Malcy’s Blog – Oil price, IOG, Victoria Oil & Gas, Empyrean Energy, i3 Energy, Arrow Exploration & finally

WTI $99.27 -$1.01, Brent $104.39 -32c, Diff -$5.12 +69c, NG $5.72 +8c, UKNG 260.0p -45.0p

By Malcolm Graham-Wood

Oil price

Oil fell last week, WTI was down $14.63 and Brent fell $16.26. The reasons were well telegraphed here and elsewhere, weak Chinese demand after more than stringent Covid shut-downs worried markets. Also the peace talks continued although few believed much would happen especially after recent pictures of horrific butchery of Ukrainian civilians. Add to that the 180m barrels from the SPR and bears had their way let alone the Iran barrels…

So, if buyers of Russian crude who are helping flow out of the country ceased, sanctions would bite and the expected 3m b/d of exports would actually fall then markets would tighten and the SPR release of 1m b/d pale a fair bit. Oh well….


IOG has provided a further Phase 1 update.

The Company and its offshore Duty Holder ODE Asset Management have continued to investigate the previously announced chemical injection fault on the Blythe platform which necessitated the Blythe well to be temporarily shut in. On further inspection, additional process and safety studies and procurement of materials are required before implementing the solution. These workstreams are being pursued as rapidly as possible to expedite safe reopening of the Blythe well. The Company will provide further updates as appropriate.

The fault is a mechanical issue on the Blythe topsides and does not relate to the Blythe reservoir. Moreover, it has not impacted the ability to maintain Elgood production which continues in the meantime.

At Southwark, following a successful exercise to remediate the seabed conditions, development drilling remains expected to resume by mid-April as previously stated. 

Andrew Hockey, CEO of IOG, commented: 

“We are working urgently to resolve this very frustrating platform mechanical issue which has shut in the Blythe well. Importantly, this is not a reservoir related issue and Elgood production continues in the meantime within a very strong gas market. We will release further updates as we clarify the timing of Blythe resumption.”

As I said last week this is an annoying but temporary setback for IOG but not one that will affect reserves or even long term production. Such teething troubles are inevitable and I’m sure that they will all be working flat to the boards to get Blythe back in production. 

Natural gas prices remain buoyant and investors should be wary about throwing the baby out with the bathwater and that this, along with IOG’s next steps will be highly profitable for the company and its shareholders. 

Victoria Oil & Gas

VOG, whose wholly owned subsidiary in Cameroon, Gaz du Cameroun S.A. (“GDC”), is the onshore gas producer and distributor with operations located in the port city of Douala, announces that the Arbitral Tribunal of the International Chamber of Commerce has made its Partial Final Award under ICC Rules in relation to the case initiated by RSM Production Corporation against GDC in October, 2018.

Whilst GDC was awarded two of its counterclaims, and the Tribunal rejected RSM’s material claims on drilling costs, it has ruled against GDC for certain of RSM’s claims and has made an award totalling approximately US$12.1 million, with interest to be added. In addition, the Tribunal has directed the parties to confer regarding the proposed procedure for resolution of costs and attorney’s fees with a target date for resolution by 30 June, 2022. 

A large part of the Award is devoted to the treatment of the royalty payments made to Cameroon Holdings Limited (“CHL”) in the calculation of the Pay-out date. Pay-out occurred on the first day of the calendar month following the month in which GDC had recovered 100% of its costs from the exploration phase of the project (previously disclosed as having been triggered in May 2016, so a Pay-out date of 1 June, 2016).

The Tribunal concluded that in early 2016 the Company wrongfully started to include the CHL Royalty as a recoverable cost in the calculation of the Pay-out date, and as a result the Pay-out date should be moved forward four months to 1 February 2016. The Tribunal has found that the consequence of this earlier Pay-out date is that RSM is now due US$10.6 million plus interest.

Under the arbitration rules of the ICC, the Award cannot be appealed and is to be paid without delay. Neither GDC, nor the VOG Group, has the ability to pay the Award without some delay and accordingly the trading of VOG shares on the London Stock Exchange will be temporarily suspended as of 7.30am this morning, pending resolution of this fundamental uncertainty to continue as a going concern. 

The settlement agreements entered into with RSM on 27 September, 2021 and 30 January, 2022, resolved, re-set and clarified the parties’ co-venture relationship on a prospective basis with a view towards avoiding disputes in the future that have otherwise challenged the joint venture and led to the Award.  Since 27 September, 2021, significant progress has been made, in consultation with RSM, towards implementing those agreements and we continue to cooperatively work together in that regard. It is against that backdrop, that the Company has been able to engage and continues to engage in constructive dialogue with RSM towards a post-award settlement, albeit such settlement cannot be assured. The parties have agreed to meet face-to-face (either in the US or the UK) to expedite discussions around how to address post-award settlement to prospectively maximize the joint venture’s value proposition long-term.

In the meantime, operations at GDC will of course continue with natural gas and condensate being produced and sold to its customers in Cameroon and we would like to reassure GDC’s employees, customers, suppliers and other stakeholders in Cameroon that GDC will continue to safely produce and supply gas for the Douala area as usual.

Roger Kennedy, Non-Executive Chairman of Victoria Oil & Gas, commented:

I am taking the liberty of adding my comments as I am the longest serving Director on the current board, though I joined in H2 2016, after the Pay-out calculations had been made. The Tribunal’s findings are of course disappointing, to say the least, but they cannot be appealed and we must deal with the consequences and move forward.

I find this doubly frustrating as the current management (appointed by me in 2020) inherited this 2018 arbitration and they have been working flat out to deal head-on and decisively with all the issues they had inherited, and they had also found time to cultivate a hopper of exciting business development opportunities.

Moreover, the current management made huge strides towards improving the relationship with RSM, as illustrated by the September 2021 and January 2022 settlements (settling the UNCITRAL arbitration pre-hearing, and non-monetary claims in the ICC arbitration respectively). The Board thus has confidence in the management to navigate through this legacy issue and return the Company to a healthier footing.”

There is little I can add to what Roger Kennedy has said given that I know next to nothing about the detailed facts of the case which has been left for the current board to face up to despite them not having initiated it. Indeed, I know the CEO and CFO very well and I can say that they have worked all the hours that god gave since their appointment to clean up VOG in many areas.

Time will tell what will happen, if the work that they have done with RSM is meaningful then maybe a sensible settlement can be fashioned over the longer term and operationally the company will be able to survive and grow to everyone’s satisfaction, losing VOG at this stage will benefit no one.

Empyrean Energy

Empyrean has provided the following update on preparations to drill the Jade prospect at its 100% owned Block 29/11 permit, offshore China.


·      Drill Well On Paper meeting for operations related to the upcoming drilling of the Jade prospect conducted on 1 April 2022

·      COSL has implemented stringent Covid measures for conducting safe operations

·      COSL has advised that rig mobilisation operations will commence 6 April 2022

·      Spudding of LH 17-2-1 well over Jade Prospect is expected within days of rig being safely anchored on well site

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

The China Offshore Services Limited drilling team invited Empyrean and CNOOC EnerTech for a ‘Drill Well On Paper” meeting on 1 April 2022. COSL has prepared a thorough and comprehensive operational plan for the Jade well operations.

Key operational points are as follows:

1.     Two onshore bases have been setup for helicopter to rig transfers, to provide an alternate and manage any shutdowns due to Covid

2.     Drilling mud properties optimisation process has been finalised

3.     Well-defined operational team structure has been setup with clear roles and responsibilities between EME, COSL and EnerTech

4.     Various drilling services (including drilling fluid, cement, log tools, shipping vessels) are ready

5.     Towing and navigational warning permit, a responsibility of COSL, is in hand

6.     Stringent Covid protocols and policies are in place with entire drilling crew required to have negative PCR test 48 hrs before leaving home, followed by 4 days quarantine in central facilities and, finally, will need a negative PCR test before flying to rig

With the improvement in the weather, COSL has advised that up-anchor, rig mobilisation and then operations to anchor the rig at Jade will commence 6 April 2022. Safety protocols require sea conditions to be a 6 or less on the Beaufort Scale for towing and anchoring operations, which are expected to take 4 days in total.

A further update will be provided once operations commence and a spud date estimate can be provided.

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:

“The effort, preparation and cooperation between Empyrean, COSL and CNOOC EnerTech has been excellent. With the improvement in weather, we are excited to be so close to commencing drilling at the 395 million barrel Jade target within days. Shareholders can feel confident that Empyrean is well represented on the ground in China with Company technical director, geologist and geophysicist – Gaz Bisht – overseeing the drilling campaign on behalf of Empyrean.”

It’s nearly time for 6 years of blood sweat and tears to finally be put to the test. I can feel the excitement having been there at the start and I wish them well. 

i3 Energy

i3 has announced that the Company has achieved a record for corporate production as well as provide a 2021 year-end reserves report for its subsidiary i3 Energy Canada Ltd. 

i3’s independent reserve report was prepared by GLJ Ltd in accordance with standards contained in the Canadian Oil and Gas Handbook and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) with an effective date of 31 December 2021.


·    Record Corporate Production on Strong Operational Performance. 

o  Based on field estimates, i3 exited the first quarter of 2022 with a record weekly average production of approximately 20,312 boepd comprised of 61.1 million standard cubic feet of gas per day (“mmscfd”), 6,290 barrels per day (“bbl/d”) of natural gas liquids (“NGLs”), 3,522 bbl/d of oil and 316 boepd of gross overriding royalty interest production.

o  Current production continues to exceed expectations due to continual outperformance of the Company’s low decline production base, which has been further enhanced through strong drilling results via i3’s inaugural development drilling program.

o  Based on forward strip pricing at 31 March 2022, i3 now forecasts full-year 2022 net operating income (“NOI” = revenue minus royalties, opex, transportation and processing) of $192 million, a 28% increase over that predicted in the Company’s December 2021 capital budget announcement. This increase reflects the upward shift in commodity prices, in addition to well results that have bettered i3’s pre-drill forecasts.

·    Acquisitions within Core Areas Provided Significant Reserve Additions. 

o  Proved plus probable developed producing reserves (“P50 PDP”) increased 262% to 60.1 million boe, total proved (“1P”) reserves increased 163% to 85.3 million boe and total proved plus probable (“2P”) reserves increased 185% to 154.1 million boe, compared to the prior year.

·    Material Increase in the Company’s Reserve Value. 

o  The Before-tax Net Present Value of cash flows attributable to the Company’s reserves, discounted at 10%, has been determined to be $354mm, $444mm, and $775mm for its P50 PDP, 1P and 2P reserves, respectively, being indicative of the Company’s strong production base and robust portfolio of economic development opportunities.

·    Accretive Acquisitions Provided Significant Reserve Additions on a Per Share Basis.

o  P50 PDP net present value (“NPV”), using a 10% discount rate, increased by 231% to £0.24 per share, 1P NPV increased by 195% to £0.30 per share and 2P NPV increased by 172% to £0.52 per share, as compared to the prior year.

o  The NPV calculations performed by GLJ used an average 2022-2026 WTI price of $69.18/bbl (three consultants average) which is significantly lower than current strip prices.

·    Excellent Organic Reserves Replacement Ratio, Long Reserve Life Assets and Low Decline Profile Demonstrate Sustainability of the Company’s Total Return Model. 

o  On a Proven reserves basis, the Company’s organic reserves replacement ratio in 2021 was 220%. P50 PDP, 1P and 2P reserve life index of 9.5 years, 11.8 years and 18.6 years, respectively, combined with our low base decline rate of approximately 12.4% and our extensive inventory of highly economic development drilling locations, underpins i3’s ability to sustainably grow production per share from our existing asset base and generate significant distributable cash flow for our shareholders.

·    Strong FD&A Metrics and Recycle Ratios Reflective of Efficient Development and Acquisition Strategy. 

o  Efficient development and disciplined acquisitions provided strong proved developed producing (“PDP”) FD&A of $1.96 per boe, 1P FD&A of $4.51 per boe and 2P of $4.31 per boe, delivering recycle ratios of 5.8x, 2.5x and 2.6x, respectively.

Ryan Heath, President of i3 Energy Canada Ltd., commented:

“The Canadian reserve report reflects the hard work and commitment of the entire i3 team. Strategic, accretive acquisitions along with efficient, low-cost field optimization has built predictable base production and a portfolio with extensive future development opportunities. i3 Canada is pleased to deliver record production exceeding 20,000 boepd, resulting from the Company’s low decline profile and strong drilling performance.”

Majid Shafiq, CEO of i3 Energy plc, commented:

Whilst I don’t formally cover i3 as I havent recently met with management I have been noting the increasingly positive news from the company. As and when I get the chance for an in person meeting with management I look forward for a more in depth look at what they have prospect wise.

Arrow Exploration

Arrow has announced that the contracted Top Drilling Company rig has spud the Rio Cravo Este-2 (“RCE-2”) well on the Tapir Block in the Llanos Basin of Colombia. The Company is also pleased to share an update on its 2022 corporate outlook.

The RCE-2 well was successfully spud on 2 April 2022. The well is targeting a large, three-way fault-bounded structure with multiple high-quality reservoir objectives. The well is expected to be drilled to a total depth of 8,146 feet (True Vertical Depth).

Drilling and casing of the RCE-2 well is expected to take approximately three weeks, followed by completion, and then testing. Depending on the number of zones encountered in the well bore, testing is expected to take approximately five days per zone.

The Company will continue to provide additional updates on the RCE-2 and RCS-1 wells as appropriate.

In addition to the RCE-2 and RCS-1 wells, the Company is evaluating the potential for the recompletion of the RCE-1 well in additional zones to increase production. Assuming success at RCE‑2 and RCS-1, the Company will evaluate potentially drilling a fourth well (provisionally referred to as the RCE-4 well) at Rio Cravo Este. 

With regards to RCE-1, three recompletion candidates have been identified, including the upper C7 sand, the Gacheta D sand, and the Gacheta B sand. Arrow believes that secondary zones such as the C7C and Ubaque offer additional recompletion potential. Should the partners on the Tapir Block decide to proceed with the recompletion of the RCE-1 well, the potential timing for execution of the activities would be during Q3 2022.

Assuming success at RCE-2 and RCS-1, RCE-4 will be considered so as to potentially further increase production and maximize recoveries from all zones. Should the partners on the Tapir Block decide to proceed with RCE-4, the potential timing for spudding the well would be during Q3 2022.

As of 31 March 2022, the Company’s corporate production was estimated to be approximately 1,103 boe/d. All of the activities outlined in this announcement are in support of the Company’s stated objective of achieving a production rate of 3,000 boe/d within 18 months of the closing of its previously-completed AIM placing and listing (completed in October 2021).

Marshall Abbott, CEO of Arrow commented:

“We are delighted to have spud the second well at Rio Cravo Este, RCE-2, on the Tapir Block. Following the completion of drilling and testing of the RCE-2 well, the rig will move to the location of our next well, the RCS-1 well (formerly the RCE-3 well), which is expected to spud in early-May.

“In addition, we are pleased to also provide a wider update across our portfolio, which is demonstrative of the significant work we have done to date; but also of the potential which remains. Our production remains strong at over 1,100 boe/d and continues to grow, producing positive cashflow for the Company during a high commodity price environment.

“This is an exciting time for Arrow and we look forward to providing further updates in due course.”

Whilst I also haven’t met with the Arrow executive management in person that was my fault as in their recent visit I was travelling but I did meet with them on a private call and they were very impressive. Readers know that I am a big fan of Colombia and that recent changes in portfolio have made this a much more interesting play, watch this space…

And finally…

The University boat race was won by Oxford men, Cambridge won the women’s race. At Twickenham Oxford also won, only just after a blistering comeback from Cambridge who had only 14 men for 70 minutes, their women drew 10-10.

In the Prem both the Noisy Neighbours and Liverpool won so the game between the two is probably for the title. With Cups etc they may play four times in less than a month…Chelsea lost 1-4 at home in the West London derby to the Bees so will content themselves on 3rd I guess and with Spurs putting 5 on the Magpies will hope for 4th and the Gooners with all those games in hand will also want a Champions League spot, they play tonight at the Eagles…

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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