolio update. At Southwark after successful investigation and repair of the Noble Hans Deul rig leg, the rig was re-mobilised from Dundee port on 3 December and arrived at the Southwark platform 500 metre zone on 9 December. The first Southwark development well is expected to be spudded by the end of this week.

Given the two-month drilling hiatus, First Gas is expected at Southwark by mid-2022 after the planned installation in Q1 of the 6km Saturn Banks pipeline extension to the Southwark platform. The rig is then scheduled to move on to drill the Goddard and Kelham North/Central appraisal wells while analysis of reservoir and production data from Southwark wells 1 and 2 will inform an optimal Southwark 3 well plan.

Saturn Banks Reception Facilities (SBRF) and Phase 1 First Gas. At Bacton, IOG is working proactively with terminal operator Perenco (UK) Limited and on-site contractors to complete the outstanding SBRF recommissioning work to bring Phase 1 gas safely and reliably onstream. Progress has continued despite some difficult recent weather  conditions. The new 45 metre emergency vent stack is now installed, electrical and instrumentation activities are ramping up, and powering up and testing of onshore systems is starting imminently. The SBRF are now expected to be ready to receive production in the early weeks of 2022. The final steps to First Gas involve commissioning of end-to-end control and communications systems and backgassing of the pipeline system before opening up the Blythe and Elgood wells in quick succession.

Saturn Banks Project Phase 2. The schedule for concept selection and sanction for the Nailsworth development is planned to be submitted to the Oil and Gas Authority this month. Nailsworth lies 19km north-west of the Southwark field in water depths of 25-40 metres and is expected to be the first Phase 2 field to be developed. Following the interpretation of reprocessed 3D seismic the Company is building new static and dynamic subsurface models to refine its management estimated gross recoverable gas of 64/105/156 billion cubic feet (Bcfe).

Nailsworth gas is expected to be evacuated via the Southwark platform and Saturn Banks Pipeline System in line with IOG’s strategy of maximising returns through use of owned infrastructure. IOG and its partner CalEnergy Resources (UK) Limited are assessing the most economically and environmentally attractive concept, bearing in mind nearby potential incremental developments.

The Company continues to assess its hopper of incremental opportunities to maximise shareholder returns. These primarily include the potential Northern and Southern Hubs, P2438 and P2442 respectively, for which Goddard, Kelham North and Kelham Central are planned to be appraised in the second half of 2022. In the P2589 licence, 3D seismic reprocessing to Pre-Stack Depth Migration is being initiated to re-map the Panther and Grafton discoveries and evaluate the area’s full commercial potential.

In the P2085 (“Harvey”) licence, the structure around the 48/23b-2 well has a Most Likely recoverable gas resource of 21 Bcfe. Alongside Phase 2 development activities, IOG sees more material, higher-return opportunities than Harvey to allocate its capital and resources. The Company has therefore decided not to pursue an extension to P2085 beyond its expiry date of 19 December 2021.

Andrew Hockey, CEO of IOG, commented: 

“I am pleased to confirm the Noble Hans Deul rig re-mobilised from Dundee back to Southwark in early December as forecast following an efficient repair by Noble Corporation. I look forward to safe and successful execution of the Southwark wells, the first of which is expected to spud in the next week.

Although significant further progress has been achieved at Bacton, final pre-First Gas commissioning activities are now expected to carry over into the early weeks of 2022. My team and I continue to focus all our efforts on ensuring safe and reliable start-up as early as possible at Blythe and Elgood.”

Whilst it is a slight disappointment that first gas has been delayed it is mitigated by the fact that noted above that UKNG prices are at a recent high and the strip through 2022 is very high, way higher than any forecasts during the commissioning of Phase 1. Indeed, as I write, Q1 prices are a averaging just under £3/therm and both summer and winter 2022 prices are over £1.80/therm, and full year 2022 average is over £2/therm. Extraordinarily levels for the foreseeable unless something radically changes.

And as the CEO states above it will only be a matter of weeks and of course these commissioning activities have to be completed safely and accurately”. 

IOG have been in the Bucket list this year and are up 152% which is a testament to the management and may well feature in the new list due imminently. 

Savannah Energy

Savannah yesterday announced that it has signed a Share Purchase Agreement with Exxon Mobil Corporation, ExxonMobil International Holdings, Inc. and Esso Exploration Holdings, Inc. and has separately signed an SPA with PETRONAS (E&P) Overseas Ventures SDN. BHD. relating to the purchase of each of their entire upstream and midstream asset portfolios in Chad and Cameroon (respectively, the “Exxon Acquisition” and the “PETRONAS Acquisition”). The SPAs both have an economic effective date of 1 January 2021.

This follows Savannah’s initial announcement on 2 June 2021 regarding the proposed transaction with Exxon, and Savannah’s earlier announcements today regarding the Exxon Acquisition and the PETRONAS Acquisition.
Completion of both the Exxon Acquisition and the PETRONAS Acquisition would result in the Company acquiring a 75% controlling interest in the Doba Oil Project and an effective c. 70% indirect controlling interest in the Chad-Cameroon export transportation system.

The remaining 25% interest in the Doba Oil Project is held by the national oil company of Chad, SHT Petroleum Chad Company Limited (“SHT”). The remaining 30% interest in the Chad-Cameroon export transportation system is held indirectly by affiliates of SHT together with the Republic of Chad and the national oil company of Cameroon, Société Nationale Des Hydrocarbures. For reference, in 2020 the Doba Oil Project produced an average gross 33.7 Kbopd and the Chad-Cameroon pipeline transported a gross 129.2 Kbopd. Due to their size and nature, both the Exxon Acquisition and the PETRONAS Acquisition individually constitute reverse takeover transactions pursuant to
AIM Rule 14 and, accordingly will be subject to, inter alia, shareholder approval.

The Company intends to publish the associated AIM Admission Document, which will contain a notice of general
meeting, on or around 17 December 2021, following which point the Company would seek restoration to trading on AIM of its ordinary shares. Please refer to the Company’s earlier announcements today at 16:30p.m. for the respective Schedule Four disclosure for both acquisitions.

Andrew Knott, Chief Executive Officer, commented:

“I am delighted that we are announcing this afternoon the signature of SPAs to acquire control of the upstream and midstream assets of Exxon and PETRONAS in Chad and Cameroon. These assets have generated billions of dollars of critical tax revenues for their host countries and free cashflow to their owners since the onset of first oil production in 2003. Further, under our stewardship, we expect these assets in aggregate to generate positive free cashflow and fiscal revenues for Chad and Cameroon for a further twenty-five plus years.

For Savannah, these deals are expected to see our production levels and reserve base more than double. Further, we see strong potential to significantly increase upstream production and midstream throughput volumes from current levels through incremental investments and look forward to providing more information around our forward plans for the assets, and their potential, upon publication of our AIM Admission Document and the Company’s restoration to trading on AIM on or around December 17.

I would also like to this opportunity to welcome the incoming employees to Savannah and acknowledge with gratitude the support we have received from our stakeholders in government. Lastly, I would thank the ExxonMobil, PETRONAS and Savannah deal and advisory teams for the hard work that has been undertaken to get to this point.”

It has been quite a wait for all the documentation but what SAVE announced yesterday was a truly company making deal and with an Aim Admission document due on or around the 17th December which will be followed by the restoration of listing this is definitely an early Christmas present for shareholders. 

The deal is very substantial, Savannah will own 75% of the Doba oil project and an effective c.70% indirect controlling interest in the Chad-Cameroon export transportation system. The remaining interests will be owned by the respective NOC’s and are that big that they are both RTO’s in their own right but give a positive free cash flow over more than 25 years and more than doubles SAVE’s production and reserves. 

This to me looks like a typically substantial deal by CEO Andrew Knott and will make Savannah a serious player in sub-Saharan Africa if it wasn’t already so. With the existing bases in Nigeria and Niger and with significant upside potential in these two deals SAVE is set fair to be a major global player which its high quality board has always suggested. 

Genel Energy

Genel has announced that payments have been received from the Kurdistan Regional Government (‘KRG’) relating to oil sales during September 2021. Genel’s share of those payments is as follows:

Tawke $14.6m, Tawke override $8.6m, Taq Taq $1.9m, Sarta $2.5m, Receivables recovery $4.6m.

Following the receipt of the receivable recovery payment, Genel is now owed $124 million from the KRG for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

Atome Energy

Yesterday afternoon I  was delighted to sit down with Olivier Mussat, CEO of Atome Energy and I learned a great deal, the link is below.

Core Finance CEO Interview: Olivier Mussat of Atome Energy

SDX Energy

SDX has announced that due to operational issues affecting the drilling of the KSR-19 well and COVID-19 border restrictions impacting the mobilisation of equipment and personnel into Morocco, the current two well campaign, which commenced on 18 November 2021 and which was initially expected to finish at the end of December, is not now expected to complete until mid-Q1 2022.

The Company will make a further announcement on the campaign once drilling activities have recommenced.

Mark Reid, CEO of SDX, commented:

“Whilst this delay is disappointing, we want to take the time necessary to ensure that the operational issues that have been impacting the drilling of KSR-19 are thoroughly dealt with, thus allowing us to safely recommence drilling as soon as possible.”

This delay, which looks like a problem with the kit rather than the reservoir, is in itself fairly small beer and as commented on by CEO Mark Reid best delayed to ensure everything is handled safely. 

The opinions expressed here are those of the author

Malcolm Graham-Wood

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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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