Malcy’s Blog – Oil price, Kistos, Savannah, Zephyr, Genel, Wentworth & finally

WTI $70.86 -$1.52, Brent $73.52 -$1.50, Diff -$2.66 +2c, NG $3.69 -8c, UKNG 360.0p +45.0p

By Malcolm Graham-Wood

Oil price

The oil price and markets have suffered again today as the rapid spread of Omnicron increases lockdowns and hastens interest rate rises and GDP worries. The rig count showed a rise of 3 overall to 579 and up 4 in oil to 457.

Kistos

Kistos ‘notes recent press speculation in relation to Kistos and confirms that it is a participant in a process being run by TotalEnergies S.E. to sell interests in certain of Total’s West of Shetland gas assets’.

Kistos’ participation in this process is in keeping with its stated strategy of growth through acquisition and this is one of a number of opportunities that has been actively considered over the past six months. 

If Kistos becomes the preferred bidder in the process currently being run by Total, it is expected that any acquisition would be funded using the Company’s existing resources.

Shareholders are advised that there can be no certainty that Kistos’ participation in this process will lead to a definitive transaction. If appropriate, the Company will provide a further update to shareholders.

This statement makes a number of interesting points, not least the irritation of a leak during what is still an uncertain process. Having said that I would hazard a guess that the deal is quite some way down the road of negotiation and at first glance at it makes it look another smart deal by Andrew Austen. 

Some commentary sites have suggested that Kistos might be overpaying for this asset – should it happen – and my riposte to that is that AA does not have a reputation for overpaying in making many acquisitions in the past and I’m not expecting that to change now. Whatever the gas price if the deal economics are right I would expect it to be good for shareholders and I reiterate my positive stance on Kistos with plenty of potential upside from here. 

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter in Africa, provides the following update.

The Proposed Acquisitions

Further to its announcements of 13 December 2021, the Company now intends to publish an AIM Admission Document in respect of the Exxon Acquisition and the Petronas Acquisition on or around 22 December 2021, following which point the Company will seek restoration to trading on AIM of its ordinary shares.

 Niger Licence Approval

As announced in the Group’s 2021 Half Year Results, on 30 September 2021, the Company reached an agreement in principle with the Niger Ministry of Petroleum to formally renounce the R1/R2 PSC and the R3/R4 PSC and to combine the R1/R2 PSC Area with the R3/R4 PSC Area into one amalgamated R1234 PSC. Following this agreement, the amalgamated R1234 PSC was approved by the Council of Ministers in Niger on 16 December 2021 and is now subject to the payment of a signature bonus by the Company. The Company anticipates that the R1234 PSC will become effective in Q1 2022 and will reset the Company’s licence validity to up to 10 years for the exploration phase, comprising an initial term of four years, with the option to extend this term by two further terms of two years each. In addition, one of these three terms can be extended by the Company for a further two years.

It’s a busy time for SAVE and today sees them confirming that the Admission Document will be published on or around the 22nd of December and thereafter the shares will be requoted on Aim. This is good news as shareholders will be keen to see the market’s valuation of the company after recent M&A activity.

The part of the announcement with regard to the Niger PSC’s will also be seen as good news by the market place and  following the approval by the Council of Ministers in Niger the new PSC no R1234 should be the start of a new investment programme in the country. 

With Savannah shares returning imminently I am particularly keen for success as they are in the 2021 Bucket List which is reviewed in this weeks’ blog. The increase in value since the suspension should be very significant indeed…

Zephyr Energy

Zephyr has provided an update on its proposed acquisition of non-operated working interests in the Williston Basin, North Dakota, U.S.
On 22 November 2021, Zephyr announced the Acquisition and outlined a proposed closing date of 22 December 2021. However, given the ongoing disruption caused by the global pandemic, and in particular the rapid advance of the Omicron variant since the initial announcement of the Acquisition, the Company now anticipates that completion of the Acquisition will occur during January 2022.

Although the completion has been delayed, the Company has made excellent progress towards securing the structured debt funding necessary for completion, and the Company’s Board of Directors looks forward to providing further updates in the New Year.

Colin Harrington, Chief Executive of Zephyr, said:

“The Board prides itself on setting and meeting ambitious targets and deadlines for the Company. Unfortunately, the spread of the Omicron variant has made the delay to completion unavoidable, in spite of our best efforts to finalise the transaction prior to the commencement of the holiday period.

“While it is frustrating that completion won’t occur in the 2021 calendar year, we remain one hundred per cent. committed to the transaction and continue to believe that the assets being acquired will be a fantastic addition to our portfolio.”

“In the interim, I’d like to wish all of our stakeholders a peaceful and healthy holiday period, and I’d like to thank our staff and Shareholders for their incredible support over the past twelve months. “I am exceptionally proud of the Company’s achievements in 2021 – it was a period of intense activity and tremendous progress, as Zephyr transformed from a single project exploration company into a self-sustaining, cash-generating, carbon-neutral oil and natural gas producer.

On our Paradox project, we delivered multiple exciting milestones in pursuit of a goal to open up a new hydraulically stimulated resource play in the U.S. In December, our operated efforts culminated with a highly
successful 23-day production test during which the State 16-2LN-CC, the Paradox Basin’s first modern
hydraulically-stimulated horizontal oil & gas well, flowed higher than expected volumes of
hydrocarbons and demonstrated much greater reserve potential than forecast.

“In addition, we sourced and completed five separate acquisitions throughout the year, resulting in a growing portfolio of operated and non-operated production and growth assets across two established U.S. oil producing basins, all during a time of significant disruption in the upstream industry. I’m particularly proud that we executed our strategy while staying directly in line with our mission to be responsible stewards of investors’ capital and responsible stewards of the environment in which we work.

“As we approach the end of 2021, Zephyr is ideally positioned as a cash-generating platform with
significant near-term growth potential, from which we aim to deliver substantial additional value for
our Shareholders in 2022.”

It has been nothing short of a spectacular year for Colin and his entire team at Zephyr, they have more than delivered on the promises made to shareholders when they took control of Rose and when the Bucket List is reviewed shortly they will deserve to be at the top. 

The management team is first rate as I thought when I first met them and they have delivered a near perfect job at the Paradox basin along with the acquisitions which help the funding and de-risk the play. The fact that this latest deal has not completed in the timeframe envisaged matters not one jot, shareholders can still enjoy their Christmas holidays safe in the knowledge that their investment is in the safest possible hands. The only way is up….

Genel Energy

Genel has announced it has signed a farm-out agreement relating to the SL10B13 block, Somaliland, with OPIC Somaliland Corporation (‘OSC’), with all its share of future capital investment coming from CPC Corporation, Taiwan, the state-owned enterprise of Taiwan. Under the agreement, OSC receives a 49% working interest in the block for a cash consideration of 49% of all Genel’s historic back costs, plus a cash premium. Genel previously held a 100% working interest, and will continue as operator.

Somaliland has significant underexplored potential, with geology analogous to Yemen. The SL10B13 block is highly prospective, with multiple stacked prospects with over 5 billion barrels of prospective resources identified from the interpretation of the 2D seismic data acquisition completed in January 2018.

The field partners will now work together to plan exploration drilling in this block, with an aim of drilling a well in 2023. It is currently estimated that a well can be drilled for a gross cost of c.$40 million. The prospective SL10B13 area is c.150 kilometres from the port at Berbera, offering a route to international markets. The agreement has been approved by the Government of Somaliland.

Mike Adams, Technical Director of Genel, said:

“Somaliland is a highly-prospective and largely unexplored region, with a compelling technical case for the drilling of a well. Oil seeps confirm a working petroleum system, and one prospect alone could target over half a billion barrels across multiple stacked reservoirs. Being able to drill this at a low-cost to Genel, with a clear route to market in a success case, fits with our strategy, and we look forward to working with OSC.

During the energy transition the hydrocarbons that should be developed are those that are low-cost, low-carbon, and deliver a material and tangible benefit to local people and the host government. Somaliland has the potential to tick all of those boxes.”

Whilst this prospect has taken some time to come to fruition and will still not drill until 2023 it is interesting that the acreage has remained in the portfolio and is a testament to those who have championed it for so many years. The deal they have announced today keeps them in with a chance of a gigantic play and yet with a consideration received that will effectively give Genel a free carry on a high-impact well.

Wentworth Resources

Wentworth has announced that, in accordance with the terms of its share buyback programme announced on 17 December 2021, it has purchased 7,500,000 ordinary shares of no par value each in the capital of the Company in the market at a volume weighted average price of 20.0 pence per Share, a discount of 4.8 per cent. to the closing mid market price per share on 17 December 2021, through Stifel Nicolaus Europe Limited.

(On Friday, after the blog was published the company announced the programme thus. ‘The Board is aware of the significant discount that the Company’s shares trade at relative to its net asset value (NAV) per share, despite the strong operational and financial momentum of the business.

The Board regularly reviews capital allocation to optimise long-term returns for shareholders; reflecting this Wentworth has increased its interim dividend by 10% compared with 2020 and anticipates growth in the final dividend in respect of the year ended 31 December 2021. Given the wide discount referred to above, the Board believes that share buybacks are also an appropriate means of returning value, whilst maximising sustainable long term growth for shareholders, given the enhancement to NAV, earnings and dividends per share that will result from reducing the number of shares in issue.

Accordingly, the Company today announces the commencement of the Programme, for the repurchase of its ordinary shares of up to a total value of £2.0 million. Subject to certain restrictions, the Programme is being made available to eligible shareholders who are on the Company’s register of members at 6pm (UK time) on 16 December 2021. The Programme is expected to continue until the start of the Company’s 2022 Annual General Meeting, which is expected to be held in June 2022. If shares are available at a discount, the Company may opportunistically look to acquire them, in order to achieve the objectives of the Programme’.)

Katherine Roe, CEO, commented:

“We are pleased to have been able to make this opportunistic acquisition of the Company’s shares. The acquisition is accretive to NAV, earnings and dividend per share and demonstrates our ongoing commitment to maximise returns to shareholders.”

In my comment last week I indicated that one of a number of moves was probably being considered and this is a very wise move given the free cash flow and the cheapness of the shares. I expect more of the same and in due course the repurchase program will have proved to have been very wise indeed. 

And finally…

Omnicron has hit the soccer fixtures with only one match on Saturday in which Leeds lost 1-4 to the Gooners whilst on Sunday the Noisy Neighbours went to St James’ and beat the Magpies 0-4. Wolves got a 0-0 with Chelski and Liverpool also dropped a point at Spurs in a 2-2 in which Harry Kane was more than lucky not to receive a red card.

In the cricket England were bowled out for 192 in their second innings and go 0-2 down in the series.

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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