Malcy’s Blog – Oil price, Longboat Energy, Echo Energy & finally

WTI $103.28 +$4.01, Brent $107.53 +$3.14, Diff -$4.25 -87c, NG $5.71 -1c, UKNG 235.0p -25.0p

By Malcolm Graham-Wood

Oil price

I said last week after Sleepy Joe announced the SPR release that it would be worth waiting a day before buying oil and stocks which turned out to be a day too little, only now are markets picking up on the back of why 1m b/d or slightly less will not be enough. The main reason is that Germany creates a major problem within the EU’s ability to put sanctions on Russian oil and gas, primarily due to the unfeasibly large amount of gas that Germany takes. So whilst it looks like Germany can’t be part of a gas sanction it can probably join in prohibiting oil which it can source elsewhere as tankers and not pipelines bear the brunt of the heavy lifting.

As I have said for as long as you can remember, it has been years of massive under investment which have now meant that our chickens have come home to roost. This is what will mean that even with SPR releases, more from Opec+ or even Iran’s million barrels there will not be enough to go around. I saw a report that said that 50% of US cars will be hybrid by 2040 which is hugely scary but not impossible and shows that electric vehicles are not the saviour people expect. After all, that means that 50% are not using any sort of hybrid and even worse if that’s what it’s like in the USA what will the rest of the world be like?

As Jeffrey Currie of G Sachs said on CNBC this morning, this is the revenge of the old economy and ‘demand destruction is not an option’. If he is right and I suspect that he is, we all need to concentrate on  supply and that means a great deal of new oil & gas investment- period….

Retail gasoline remains in breather mode, at $4.170 a gallon it has fallen by 6.1 cents w/w and is down by 6.8c m/m, for the year the rise is still a big $1.313.

And Exxon has announced that it has made the FID on Yellowtail its 4th and largest project in the Stabroek Block offshore Guyana where it expects some 250,000 b/d starting in 2025.

Longboat Energy

Longboat has announced a significant discovery in the Equinor operated Kveikje exploration well (35/10-8S) in licence PL293B (Company 10%).

The preliminary estimate of recoverable resources in Kveikje Main, being the primary target of the exploration well, is 28 to 48 MMboe (gross), above the pre-drill expectation.

The discovery has excellent reservoir quality and is close to existing infrastructure allowing for a simple development through multiple export options.

Exploration well 35/10-8S, Norwegian North Sea

·    Oil-filled reservoir of excellent quality encountered in the Kveikje primary Eocene target

·  Gas layer of similar excellent reservoir quality encountered in the overlaying Kveikje Hordaland Eocene injectite

the top of the Kveikje Main reservoir was reached close to prognosis at a vertical depth of 1,757 metres below sea level with 18.4 metres of net sand in a 24-metre oil filled gross interval with porosities in the order of 30 percent

the top of the Kveikje Hordaland reservoir was reached close to prognosis at a vertical depth of 1,691 metres below sea level with 2.7 metres of net sand in a 4-metre gas filled gross interval with porosities in the order of 31 percent

·   Secondary targets, Rokke and N’Roll both encountered indications of sand with hydrocarbons with further analysis required to determine potential

A presentation is being made available on the website: www.longboatenergy.com

Helge Hammer, Chief Executive of Longboat, commented: 

“Longboat is very pleased to have made a significant commercial discovery in the Kveikje well.

“Excellent reservoir quality, close proximity to infrastructure and multiple development options make this an important and valuable resource and we look forward to working with the operator to mature the forward plan. We believe that this is an asset that can be commercialised via either development or transaction given the high value barrels that we have discovered.

“Kveikje is the fifth well and third discovery in our seven well drilling campaign. The rig will now move to the nearby Cambozola well where we have a 25% working interest. Cambozola is a play opener and one of the largest gas prospects to be drilled in Norway in 2022 and mid-year we expect to spud Copernicus, another a very large gas prospect.”

This is clearly an important, substantial discovery from Longboat with possible strategic implications due to the post code that the discovery is in. Firstly the discovery is extremely good in its own right, not only does the find contain an oil-filled reservoir of excellent quality encountered in the Kveikje primary Eocene target but that in addition a gas layer of similar excellent reservoir quality was encountered in the overlaying Kveikje Hordaland Eocene injectite.

The company also announced that Logging While Drilling and Coring were accomplished over the deeper secondary targets, but due to operational concerns towards the end of the drilling operations, the planned Wireline logging over these sections could not be performed. The evaluation of Rokke and N’Roll is therefore based on an incomplete data set and further appraisal will be required to reach a conclusion on the size and commerciality of these potential additional resources, this should not be ignored for the future. 

Secondly the post code, the Kveikje discovery is located in a prolific area of significant infrastructure and export opportunities both for oil and gas. The local infrastructure, dominated by Equinor who will evaluate the whole area, comprises a number of recent discoveries and that gives scope for a cluster development that could be tied-back to either Troll B or C. 

Finally as I discussed with CEO Helge Hammer recently and again today, high value discoveries like this are good currency for Longboat who whilst appreciating big discoveries like this need production to build a rounded portfolio of both E&P. I would expect the company to commercialise this find either by development or transaction which gives me significant confidence that Longboat is in a very strong position, after that shaky technical market start the company is now really making progress and as I expected will go from strength to strength. 

Echo Energy

Echo has provided an operational update regarding its Santa Cruz Sur assets, onshore Argentina for Q1 2022.

Production during the period from 1 January 2022 to 31 March 2022 has continued to remain strong and reached an aggregate of 134,167 boe net to Echo during the period, including 23,830 bbls of oil and condensate and 662 MMscf of gas.

Net liquids production in Q1 2022 averaged 265 bopd, an increase of 10% over Q4 2021 levels (240 bopd). Q1 2022 represents the fourth quarter in row of liquid production increases with the annual increase since Q1 2021 of 34%.

Net gas production averaged 7.4 MMscf/d over Q1 2022 an increase compared with 7.0 MMscf/d achieved in Q4 2021.  

Total net production averaged 1,491 boepd in Q1 2022, representing a 6% increase over Q4 2021 production.

The Company continues its focus on maximising revenue from production. Total liquids sales net to Echo over Q1 2022 increased to 26,096 bbls (Q4 2021: 25,881 bbls). During the quarter, two new customers signed agreements to purchase liquids from the Company, providing further sales options and flexibility as the Company seeks to increase competition and prices for its specific products.

Gas production is currently sold under existing long term contracts and pricing agreed in March 2021. As those contracts near expiry, the Company is engaged in commercial discussions around annual gas contracts for the period from May 2022 noting the marked increase in global gas prices in recent months, combined with the continued recovery in economic activity in Argentina.

Martin Hull, Chief Executive, commented:

“We are pleased with operational progress in the first quarter of the year, with improvements in both liquids and gas output during that period compared to the prior quarter. This reflects the ongoing focus on making targeted investments, as cashflows allow, to drive production performance and access the identified production increase opportunities within the asset base. Coupled with stronger prevailing commodity prices, Echo continues to build firm operational and commercial foundations as it looks to grow the business further in 2022.”

Today’s announcement has taken Echo off the ropes that the share price has been on. It is a typical stock market question to ask why companies with production have not mirrored the oil price rise in the last year or so, and Echo is only now starting to reflect what must be better news from its increased production and signing of new clients. Let’s hope that management can keep the kettle boiling and be proactive enough to make it the attractive investment which it has always promised to be. 

And finally…

Last night in the Prem the Eagles beat the Gooners 3-0 which will please Spurs fans…

And tonight in the Champions League Liverpool are at Benfica and the Noisy Neighbours welcome Athletico Madrid to the Emptihad. For City this means that their next four games are Athletico, Liverpool, Athletico, Liverpool…

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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