Malcy’s Blog – Oil price, Kistos, PetroTal, Kosmos, Echo, Hurricane, Union Jack/Reabold & finally

WTI $80.44 -20c, Brent $83.18 -24c, Diff -$2.74 -4c, NG $5.59 +8c, UKNG 246.45p +11.95p

By Malcolm Graham-Wood

Oil price

Get used to it, oil is up and likely, barring a few stray bullets, still headed upwards. It is also not as if it wasn’t forecastable, the 4th quarter was always going to be the tightest with demand finally kicking in across the board and Non-Opec+ supply under pressure.

The monthly reports from Opec and the EIA are out and surprise surprise they both see an increase in 4Q demand and a fall in supply from an assortment of world players. The API stats showed a build in crude, less bad when offset by the Cushing draw and sharp draws in both gasoline and distillates which we could see yesterday as gasoline prices rose again in the US.

Finally it is Russian Energy Week which gives the good and the great their chance to shine, Putin and Novak have been drip-feeding stories primarily about Nordstream 2 into the market. Putin says that the pipeline is ‘a purely commercial project’ and will mean ‘significant easing of prices’ which some people are taking with a pinch of salt.

Kistos

Yesterday I managed to interview Andrew Austin then interim CEO of Kistos, today he reverts to his former position of Executive Chairman and Peter Mann becomes CEO and Richard Slape CFO. Richard Benmore, Julie Barlow and Alan Booth become NED’s.

The link to the interview is right here:

Core Finance CEO Interview: Andrew Austin, Interim CEO, Kistos

PetroTal Corp

Yesterday PetroTal has announced an operations and liquidity update for Q3 2021, and updates on the ongoing community protests at pump station 5. Q3 2021 production averaged 9,508 bopd, within 2% of previous guidance; Q3 2021 exit production (last 7 day average in quarter) was 15,131 bopd, an increase of 89% over Q2 2021; October 1 to October 11, 2021, average production of 14,218 bopd.

Well 8H has achieved pay-out in under 40 days on its $11.8 million capital cost, with continued robust average production of 7,485 bopd in Q4 2021 to date whilst Well 7D continues to deliver strong production above 1,300 bopd, having achieved two times pay-out to date. Well 9H drilling continues without delays, with first oil estimated in mid November 2021 and water disposal maintenance efforts were completed and will have long term field optimization benefits. The Brazil route to market sales option proving viable, with PetroTal executing an export of 226,000 barrels in Q3 2021 was handy under the circumstances of the pump station 5 disputes.

A Strong liquidity position was maintained, with total liquidity of $58 million as at September 30, 2021; and PetroTal taking proactive initiatives to resolve recent pump station 5 disputes between the local community and government. In the meantime, PetroTal continues to produce at normal rates, delivering oil to Station 1 plus exports through Brazil, and expects to have sufficient oil storage to maintain operations during the disruption at Petroperu’s pipeline.

PetroTal averaged oil production of 9,508 bopd for Q3 2021.  This was within 2% of revised Q3 2021 guidance of 9,697 and an 8% increase over Q2 2021 average production of 8,839 bopd.  PetroTal exited Q3 2021 producing 15,131 bopd, an 89% increase over exit Q2 2021 production of 8,009 bopd.  Q4 2021 production to date is 14,218 bopd, inclusive of approximately 5.4% of usual downtime.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:

“On behalf of PetroTal, I would like to thank all our employees and contractors for another outstanding quarter.  We are continuously reminded that alignment between the government, communities, and PetroTal ensures an efficient continuance of PetroTal’s value proposition.  PetroTal continues to support negotiations between local communities and government social profit initiatives.  We are optimistic all stakeholders will find resolutions in short order.”

It hasn’t been long since the last update and all is going well operationally and the Northern Pipeline closure has no impact thanks to the Brazil option available to them. At 25p the shares have really started to perform well and are up 80% since 20th August with plenty more to come.

Kosmos

Kosmos has bought from Oxy 18% of the Jubilee field and added 11% of the TEN field both in Ghana. The cost of $550m seems to me to be pretty cheap and the company say that the deal is ‘accretive across all metrics’ and this morning have launched a stock offer.

Echo Energy

Echo has announced that it has completed the first in a programme of sixteen proposed well interventions and workovers to bring non-producing reserves back in to production at Santa Cruz Sur. The first intervention has now been successfully completed on a well in the Chorillos block. For the operation, a surface hydraulic pumping unit was used to induce flow and over a 100-hour period, the well delivered a cumulative 305 bbls of high-quality oil as part of this intervention and flow induction process, a rate equivalent to c.76 bopd.

The intervention focused on assessing the production potential and delivery of high-quality oil at low water cut from a well last fully online in 2013. Prior to the intervention the relevant field was producing 17 bopd from a small number of active wells. The  intervention and workover programme is in addition to the Company’s previously announced programme of reactivating, at the appropriate time, previously shut-in wells at the Campo Molino oilfield and has been commenced in line with the current strategy of focussing upon production to deliver the highest quality and highest-priced blend oil production at Santa Cruz Sur. The Company intends to optimise the timing of when the well is brought into full production to maximise cost and operational efficiencies within the larger work programme for the Santa Cruz Sur assets.

As previously announced by the Company,  prior to the completion of the well intervention, liquids production net to Echo averaged approximately 290 bopd in September 2021.

Martin Hull, Chief Executive Officer of Echo Energy, commented:

“I am pleased to announce that we have successfully completed an initial well intervention on  Santa Cruz Sur. This well delivered high-quality production capacity and demonstrates the quality and production potential of opportunities available from our assets at Santa Cruz Sur. We look forward to further updating the market as our work programme progresses.’

 Hurricane Energy

Interims from HUR today, revenues of $124.5 million from four liftings of Lancaster crude (H1 2020: $81.9 million from seven liftings). Cash production costs of $24.8/bbl (H1 2020: $18.2/bbl) generated $75.9 million of operating cash flow (H1 2020: $21.9 million), equivalent to $38.0/bbl (H1 2020: $8.2/bbl).

Profit after tax for the period of $42.8 million (H1 2020: loss after tax of $307.8 million) with net free cash of $132.3 million at 30 June 2021 (31 December 2020: $111.4 million).

Antony Maris, Chief Executive Officer of Hurricane, commented:

 “The first six months of 2021 have proved very challenging. The focus has been on exploring ways to provide a stable financial platform for the Company, whilst in parallel delivering production as safely and efficiently as possible from Lancaster. Recent stronger oil prices combined with the impact of the bond buyback, internal cost cutting, and other cost reduction measures, has brought the possibility of bridging the funding gap for the repayment of the bonds within reach. However, the challenge of funding investment in our assets remains.

Going forward our near-term priority remains the repayment of our convertible bonds, and as such we move into the second half of the year with an overarching focus on capital discipline and operational performance. We are optimistic that, despite the economic and operational uncertainties that exist, even if a shortfall remains it may be possible to find a solution to repay the bond in full at maturity.

We continue to engage with all our key stakeholders regarding our financing arrangements as we concentrate on removing the debt burden as well as extracting further value from Lancaster and our other discoveries.”

Union Jack Oil/Reabold Resources

Union Jack Oil and Reabold, have yesterday announced an update in respect of the West Newton A-1, A-2 and B-1z discovery wells as part of the Extended Well Test programme, accompanied by an updated estimate of in-place oil and gas volumetrics of the Kirkham Abbey reservoir in the Greater West Newton area of PEDL183.

The results of the EWT have confirmed that the WNA-1, WNA-2 and WNB-1z wells are substantial hydrocarbon discoveries. Gas and light oil/condensate were recovered to surface from the WNA-2 and WNB-1z wells, although sustained flow rates were not achieved, and multiple samples have been gathered for geochemical analysis which is currently underway.

The large suite of data accumulated during the EWT`s including downhole logs, pressure data, geochemical and core analysis will be used to progress a reservoir modelling study to determine the optimum production design for the Kirkham Abbey reservoir.

Over the coming weeks, a number of external studies, utilising the knowledge of specialist carbonate reservoir modelling energy consultants will be conducted, encompassing a wide range of potential reservoir stimulation treatments, the results of which could be applied to the West Newton series of wells, in order to achieve optimum flow rates.

David Bramhill, Executive Chairman of Union Jack, commented:
“The results from West Newton confirm substantial conventional onshore hydrocarbon discoveries.
“The Operator’s updated analysis of the best estimate in-place hydrocarbon volumes, aggregated
across West Newton and the three largest prospects, highlights a significant proportion are liquids.
“In order to unlock the value potential at West Newton and across the PEDL183 licence, over the
coming weeks a number of external studies will be conducted, encompassing a wide range of potential
reservoir stimulation treatments, the results of which could be applied to the West Newton series of
wells in order to achieve optimum flow rates.”

Sachin Oza, co-CEO of Reabold, commented:

“We are very pleased that the test programme has confirmed significant discoveries at West Newton at both the A and B sites, particularly via the recovery of both natural gas and hydrocarbon liquids to surface.  The test programme has provided us with an abundance of data which will now be used to establish the optimum drilling and completion techniques for oil and gas production at West Newton.  The B1-Z and A-2 wells are available for stimulation to achieve near term flow, and we already have permissions in place to drill the next well on the field.

The market was brutal yesterday as many had expected better news from West Newton although oil and gas were recovered to surface, not just seen on logs. The fact that it is moveable should de-risk the potential although it is clear that the reservoir is highly complicated and sensitive to fluids, particularly water based ones. 

A significant amount of data has been recovered including liquids samples and confirmation of zones which was one of the key reasons for the test was undertaken, this should dictate what type of well is drilled next and presumably with oil based fluids.

Whilst some are disappointed with this result it is by no means the end of what is a very substantial area for production of hydrocarbons. The Greater Newton area still looks like it has the prize of a substantial, economically attractive play once it is unlocked.

Both companies have been critised for raising money ahead of this but they are incorrect conclusions. UJO has a highly successful play at Wressle which needed additional funding and Reabold raised in January so as not to come to the market now after the reaction that we have seen. Speaking to the company today they said that Reabold ‘has no intention of doing a fund raise at the moment’ which should put that particular rumour to bed.

Reabold has been hit as the market thinks West Newton is all it has, actually Victory is looking good and California is still very live and in Romania the company is targeting prospects. As for UJO the company have clearly got plenty of other projects not least at Wressle where the numbers are very impressive indeed.

And finally…

On Tuesday night Scotland had the easy prospect of the Faroe Islands to make their chances of qualifying realistic and it was harder than they thought winning 0-1 with a goal in the 86th minute. England made their life harder with a 1-1 draw against Hungary, the next fixtures are Albania at home and San Marino away…

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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