Malcy’s Blog – Oil price, Kosmos Energy, Petrofac, Touchstone Exploration & finally

WTI $81.27 +$2.46, Brent $82.74 +$2.20, Diff -$1.47 -26c, NG $5.52 -20c, UKNG 200.0p +3.01p

By Malcolm Graham-Wood

Oil price

Oil was down on the week, by $2.30 for WTI and by 98 cents for Brent even after Friday’s rally after what was quite a barrage of high level meetings across the globe. COP 26 has been proved to be a mixed bag, the coal generation deal appears not to have been approved by the US or China but deforestation has more support.

The fact that no members of the evil fossil fuels lobby have even been invited to the conference seems a bit odd although I suspect that however many positives they might have added to the discussion it was never to be.

On a more mundane level the Opec+ meeting rubber stamped the existing deal and of course proof if any was needed that it worked showed in the fact that the KSA increased official prices to clients.

Kosmos Energy

Kosmos announced today its financial and operating results for the third quarter of 2021. For the quarter, the Company generated a net loss of $29 million, or $0.07 per diluted share. When adjusted for certain items that impact the comparability of results, the Company generated an adjusted net loss of $43 million, or $0.11 per diluted share for the third quarter of 2021.

Post quarter end, Kosmos announced the acquisition of additional interests in the Jubilee and TEN fields in Ghana from Oxy for approximately $550 million. Consideration due to Oxy at completion was approximately $460 million after taking into account closing adjustments. To fund the transaction, Kosmos successfully announced and closed an equity offering of approximately $140 million and a $400 million senior notes offering.

Commenting on the Company’s third quarter 2021 performance and subsequent events, Chairman and Chief Executive Officer Andrew G. Inglis said:

“With the recently executed transactions, Kosmos has significantly enhanced the outlook for the Company. The Oxy Ghana transaction accelerates our strategic delivery with increased near-term production and cash flow driving down leverage. The cash flow from the acquired assets also supports our portfolio transition to LNG at a time of increasing global gas demand.

Operationally, Kosmos delivered in line with expectations for the quarter, taking account of the impact of Hurricane Ida in the Gulf of Mexico. At Tortue, the project continued to make good progress, and we now have a clear funding path to first gas following the successful completion of the FPSO sale and leaseback announced in the third quarter. This transaction materially reduces our outstanding capital to first gas with the remainder expected to be funded through organic free cash flow.

Looking forward, growing production and increased exposure to current oil prices as 2021 hedges roll off give us visibility to materially higher EBITDAX and cash flow in 2022, with leverage expected to continue to fall. Over the next year, we also expect to substantially de-risk the delivery of Tortue Phase 1 while advancing Phase 2 to maximize the value of our significant gas resources in Mauritania and Senegal. With the right portfolio for the future and a strengthened balance sheet, we are excited about the outlook for Kosmos.”

Kosmos remains a favourite stock with CEO Andy Inglis continuing to do a great job, accentuated by the recent Oxy deal and incredibly well priced equity and debt offerings showing that the market wants to get behind it as well. Kosmos is also pregnant with value in the rest of the portfolio in Africa and of course a cracking portfolio in the Gulf of Mexico. 

Petrofac

Petrofac has been awarded with a new contract worth around MYR399 million (approx. US$96 million) by PETRONAS Carigali Sdn. Bhd., a subsidiary of PETRONAS, the Malaysian National Oil Company. The Engineering, Procurement, Construction, and Commissioning (EPCC) scope of work will encompass the delivery of the new Bintulu Additional Gas Sales Facilities 2 (BAGSF-2) plant located onshore at Tanjung Kidurong, Bintulu, in the Malaysian state of Sarawak.

The greenfield development includes process and utilities unit, effluent treatment unit, metering skid, fire water tank, pumps, flare system and main substation building. In addition to the 390 MMSCFD capacity new facility, the project will also involve brownfield modifications and tie-in within the existing PETRONAS Plant, also located in Bintulu.

Petrofac Chief Operating Officer Nick Shorten said:

“We have been working closely with PETRONAS since 2004, using our broad services capability and expertise to support the development of Malaysia’s energy infrastructure. The contract will be delivered by Petrofac Group’s local subsidiary, Petrofac Engineering Services (Malaysia) Sdn Bhd, with engineering support from Petrofac-RNZ and local supply chain and subcontractors, further underpinning our commitment to local delivery.”

This contract, whilst very pleasing itself is not, in isolation a game changer for Petrofac but I do think that the market has yet to price in the potential size of the order book and quite how much is in the pipeline. With the recent debt and equity raise, as well as the final closure of legal proceedings it is my view that PFC should really kick on and it would only take a small amount of conversion from what is a huge pipeline to make out big time. 

Touchstone Exploration

Touchstone has announced the results of the first of three planned production tests at the Royston-1 exploration well which has confirmed a light oil discovery in the lowermost section of the well. The section tested was initially designed to establish the base of potential hydrocarbon, and this light oil discovery represents a new pool which has not been encountered in any of the regional offsetting wells.

As previously released, the Royston-1 exploration well was spud on August 12, 2021 and was drilled to a total depth of 10,700 feet. Touchstone has an 80 percent operating working interest in the well, which is located on the onshore Ortoire block on the island of Trinidad. Heritage Petroleum Company Limited holds the remaining 20 percent working interest. Drilling samples and open hole wireline logs indicated that the well encountered a significant Herrera turbidite package with a total observed thickness of more than 1,000 feet. The overall Herrera section drilled in Royston-1 contained approximately 609 feet of clean sand, of which 393 gross feet in two unique thrust sheets appeared to be hydrocarbon pay based on mud gas logging and open hole logs.

The first and deepest Royston-1 completion and exploration test was designed to evaluate an interval at the bottom of the well in the intermediate sheet of the Herrera Formation. The completion spanned a 92-foot gross interval (30 feet of net pay) below 10,434 feet that was identified on wireline logs as being hydrocarbon bearing. Following completion and a brief clean-up period to recover load fluid, the well was shut in and built to a pressure of 3,150 psi at surface (estimated 7,100 psi reservoir pressure). The interval was then flowed up 3.5-inch tubing on a variety of choke sizes between 16/64 inches and 40/64 inches at rates up to 360 bbls/d of 34.5-degree API crude oil before being shut-in. Testing of this interval has been completed, and we are moving up hole to the well’s primary production test intervals.

Paul Baay, President and Chief Executive Officer, commented:

 “We are excited to discover a promising new light oil pool in the deepest test section of the Royston well, adding further potential to the future development opportunity in the Royston area, as light oil can be easily and economically developed alongside any gas development. The initial test confirms the large hydrocarbon column in the well, and we interpret the following two primary testing targets to be liquids rich natural gas. These results exceed pre-test expectations, as a flowing light oil opportunity with significant development potential from the bottom 100 feet of the wellbore is a major addition to the Royston area opportunity. We have the potential to further evaluate the intermediate Herrera in future drilling programs by penetrating the intermediate sheet when we drill and assess the underlying Cretaceous prospect. These results further amplify our onshore opportunities in Trinidad.”

This is really exciting as the company has tested oil that flowed to the surface which is remarkable given the pressure and equipment available, it might get  much better again which is most encouraging. The proof that the entire Herrera section is likely hydrocarbon charged makes it potentially extremely valuable and yet there are still two more zones to test. Given that and what has been achieved so far I think that it is justified to have faith in this bottom 100 feet of the well, I’m all in here…

And finally…

In the Prem before the international break the Saints beat Villa who then sacked their manager. The Canaries won against the Bees but still sacked their manager and the Noisy Neighbours beat the Red Devils who didn’t sack their manager…Wins for the Eagles and the Gooners and the Hammers beat invincible Liverpool and jumped above them into 3rd in the table whilst leaders drew with Burnley.

In the T20 World Cup cricket England got through to the semi final where they will play New Zealand on Wednesday but without injured Jason Roy. Thursday sees the other semi where Pakistan play Australia.

In F1 in Mexico Max triumphed as role reversal continued with Mercedes not having the power to get past the Red Bull.

In the rugby internationals, England cruised past Tonga whilst Scotland beat Australia but Wales lost to South Africa.

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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