Malcy’s Blog – Oil price, IOG, Serica, Predator, Orcadian, Harbour, SDX, Hurricane, Prospex, Zenith & finally

WTI $95.04 -$1.40, Brent $98.02 -$1.89, Diff -$2.98 -49c, NG $4.75 +18c, UKNG 254.0p -20.4p

By Malcolm Graham-Wood

Oil price

Another drift yesterday but today oil prices are back up by another 5 bucks. The publication of the three agency reports has concluded – absolutely nothing, between them they havent got a scooby about oil supply and demand at the moment.

Following yesterday’s 25bp interest rate from the Fed the Bank of England have announced a similar rise in an attempt to keep inflation under control.

IOG

IOG has announced its final audited results for the Year Ended 31 December 2021

2021 Highlights

Corporate and Operational

  • Phase 1 Blythe and Southwark normally unmanned platform installations were mechanically completed in April 2021 and safely installed at their offshore field locations in May-June 2021
  • Elgood well 48/22c-7 was successfully completed in July 2021, testing at a surface-constrained maximum rate of 57.8 mmscf/d of gas and 959 bbl/d condensate through an 80/64th inch choke
    • Reservoir encountered 39ft deep to prognosis and having integrated well data into subsequent technical analysis, management has updated its gross estimated 1P/2P/3P reserves to 9.7/14.1/18.3 billion cubic feet (BCF)
  • Blythe development well 48/23a-H1 successfully drilled, cleaned up and flow tested to a maximum gas rate of 45.5 mmscf/d through an 80/64th inch choke within two months of spud
    • Having integrated well data into subsequent technical analysis, management has updated its gross estimated 1P/2P/3P reserves to 25.4/42.5/55.8 BCF
  • Offshore subsea and hook-up scopes for Blythe and Elgood fields completed in November 2021, with one million Phase 1 cumulative manhours passed in September 2021
  • First Southwark development well initially spudded in December 2021 following repair of the Noble Hans Deul rig leg in Dundee (Southwark drilling subsequently suspended due to seabed scour issues and expected to resume in March/April 2022 with Southwark First Gas  targeted in Q3 2022).
  • Phase 1 Duty Holder contract for Installation and Pipeline Operator, as well as facilities operations and maintenance (“O&M”), awarded to ODE Asset Management (“ODEAM”)
  • Inaugural Emissions Assessment released, projecting Phase 1 lifetime average Scope 1 and 2 emission intensity at under 4 kg kgCO2e/boe, versus North Sea average of 20.2 kgCO2e/boe
  • Commitment to Scope 1 and 2 Net Zero emissions from 2021 via investment in accredited voluntary offsets
  • Potential for valuable multi-field “Southern hub” demonstrated with identification of Kelham North, Kelham Central, Thornbridge and Thornbridge Deep prospects on the P2442 licence
  • Collaboration agreement signed with GeoNetZero Centre for Doctoral Training to support carbon capture & storage research on quads 48, 49, 52 & 53 (broader Bacton catchment area)

Financial

  • Cash balance at period end of £34.7 million (2020: £80.4million), including restricted cash of £3.4 million (2020: £67.0 million)
  • Post tax loss for the year of £4.3 million (2020: £19.3 million)
  • Group net debt1 at year end £56.6 million (2020: £14.1 million)
  • Remaining £11.7 million out of £60 million Phase 1 partner development carry from CER fully utilised
  • £140.0 million invested in the Phase 1 development, of which CER funded £70.0 million for their non-operated share
  • Remaining €65.8 million (£59.2 million) drawn down from Bond escrow account
  • €9.7 million (£8.9 million) in Bond interest payments, of which €4.8 million (£4.4 million) was drawn from the Debt Service Retention Account (DSRA)
  • Gross proceeds of £8.5 million raised through placing and subscription in September 2021 at 25p/share, a 1% premium to 30-day volume weighted average price, primarily to fund the Kelham North/Central appraisal well

1Net debt is defined as total loans, less restricted cash and cash and cash equivalents, adding back the financial asset being the Company’s holding of its own bonds.

Board and Management

  • David Gibson appointed as Chief Operator Officer (COO) in February 2021
  • Operational and technical teams further strengthened to support Phase 1 and facilitate further phases of growth

Post Year End Developments

  • Commissioning of onshore Saturn Banks Reception Facilities completed on 4 March 2022, enabling backgassing of the offshore Saturn Banks Pipeline System out to Blythe and Elgood
  • Phase 1 First Gas was safely and successfully achieved from the Blythe well on 13 March 2022
  • Southwark drilling operations suspended in January 2022 pending remediation of the drilling location seabed to ensure safe operations with resumption expected by late Q1 or early Q2 2022
  • New gas sales agreement (GSA) signed with BP Gas Marketing Limited (BPGM), covering all of the Phase 1 fields as well as Nailsworth and Elland, replacing the 2014 Blythe GSA
  • Planning and contracting continuing for the appraisal wells at Kelham North/Central (P2442: Block 53/1b) and Goddard (P2342: Block 48/11c and 12b), to be drilled by the Noble Hans Deul rig after the second Southwark well on the same competitive day rate as the Phase 1 wells
    • Petrofac appointed Well Operator for these wells and pre-drill site surveys initiated in Q1 2022
  • 3D seismic reprocessing to Pre-Stack Depth Migration underway on licence P2589 (Panther / Grafton area adjacent to Elland), expected to provide enhanced view of subsurface and commercial potential later in 2022
  • Further to an ongoing comprehensive process of subsurface re-evaluation of the Company’s asset portfolio, revisions to management’s gross volumetric estimates have been made as follows:
    • 1P/2P/3P reserves for the Blythe field revised to 25.4/42.5/55.8 BCF
    • 1P/2P/3P reserves for the Elgood field revised to 9.7/14.1/18.3 BCF
    • 1P/2P/3P reserves for the Southwark field revised to 46.3/71.2/104.7 BCF
    • 1C/2C/3C contingent resources for the main Goddard discovery revised to 52.0/115.0/169.0 BCF
    • Low/Mid/High prospective resources revised to 16/27/42 BCF and 30/50/73 BCF for the two Goddard flank structures, both with 71% Geological Chance of Success (GCoS)
    • Low/Mid/High prospective resources for the Kelham North and Kelham Central prospects of 30.0/48.0/67.0 BCF and 12.0/21.0/32.0 BCF respectively, both with 72% GCoS
    • Low/Mid/High prospective resources for the Thornbridge prospect estimated at 19.0/35.0/57.0 BCF, with 64% GCoS
    • Low/Mid/High prospective resources for the Thornbridge Deep prospect revised to 55.0/107.0/167.0 BCF, with 18% GCoS
    • 1C/2C/3C contingent resources for the part of the Orrell discovery lying within the P2442 licence area estimated at 13.0/18.0/21.0 BCF
    • No changes at the current time to the management estimates of reserves at Nailsworth and Elland, to the contingent resources at Abbeydale, Panther and Grafton, or to the prospective resources at Southsea

Andrew Hockey, CEO of IOG, commented:

“Last year saw an immense effort by the whole IOG team to progress towards production, culminating in the safe and successful delivery of First Gas from the Blythe and Elgood fields on 13 and 15 March 2022 respectively. I am very proud of our team for overcoming the many challenges we’ve faced and achieving this major milestone. By working closely together, guided by our core values of resourcefulness, innovation, drive, efficiency, resilience and safety, we have turned IOG from an unfunded micro-cap into a material UK gas producer with exciting further growth plans.

We can now start to reap the benefits of our strategic focus on UK gas, which has always had compelling economic logic: the UK remains highly dependent on this commodity that will be pivotal in the global energy transition. Phase 1 production gives IOG both the operational platform and the financial capacity to deliver incremental value for our shareholders.

I believe we have the right people, assets and partnerships to build on what we have achieved so far and deliver exciting further phases of growth over the years ahead: what I call our “project factory”. I would like to thank the whole team, our partner CER and all our contractors for their dedication in making Phase 1 production a reality. I also owe all our shareholders my sincere thanks for their continued support in helping us turn IOG, your company, into a respected UK gas developer and producer. I believe this is just the start and I look forward to delivering further growth on your behalf.”

As we enter the results season proper, announcements will inevitably be longer and of less interest being historical information that the market almost always knows about. IOG is no different as it has been all about Phase 1 which only this week has come on stream. In itself, as CEO Andrew Hockey says in his comments, IOG is now becoming a respected UK gas developer and producer, I would only add that I would suspect that there is more to come…

Serica Energy

Serica Energy plc has provided an update on Rhum field production operations.

Further to our announcement of 28 February, we are pleased to confirm that production has restarted from the Rhum field following the successful operation with a Diving Support Vessel (“DSV”) to replace a faulty component in the Rhum Subsea Control Module which had necessitated a temporary shutdown of Rhum production. The work was completed without incident despite the difficult weather conditions encountered.

Production from the Bruce field has continued throughout these operations and Serica’s other producing fields (Erskine and Columbus) were not impacted by this Rhum issue. During the Rhum outage, the company’s average net production has been in excess of 15,000 boe/d.

Mitch Flegg, Chief Executive of Serica Energy, commented:

“This was a difficult operation at water depths of over 100 metres in a period of challenging weather conditions. Our skilled teams onshore and offshore have planned and executed the work programme safely and efficiently. This has been an outstanding effort.

During the Rhum shutdown we have been able to optimise the Bruce production rates, which has helped to minimise cash flow reduction from this production deferral.”

Great news from Serica who’s team have showed professionalism and skill in doing what they do best, delivering in good times and bad. Having got production back so soon, the dark arts of subsea operations have proved to have worked for Serica. 

Predator Oil & Gas

Predator Oil & Gas Holdings Plc

Operations update and Placing to raise £1.035 million
Highlights
• Secure option on rig to drill within a definitive time window
• Planned construction of two well pads
• Competitiveness in accessing well services and materials enhanced
• Second gas target identified for first well
• Exploration target for Jurassic gas being matured
• Quote received and reviewed for MOU-1 well testing

Predator has announced that it has conditionally placed 11,500,000 new ordinary shares of no par value in the
Company at a placing price of 9 pence each to raise £1.035 million before expenses.
The Placing was significantly oversubscribed and utilises 5,000,000 million shares of the Company’s existing headroom shares (“First Tranche Shares”) and 6,500,000 of the Company’s additional available headroom shares after 27 March 2022 (“Second Tranche Shares”) under the Financial Conduct Authority restrictions for companies on the Official List (standard listing segment) of the London Stock Exchange’s main market for listed securities.
Lonny Baumgardner, an executive director of the Company, has participated in the Placing for Ordinary Shares for a value of £50,000 at the Placing Price. This participation is equivalent to 4.83% of the Placing.

2
Use of Proceeds
The Company is primarily intent in the near-term on expanding and executing its planned 2022 drilling
operations in Morocco as issues relating to security and cost of gas supply are set to be critical factors
during the Energy Transition influencing the ability to deliver affordable energy.
The strengthening of the Company’s financial resources facilitates the exercise of an option to drill
using the Star Valley Rig 101 within a definitive time window following all regulatory, environmental
and partner approvals. A rig inspection will be carried out shortly by the Company. The option covers
drilling up to three wells in 2022.
Civil works to construct the MOU-4 and MOU-5 well pads will commence following receipt of all
outstanding regulatory, environmental and partner approvals.
Rising costs of materials and services impacted by current tensions in Eastern Europe dictate that it is
prudent to allow for cost inflation to maintain competitiveness in seeking quotes for well services and
equipment and for maintaining aggressive drilling timelines.
MOU-5 is now being prioritised ahead of MOU-4 for the first well in the drilling programme. Following
desk-top modelling of seismic response to gas in MOU-1, two shallower gas targets additional to the
primary “MOU-4 Fan” appraisal target have been identified at the MOU-5 well location. The
shallowest of these targets had strong formation gas shows in MOU-1 (dry gas) and was penetrated
in MSD-1 where good quality reservoir was logged.
The MOU-NE prospective lead is being matured as a potential third well in the planned drilling
programme. 2D seismic reprocessing over this feature will be completed by the end of May 2022. The
primary target following further desk-top studies is now anticipated to be a Lower Jurassic carbonate
platform build-up with potential for leached porosity development covering potentially up to 100 sq.
km., albeit within an area that lacks extensive seismic coverage. Dry gas shows were encountered in
TFR-1X at the top of this interval. MOU-NE will potentially test the play concept some 1500+ metres
higher than the TFR-1X structure in an area favourably located for gas charge from the MOU-1 Tertiary
basin. It represents a high-risk target but an opportunity to test for Jurassic gas close to infrastructure
at a drilling depth of less than 1,450 metres TVD KB.
Additional funding allows the Company to further progress its: FSRU LNG import projects for Ireland
and, potentially, Morocco; set-up the next CO2 EOR project in Trinidad; and further develop its
concept to seek synergies for green hydrogen and natural gas hybrid developments.
Existing working capital is sufficient to meet the Company’s existing commitments and corporate
overheads in 2022, including the testing of MOU-1 which will be synchronised with mobilising the well
services and equipment for MOU-5 to reduce mobilisation and demobilisation costs. A quote for
testing has been received from Schlumberger and has been reviewed.
3
“Use of Proceeds”: The Company currently intends to spend the funds raised as stated above. However,
there may be circumstances where, for sound business reasons, a re-allocation of funds may be
deemed prudent or necessary. The actual amount that the Company spends in connection with each
of the intended uses of proceeds may vary significantly from the amounts specified above and will
depend on a number of factors, including those referred to under “Risk Factors” in the Company’s
published Annual Reports and UKLA IPO Prospectus.

Advance payment to Star Valley To secure option to drill within an agreed time window and to carry out maintenance checks on Rig 101 ahead of planned drilling operations

275,000
Civil works MOU-4 and MOU-5 Upon receipt of all regulatory, environmental and partner approvals build the well pads at MOU-4 and MOU-5

250,000
Well inventory purchases for MOU4 and MOU-5 To cover increases due to rising costs of materials and services impacted by current political tensions in Eastern Europe

125,000
Update MOU-4 and MOU-5 well design Based on lessons learnt from MOU-1 and potential for cost savings

50,000
Mature MOU-NE prospect Based on results of 2D seismic reprocessing expected in
May this year and prepare a scoping drilling proposal 60,000 CNG Morocco Environmental Impact Assessment for potential CNG pilot development at Guercif

50,000
CO2 EOR Trinidad Carry out maintenance check on CO2 EOR equipment and prepare desk-top study for implementation of CO2 EOR in Lease Operators PS-1 field onshore Trinidad – basis for negotiating terms for joint venture SPV for CO2 EOR operations

40,000
FSRU LNG and gas storage Ireland Prepare public relations document and programme for the National Energy Conference Croke Park Dublin 26 April 2022Complete capacity study with third-party owner of gas infrastructure

40,000
New Ventures Progress LNG FSRU options for Morocco Progress synergies for green hydrogen and natural gas co-developments

60,000

TOTAL
GBP950,000
CURRENT WORKING
CAPITAL
Current working capital is sufficient for the purposes of existing commitments and corporate overheads through
2022 including discussions with potential farminees and gas purchasers

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

“Today’s announcement reinforces the Company’s commitment to deliver an aggressive, expansive and exciting 2022 drilling programme in Morocco building on the success of the MOU-1 drilling campaign. The hard work necessary to establish the Company as a successful and proficient, cost-effective operator in Morocco last year, together with a cautious but thorough approach to the technical evaluation of the MOU-1 well results dictated by management’s extensive subsurface experience and understanding of technical risks and commercial opportunities, is now set to pay dividends.

We are perfectly positioned to take advantage of the “dash for gas” in Europe with a drilling programme that has been carefully constructed to maximise the opportunity to appraise and develop gas close to infrastructure whilst also creating exploration upside within a framework of maintaining a disciplined approach to capital spending and within the confines of market conditions We seek to lead by example and not to follow others.”

Plenty to get ones teeth into here and as far as what Predator shareholders wanted to hear was that there will be an exciting drilling programme in Morocco this year. It has been a hard graft but that is what this team is all about and they exhibit signs of ‘disciplined confidence’. 

Orcadian Energy

Orcadian has announced its unaudited results for the six months ended 31 December 2021.

Activity Focus:

 To improve the technical and commercial definition of the Pilot development project

To finance the Pilot development project

To explore every avenue to maximise the value in our satellite discoveries and prospects

To propose a practical means to electrify the Central North Sea (“CNS”) and to develop a business model enabling Orcadian to benefit from this work

Highlights:

Orcadian was admitted to AIM in July 2021 raising gross proceeds of £3 million

Receipt of Letter of no objection from the Oil and Gas Authority (“OGA”) and entry into the authorisation phase of development planning for the Pilot Field

Received three expressions of interest for the provision of an Floating Production Storage Offloading (“FPSO”) for the Pilot Development

Entered into a non-binding Heads of Terms with Carrick Resources Limited (“Carrick”) in respect of a sub-area of Licence P2320 which covers the Carra prospect (“Carra”)

Selected by the OGA to evaluate an approach to the electrification of North Sea oil and gas platforms which will dramatically cut carbon emissions.

Cash position as at 31 December 2021 of over £1.5 million

Steve Brown, Orcadian’s CEO, commented:

“Our first half year results have covered a remarkable period for Orcadian as well as the energy industry as a whole. For our own part, we completed our listing on AIM; proposed a transformational approach to new oil and gas developments on the United Kingdom Continental Shelf (“UKCS”) which we believe has the potential to blaze a trail for a slew of new projects with dramatically lower emissions than existing production; the OGA blessed those plans and has also acknowledged the leading role we are seeking to take in enabling electrification of the North Sea basin.

“We also believe that both the Government and society have begun to acknowledge that continuing oil and gas production is an essential part of an energy system in transition and thus ensuring energy security. We believe that new North Sea developments are essential to meet continuing demand for oil and gas, and absent those, we believe that prices will rise, hitting the pockets of the general public, while ensuring that old, high cost, and hence high emissions, production has to stay online.

“Governments should be encouraging investors to back those plans – they will help deliver an energy transition without soaring costs. Having our own oil and gas production is the only viable path to energy security and stability. We need to deal with the reality of energy delivery in the cleanest and most cost effective ways possible. We believe Orcadian can help deliver this.”

 This is a really interesting company and differs from others in that it is a leader in technical activity that will, I believe be demonstrated in the Pilot development project and roll out electrification in the North Sea. Results today yes, as with others relatively meaningless but these are the first since coming to Aim last summer. 

Definitely one to watch and I hope that we can encourage a bit more exposure, maybe via a CEO interview, in the meantime you can learn a lot by following them on Twitter.

Harbour Energy

Harbour Energy plc

Full Year Results for the year ended 31 December 2021

2021 Operational highlights

  • Completed merger with Premier; realisation of synergies progressing as planned
  • Production of 175 kboepd (2020: 173 kboepd); Q4 production of 214 kboepd
  • Successful drilling at J-Area, Elgin Franklin, AELE, Beryl (UK) and Natuna and Tuna (Indonesia)
  • 2P reserves increased to 488 mmboe, representing 157 per cent 2P reserves replacement
  • Working practices adapted to protect our employees and contractors from COVID-19; Total Recordable Injury Rate of 1.27 per million hours worked
  • Net Zero 2035 progress includes emissions reduction actions, continued involvement in two UK CCS projects and offsetting more than 25 per cent of our emissions
  • Alignment of portfolio with Harbour’s strategy, including exits from Sea Lion (Falkland Islands) and Brazil exploration licences

2021 Financial highlights1

  • Operating cash flow of $1.6 billion (2020: $1.4 billion). Free cash flow of $678 million (2020: $562 million)
  • Profit after tax of $101 million (2020: Loss after tax of $778 million)
  • EBITDAX increased to $2.4 billion, up 36 per cent (2020: $1.8 billion)
  • Opex and total capex lower than forecast at $15.2 /boe (2020: $11.2 /boe) and $935 million (2020: $698 million) respectively
  • Completed $500 million debut bond issuance with a coupon of 5.5 per cent
  • Year-end net debt of $2.3 billion (2020: $1.5 billion) before unamortised fees and 0.9x leverage (2020: 0.8x), in line with target of less than 1.5x through the commodity price cycle
  • Introduction of an initial $200 million annual dividend; proposed final dividend of $100 million (11 cents per share) for full year 2021 to be paid in May 2022 following shareholder approval

2022 Outlook

  • Production of 195-210 kboepd, a c. 15 per cent increase versus 2021; production of 219 kboepd to end February
  • Tolmount (UK): platform commissioning largely complete; start-up underway
  • Opex and total capex guidance unchanged at $15-16 /boe and $1.3 billion respectively
  • Drilling at Catcher, J-Area, Beryl (UK); Natuna and Andaman II (Indonesia); and Chim Sao (Vietnam)
  • Continued progress to Net Zero by 2035, including activity on our UK CCS projects
  • At $100 /bbl, 200 p/therm, forecast free cash flow (after tax and $200 million dividend) of $1.5-1.7 billion with potential to be net debt free in 2023

Linda Z Cook, Chief Executive Officer, commented:

“2021 was a transformational year with completion of the Merger, our third significant transaction since 2017. As a result, we became a public company with a global footprint and the largest London-listed independent oil and gas company.

With our scale, our commitment to producing safely and responsibly, our robust balance sheet and track record of successful M&A, I believe we are well placed to deliver value creation, growth and shareholder returns.

I am proud of all we accomplished in our first year as a listed company and excited for our future.”

Results today from Harbour (Premier) that will only be different from others in that it was a poor year for the company operationally (‘challenges’) but it was good to see production increasing dramatically towards the year end. Guidance for last year was 170-180 kboepd which ended up being 175 but ending on a high note of 214 in Q4 and 219 by end February. Guidance for this year however is only 195-210 kboepd.

Net debt was a hefty $2.3bn at the year end but again Premier did come with some excess baggage, some of that such as Brazil and Sea Lion was dumped to stay afloat but it does show fairly limited ambitions for the company going forward. Indeed the company stated that there would be ‘no more spending’, just high grading existing projects which would keep production flat. Hedging appears to be pretty high, a lot of oil and gas production for 2024 is already hedged at much lower prices than now but as a bet that might well turn out to be correct but a decision in their gift not of the share owners. 

Where growth will come looks good though, Tolmount is finally starting and the presentation points out three international areas of upside, two in Indonesia and old friend Zama for 2023 in Mexico. In Indonesia Tuna is still there again for 2023 but all the excitement is about Timpan where the drill bit spins in May and has ‘huge potential growth with follow-on prospects’. 

With its cash flow Harbour will 1) safeguard the balance sheet 2) invest in a ‘robust and diverse portfolio’ and 3) deliver shareholder returns so shareholders know their place, ie ‘additional shareholder returns to be
considered in line with our capital allocation policy’.  The intention looks to be to provide an investment with capital growth as well as income and right now they do have a yield but not up with others in the sector. 

A really solid start from Harbour despite the operational challenges and it is clear that policy is to keep the lid on spending, drill out the portfolio and see what happens. Thanks to Premier it is a very good portfolio with some potential barnburners in there although Brazil and Sea Lion didn’t make the very ruthless and risk averse cut. Quite where retail investors will put this given the beta profile I’m not sure but let’s wait and see how it goes, especially Timpan…..

SDX Energy

SDX has announced the commencement of oil production at the MSD-25 infill development well on the Meseda field in its West Gharib concession, Egypt (SDX: 50% working interest). MSD-25, which encountered the primary top Asl Formation reservoir at 4,109ft MD (3,361ft TVDSS) and reached 4,385ft TD on 22 February 2022, after drilling through 84.8ft of good-quality, net oil pay sandstone with an average porosity of 26.1%. The well has now been successfully perforated, tied-in to the existing facilities, and flow tested. It is expected that, post-clean up, the well will achieve a stabilised gross production rate of c.300bbl/d which is in line with pre-drill estimates.

MSD-25 is the second well in a fully funded, up to 13-well development campaign at the Meseda and Rabul oil fields in the West Gharib concession, Egyptian Eastern Desert. The development drilling campaign is aiming to grow gross production to c.3,500 – 4,000bbl/d by early 2023.

The rig is now in the process of moving to the next well in the campaign, MSD-20, with spud expected in the next two to three weeks. In order to take advantage of the high oil price, a second rig will also begin operations to drill the MSD-24 well and accelerate the development plan, with a spud date planned for mid-April.  SDX and its partner will continue to assess the performance of the rigs over the coming months to determine how long both rigs will remain operational on the concession.

Mark Reid, CEO of SDX, commented:

“We are pleased to get MSD-25 quickly and successfully connected to our infrastructure. The well is now producing and, when it has fully cleaned-up, we expect it to contribute c.300bbl/d of gross oil production. Our 13-well development campaign at West Gharib, which we are now accelerating with the contracting of a second rig, provides a low-cost, highly beneficial exposure to the oil price which has generated a netback of US$35/bbl at US$68/bbl Brent in the first nine months of 2021. MSD-25 and the rest of the planned wells are expected to significantly boost the production and cashflow from these fields in the coming months and I look forward to updating the market further as the campaign progresses.”

Another announcement from SDX with the MSD-25 swiftly on production which is good as is the contracting of a second rig. Few chances are available to SDX in its current format to grow revenues or reserves but I like the idea of bringing on another rig. 

Hurricane Energy

Hurricane has provided an update on Lancaster field operations and net free cash balances as of 28 February 2022.

Lancaster Field Operations Update

The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 (“P6”) well during February 2022.

February 2022 Lancaster Field Data

P6

P7z(1)

Oil produced during the month (Mbbls)

263

Average oil rate (bopd)

9,394

Water produced during the month (Mbbls)

184

Average water cut(2)

41%

Well gauge pressure (psia)(3)

1,590

1.       The 205/21a-7z (“P7z”) well was not on production during February 2022

2.       Expressed as total water produced divided by total fluid (oil and water) production

3.       Pressure reported is the monthly minimum from well downhole gauge

As of 15 March 2022, Lancaster was producing c.9,250 bopd from the P6 well alone with an associated water cut of c.42%.

There was no lifting of Lancaster crude in February. The next cargo is anticipated to be lifted in late March 2022.

Financial Update

As of 28 February 2022, the Company had net free cash(4) of $71 million compared to the last reported balance of $85 million as of 31 January 2022. $78.5 million of Convertible Bonds remain outstanding and due in July 2022.

As previously guided, during February, the Company lodged £5.7 million ($7.7 million) of additional funds as decommissioning security for the Lancaster EPS following a formal request from the Regulator. The amount of funds now held in trust, and classified as restricted cash, is now £33.7 million ($45.9 million).

Also as previously guided, in early March, the Company received $1.4 million of cash rebates relating to R&D tax claims in respect of the 2020 tax year.

The Company believes that net free cash provides a useful measure of liquidity after settling all its immediate creditors and accruals and recovering amounts due and accrued from joint operation activities, outstanding amounts from crude oil sales and after settling any other financial trade payables or receivables. It should be noted that the net free cash is calculated as at the balance sheet date and does not take into account future liabilities that the Company is already committed to but have not yet been accrued. As such, not all of the net free cash would be available for repayment of the remaining outstanding Convertible Bonds at their maturity in July 2022.

4.         Unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables.

 Hurricane’s full-year results for 2021 will be announced on 28 April 2022.

 Antony Maris, Chief Executive Officer of Hurricane, commented:

 “Through a combination of further strong operational performance at Lancaster and continued high commodity prices, coupled with our ongoing constructive discussions with Bluewater over a charter extension for the Aoka Mizu, we continue to build the platform for Hurricane’s future.”

Yet another set of good numbers from Hurricane and even in its current state it beggars belief what the board nearly did to shareholders last year. I can’t wait to see something from Crystal Amber about this because in a rare comment from the CEO things seem to be going swimmingly…

Prospex Energy

Prospex has provided an update on the production strategy from its El Romeral power project near Carmona in Southern Spain in which the Company holds a 49.9% working interest through Tarba Energía S.L.

The owners of Tarba (Prospex and Warrego Energy Limited) have agreed to operate the El Romeral power plant 24 hours per day for six days per week until further notice.  The reservoir performance and the operating regime are being monitored closely and the Tarba management is confident that the right balance is being achieved between ultimate recovery of remaining reserves and maximising electricity output and therefore income at this time.

Over the last two weeks the power plant has been successfully operating 24 hours a day, six days a week securing the recent high electricity prices.  The power-plant automation and operational procedures have now been fully tested to enable continuous operation whenever required.

Currently Tarba has cash in hand of more than €400,000 and the forecast revenue for March 2022 is likely to exceed €500,000 at current forward curve electricity prices[1].

The reservoir modelling work by Tarba will continue to forecast gas production profiles from the El Romeral concession using a suite of production strategies including further sensitivities on rates, pressures and ultimate recoveries.  The production strategy will be regularly reviewed and optimised based on sound reservoir management.

Mark Routh, Prospex’s CEO, commented:

“The El Romeral concession has been producing gas for the power plant for twenty years and it was essential that the rate of production decline was thoroughly understood before instigating continuous plant operations.  We now know that continuous operations are feasible and safe.  I am very proud of our management and operating team at the plant who have embraced this new operating regime which was made possible by the success of the plant upgrades installed last December.”

“We have selected the optimum production strategy based on the latest reservoir modelling which strikes the right balance between maximising recovery and optimising electricity production at this crucial time for the supply of energy in Europe.  Reservoir modelling will continue and our production strategy will be optimised to match the availability of new gas production from our planned infill wells in the El Romeral concession.”

This news is very good for shareholders and now that running the plant six days a week appears to be safe and reservoir recovery is not being hindered at all. Now it just needs to ensure a plentiful supply of gas to keep it going.

Zenith Energy

Zenith has announced that it has entered into a US$6,000,000 unsecured convertible loan facility with a consortium of institutional lenders, to provide additional funding for the Company’s field development operations in Tunisia and potential near-term business development in the Republic of the Congo.

Highlights

The Facility includes an initial immediate advance of US$2,000,000 (the “Drawdown”). The Company has the right to draw down up to a total capital exposure of US$2,000,000 every 4 months from the Lenders.

Each Drawdown has a repayment term of 15 months, of which the first three months of repayment holiday, and the remaining twelve of equal principal instalments.

Zenith shall pay interest on the outstanding amount of the Facility at the rate of 9% per annum (the “Interest Rate”).

Under the terms of the Facility, the Company has issued the Lenders with 92,094,691 share purchase warrants (the “Warrants”) to subscribe for the equivalent number of common shares of no par value in the share capital of Zenith (“Common Shares”) at a price of NOK 0.1458 per Common Share (equivalent to approximately £0.012) for subscription at any time, with a 24-month term from the date of issuance, and subject to the articles of the Company and the terms and conditions of the Facility.

During the term of the Note, the Lenders may, from time to time, elect to convert varying amounts of Principal and Interest of the Facility. Half of each Drawdown may be converted at 130% of the relevant Reference Price, and half at 150% of the relevant Reference Price, the Reference Price being the average of the 15 daily VWAPs, on the Euronext Growth Oslo, preceding each Drawdown. The Lenders have trading restrictions meaning they cannot sell more than 15% of monthly volume for the duration of the Facility.

No conversions will take place for the first 2 months following each relevant drawdown. Conversions are restricted to no more than 30% of each Drawdown for the first 4 months.

An application will be made for any Common Shares issued and allotted on exercise of the Warrants or Conversion to be admitted to the standard segment of the Financial Conduct Authority UK Official List and to trading on the Main Market for listed securities of the London Stock Exchange (the “Admission”) and the Euronext Growth Oslo. The new Common Shares will rank pari passu in all respects with the existing common shares of the Company.

In accordance with the terms of the Facility, repayment of each Drawdown can be made in cash (“Cash Repayment”) for a charge of 2.5% of the relevant Drawdown amount outstanding.

The Facility agreement includes normal warranties and default clauses.

Pledging of shares by CEO as third-party guarantor

The Chief Executive Officer & President of the Company, Mr. Andrea Cattaneo, has agreed to act as a third-party guarantor in support of the Company, in connection with the Facility. On March 16, 2022, Mr. Cattaneo pledged a total of 11,228,022 common shares in the capital of the Company, in which he has a direct beneficial interest.

Andrea Cattaneo, Chief Executive Officer, commented:

We are pleased to have concluded this financing to further reinforce our working capital position at a time of great activity on a number of fronts for the Company, both in terms of asset development and potential near-term asset acquisition.

In view of Zenith’s upcoming planned sale of oil production in Tunisia, as well as other potential share price catalysts, we shall seek to avoid dilution taking place by repaying the Drawdown by way of cash payments, as well as settling other outstanding loan facilities in such a way that Zenith can continue to maximise the benefits of the current energy pricing climate to significantly improve its balance sheet.

I look forward to reporting on our progress in due course.” 

As always plenty on the go at Zenith, in a recent interview Andrea was in his usual ebullient form with much on the go. Since then one or two things have changed but then this is Zenith…

And finally…

In the cricket England had a bad start and a disappointing finish but in between all went well. Creepy Crawley went for a duck first thing and after a gritty innings Lees was LBW for 30. After that Root kicked on and Lawrence started brightly getting to 91 with two balls to go in the day. Shades of Boycott falling into the Windies hooking trap were realised as Lawrence spooned to short cover 9 short of a well deserved century. BUT 244-3 at the close was good albeit on a dreadful flat track and England will have to bat all day today to secure some safety.

Last night in the Champions League it was Lille 1-2 Chelsea who go through 1-4 on aggregate. Tonight its the Boropa Cup, the Hammers have Sevilla at the London stadium and trail 0-1 from the first leg and have plenty of work to do. For Rangers it is much easier, they are away at Red Star Belgrade, never an easy game but carry a 3-0 lead into the match.

Last night in the Prem the Seagulls lost 0-2 to Spurs who hover near the top 4 and the Gooners lost 0-2 to Liverpool who are now just 1 point behind the Noisy Neighbours. Tonight it’s the Toffees hosting the Magpies, one is in relegation trouble in 17th position and the other is Newcastle in 14th….

Cheltenham today, on St Patricks Day, includes the Ryanair Chase and the stayers hurdle.

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


Linking Shareholders and Executives :Share Talk

If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates. Terms of Website Use All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned
Share Talk
Tweet
WhatsApp
Email
Pocket
Share
Share
Malcare WordPress Security