Malcy’s Blog – Oil price, Kistos, IOG, Jadestone Energy & finally

WTI (Feb) $80.18 +32c, Brent (Mar) $85.92 +$1.48, Diff -$5.74 +£1.14.

Author @mgrahamwood

USNG (Feb) $3.58+17c, UKNG (Feb) 142.0p +1.0p, TTF (Feb) €61.25 +€7.65.

Oil price

Oil is still rising as a combination of positive reports and economic data has picked up and whilst most don’t come good until 2H of this year, particularly in China they make for positive vibes. Even US retail gasoline demand and prices are steadying.


Kistos has updated the market on performance and operations.


·    Benriach well now sanctioned, and rig contract signed. Drilling to commence in Q2 2023

·    Cash of €211MM as of 31/12/22

·    Gross debt reduced to €82MM (from €150MM) through repurchase of €68MM of bonds in the market, resulting in net cash position of €129MM as of 31/12/22

·    Pro-forma production for the full year to 31/12/22 was 10,700 boe/d from the Greater Laggan Area (GLA) and Q10-A

·    2022 average realised gas price €93/MWh (~$175/boe)

·    Opex was ~20% below guidance at ~€5.50/MWh(~$10/boe)

Greater Laggan Area

·   The Benriach well, operated by our partner Total Energies, has been confirmed to be drilled in 2023, starting in Q2. A contract has been signed for a rig by the Joint Venture partners to carry out the drilling of this well. This well is targeting recoverable resource of 638bcf (110MMBoe) gross with Kistos holding a 25% stake. The well is forecasted to cost £16.3MM net to Kistos (£2.4MM post tax).

·    Since Kistos completed the acquisition of a 20% working interest in the GLA in July 2022, the asset has continued to perform well. On a pro forma basis, average production for the year was 6,000 boe/d net to Kistos and uptime was more than 95% (excluding planned maintenance).

·   The decision on Glendronach Field Development will now be taken later in 2023 to allow further technical reviews to be undertaken with the aim of reducing costs. 


·    The Q10 area continues to enjoy good up time, and export through the P15 platform has also been more reliable. Given the variable productivity of the reservoir means that we will continue to intervene regularly to maximise production.

·    A programme of side-tracks and stimulations is being implemented.

·    The Valaris 123 rig that arrived at the field in December 2022 is undertaking a work programme that is due to complete during Q1 2023 and includes the following:

 Sidetrack of the A01 well in the Slochteren formation

 Stimulation of the A04 well in the Clastics

 Installation of velocity strings on A05 and A06 wells

·    Further clastics wells are being considered over the next 18 months

·    Following the successful drilling and flow testing of an appraisal well in 2021, the Orion oil field development has moved from the concept assess phase to the concept select phase. This development would not be subject to the ‘windfall tax’ of Cijns due to it being oil not gas.


·    Following the successful restructuring of the group under Kistos Holdings plc, it is now in the position to look to utilise this structure for more flexible financing and distributions, both options currently being reviewed by the Board.

·    The scale and the manner of the tax changes in the Netherlands (Cjins and EU Solidarity tax) and in the UK (Energy Profits Levy (EPL)), has made investment decisions more challenging for the Board.

·    Kistos continues to evaluate potential acquisition opportunities the changes have created.

·    The Company is actively evaluating opportunities outside of the UK and Dutch jurisdictions.

Commenting, Andrew Austin, Kistos’ Executive Chairman, said:

“Kistos has generated substantial value for shareholders through 2022 and will strive to continue to do so, following what can only be described as a turbulent year. The environment we have been investing in has significantly changed through the implementation of EPL and Cijns. These aggressive tax regimes that governments put in place are to the detriment of Europe’s future energy security. However, while they provide further challenges for the independent oil and gas companies to generate shareholder value, this also creates opportunities and Kistos is well placed to take advantage of these as and when they arise.

Kistos expects to continue to invest in its existing asset portfolio to maximise recovery at these high commodity prices and utilise the EPL investment allowance where possible. While we continue to actively look for value accretive acquisitions in the North Sea and Europe, the asymmetry created by these tax regimes makes this challenging.

If we cannot identify worthwhile transactions to pursue, we will consider returning cash to shareholders during this year.”

With a very decent pro-forma production of 10,700 boe/d  from the GLA and Q10-A giving an average realised gas price of €93/MWh or $175/boe operationally Kistos is in good shape and even Opex was ~20% below guidance at ~€5.50/MWh or ~$10/boe.

This splendid performance enabled Kistos to work hard on the generation of cash and of course to pay down debt, the restructuring under Kistos Holdings now enables the company to think of distributions to shareholders as Andrew Austin has previously demonstrated. 

At the end of December net cash was €129m and with gross debt reduced to €82m after a repurchase of €68m of bonds in the market it is clear that Kistos is paving the way to paying out all or part of the cash when it is free to do so. 

Indeed with the only fly in the ointment being the tax situation, which the Chairman treats with remarkable equanimity, suggesting a significant change in the investment environment  in both the UK and the Netherlands is to the detriment of Europe’s future energy security, and who could argue with that?

So, whilst Kistos are actively looking for ‘worthwhile transactions’ and I for one would not bet against that happening,  the way that they are moving forwards with the existing portfolio looks like strong free cash flow is setting up distribution opportunities. 

The shares have fallen today, I understand that this is due to a wayward brokers forecast of the gas price but it has certainly given the opportunity for investors to buy into the most successful recent sector management and they should receive substantial rewards either by capital growth or from income, or both…


IOG has provided an update on the Southwark field development:

–    The Southwark A2 well has progressed through the hydraulic stimulation phase and currently remains in the clean-up phase, which has taken longer than planned

–    Following stimulation of six reservoir zones, gas rates observed from A2 to date have been lower than expected, with a maximum stabilised rate of 4.2 mmscf/d via coiled tubing, at a flowing wellhead pressure of 456 psi

–     Associated water rates of up to 1,632 bbl/d strongly indicate a connection to the active aquifer from at least one of the stimulated zones

–    A production logging tool (PLT) is being run to acquire downhole data that will help to understand the contribution of each zone and inform next steps

–    Subject to the PLT data, the potential solution would be to isolate water producing zones to enable gas flow from other zones. Relevant equipment has already been mobilised to the rig and would be expected to be utilised over the next week.

–     If isolation is successful, updated well test results would be expected within the coming weeks which would provide a clearer assessment of the scope for the A2 well to produce gas at commercial rates  

Dougie Scott, COO of IOG, commented:

“Having stimulated six discrete reservoir zones, a low gas rate and apparent formation water production at this stage of the A2 well clean-up is unexpected and disappointing. The production logging tool should provide important gas and liquid flow data to help us calibrate the forward plan, which is likely to be to isolate water producing zones in order to assist gas flow.

Rupert Newall, CEO of IOG, commented:

“The Southwark A2 well testing and clean-up process has not met our expectations to date. At this stage, however, the IOG and Petrofac teams continue to work through the options, gather data, interpret the implications for field production and evaluate next steps.”

The work continues for IOG to get some of the operational wrinkles ironed out and here at the A2 well the disappointment is obvious. With the well having been fracced and cleaned up the flow rates are less than expected at this point and that was after a delay in the whole process. 

One issue is of course the water rate and the company will be checking the downhole data in the well to see if it can be isolated and avoid the aquifer. 

The shares have fallen probably too much today but all the management team will know is that it is time to roll up the sleeves and try and sort out these problems at Southwark. 

Jadestone Energy

Jadestone has provided the following operational update and financial calendar for the first half of 2023.

Montara Update

The Company is pleased to report that DNV’s independent review of Jadestone’s remediation plans and operational readiness for the Montara Venture FPSO has been completed and submitted to NOPSEMA, as required by the General Direction issued to the Company in September 2022.  This is a major step toward restoring production at Montara, and the Company anticipates that all offshore activities associated with the comprehensive programme of hull and tank inspection, repair and maintenance will be completed in order to achieve operational readiness within weeks.  In addition, work required as part of the planned maintenance programme for 2023 is being carried out in parallel with the tank activities, and production is therefore expected to recommence during February 2023.

Stag Field Update

In late 2022, the Stag-50H and 51H wells were brought successfully onstream at an aggregate initial rate of approximately 2,000 bopd, in line with expectations.  The infill wells involved the drilling of a combined horizontal section of approximately 3,200 metres.  The success of the 50H and 51H wells validates the Stag field development strategy and enhances confidence in several additional infill well locations which are already being developed for possible future drilling.  Once planned workover activity, which is currently underway, has been completed field production is expected to increase towards c.4,000 bbls/d.

Financial Calendar

Jadestone intends to issue a trading statement in respect of its 2022 operational and financial performance in early February 2023. The Company’s 2023 operational and financial guidance will be announced once the Montara Project has resumed production.

The Company’s audited 2022 financial results will be published in April 2023.  The Company’s 2022 Annual and Sustainability Reports are expected to be published in May 2023.

A bit of a disappointment as another delay from Montara which I presume will now be announced with the next trading statement. The news from Stag was better but it has been a grim year for Jadestone, nevertheless it is amongst the best in the business and I have kept faith with the team and it stays in the Bucket List and I’m confident that through its existing portfolio and inevitable M&A it will outperform in 2023. 

And finally…

Last night in the FA Cup replays Forest Green Rovers lost 1-2 to Birmingham, the Swans lost to the Robins, Wigan lost to the Hatters 1-2, Liverpool beat Wolves 0-1 and The Baggies beat Chesterfield 4-0. Tonight Leeds try to beat Cardiff who nearly won last time.

And in the Prem the Eagles host the Red Devils.

Author @mgrahamwood

Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion

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