Malcy’s Blog – Oil price, Orcadian Energy, Gulf Keystone Petroleum, Coro Energy & finally

WTI $104.24 -$1.72, Brent $110.23 -$2.25, Diff -$5.99 -53c, NG $5.34 -17c, UKNG 280.0p +20.59p

By Malcolm Graham-Wood

Oil price

Another down day as the same combination of the peace talks and Chinese Covid crisis held hope out for a settlement, tomorrow’s Opec+ meeting is unlikely to give up more oil that the planned 400/- b/d.

Orcadian Energy

Orcadian has announced an extension to Phase ‘A’ of Licence P2320 and a resource update.

Highlights:

·      Phase ‘A’ of Licence P2320 extended to 14th May 2023 with the Initial Term also being extended to 14th November 2024

·      Company has completed a new interpretation of the recently reprocessed seismic data, licensed from TGS in July 2021

·      Company estimates that the development area oil-in-place, for Pilot, will increase by about 10% to 15%, compared to the previously estimated and audited volume

·      Directors believe that the increase in development area  oil-in-place will likely result in an upgrade to recoverable reserves – when the Company’s reserves are next audited

·      Bowhead prospect remains a very exciting opportunity and management now estimates the Geological Chance of Success has increased to 65%

·      Company intends to update its CPR this year

Steve Brown, Orcadian’s CEO, said:

“We are delighted to have received this extension from the North Sea Transition Authority (previously known as the OGA), which brings the date by which we are required to commit to drill a well on P2320 into line with our Pilot project FDP approval plans.

“The license extension enables us to implement a development plan for Pilot which will set a new standard for low emissions in the North Sea. The Feugh discovery, located on P2320, allows us to efficiently manage excess gas production; and we are grateful to the North Sea Transition Authority for their support, and agreement to our request for an extension to Phase ‘A’ of the P2320 licence.”

To me Orcadian is a torch bearer in the transition period for the North Sea which has been brought into the spotlight in recent months and this is extremely good news for them. The shares have hardly moved since admission to Aim but with some very interesting assets in the portfolio I would expect the company to come to the fore before long and the shares to rise.

With their mantra to ‘secure discovered resources at low cost and to transform those resources into reserves and onto production’ I would have thought that this highly experienced management will be just what is needed at the moment. 

Gulf Keystone Petroleum

Gulf Keystone has today announces its results for the full year ended 31 December 2021.

Highlights to 31 December 2021 and post reporting period

Operational

·     Continued strong focus on safety in 2021 despite one previously reported lost time incident (“LTI”); currently no LTIs recorded for over 160 days 

·     Third consecutive year of production growth with 2021 gross average production of 43,440 bopd, towards the upper end of our tightened guidance range of 42,000-44,000 bopd and a 19% increase versus 2020

·     2022 YTD gross average production of c.45,500 bopd, following milestone achievement in February 2022 of 100 MMstb cumulative production since inception

·     Successfully restarted drilling activities in June, resulting in two new wells, SH-13 and SH-14, coming online towards the end of the year

·     After acid stimulations, current SH-13 production in line with expectations while we continue to explore options to further increase SH-14 production

·     Following the early appearance of trace quantities of water, SH-12 is currently shut-in while we investigate near-term production options ahead of installation of planned water handling facilities   

·     Spudded SH-15, which is currently being hooked up ahead of targeted start-up in Q2 2022

Draft Shaikan Field Development Plan (“FDP”)

·     Submitted draft FDP to Ministry of Natural Resources in November 2021 comprising plan to increase Phase 1 gross production plateau to between 85,000-95,000 bopd while eliminating routine flaring and significantly reducing carbon intensity

·     While final timing of approval remains uncertain due to the complexity of the project, we are providing today an interim update on progress to date on Phase 1 of the draft FDP. As we continue to review opportunities to further optimise the project, final details and cost estimates may vary and we expect to provide an update upon FDP approval

·      Expected components of Phase 1 of draft FDP:

o  Expand Jurassic gross production plateau up to 85,000 bopd

o  Test Triassic reservoir, targeting gross production plateau of up to 10,000 bopd

o  Concurrently, execute Gas Management Plan to eliminate routine flaring through gas reinjection, underpinning target of more than halving scope 1 and 2 emissions per barrel by 2025

·     From FDP approval, expected duration of Phase 1 Jurassic and Triassic projects is 36 to 42 months and the Gas Management Plan is 18 to 24 months

·     Total Phase 1 gross Capex currently estimated to be $800-$925 million, up c.$160 million from previous FDP with the objective of increasing production towards 95,000 bopd through project optimisations

Financial

·     Strong free cash flow generation of $122.2 million (2020: $(22.9) million)

·     Total dividends of $100 million paid in 2021, including a 2020 annual dividend of $25 million, a special dividend of $25 million and an interim dividend for 2021 of $50 million. An additional $50 million interim dividend was paid to shareholders in February 2022

·     Revenue almost tripled to $301.4 million (2020: $108.4 million), contributing to a return to profit after tax of $164.6 million (2020: $47.3 million loss)

·     Adjusted EBITDA increased by almost four times to $222.7 million (2020: $56.7 million) driven by higher gross production, leverage to the recovery in oil prices and the Company’s continued strict control of costs:

o  Gross average production increased 19% to 43,440 bopd (2020: 36,625 bopd)

o  Realised price more than doubled to $49.7/bbl (2020: $20.9/bbl)

o  Gross Opex per barrel of $2.7/bbl (2020: $2.6/bbl), in line with 2021 guidance of $2.5-$2.9/bbl

·     Revenue receipts of $221.7 million in 2021 from the KRG for crude oil sales related to the December 2020 to August 2021 invoices and partial repayment of arrears related to the outstanding November 2019 to February 2020 invoices

·     Since the beginning of 2022, the Company has received a further $106.4 million net to GKP for crude oil sales and arrears related to the September 2021 to November 2021 invoices. As at 29 March 2022, the outstanding arrears balance is $21.9 million net to GKP

·     Net Capex of $50.8 million (2020: $45.9 million), primarily related to the completion of the SH-13 and SH-14 wells and debottlenecking of PF-2

·     Robust cash balance of $182.7 million at 29 March 2022

Outlook

·     Remain focused on delivering 2022 gross average production of 44,000-50,000 bopd reflecting the anticipated production contribution from SH-15 and the benefits of well intervention and workover activities

·     2022 net capital expenditure guidance of $85-$95 million:

o  Includes completion of SH-15 drilling, well interventions and workovers, and activity that enables us to expedite the FDP following approval 

o  With progress on the FDP, the Company expects to resume drilling and increase 2022 capital guidance

·     Gross Opex guidance of $2.9-$3.3/bbl, driven by increased operational activity and the continued catch up of previously scheduled work programmes deferred due to COVID-19

·     Today declaring $90 million of dividends, representing further delivery against GKP’s strategic commitment of balancing investment in sustainable growth with shareholder returns:

o  $25 million final 2021 ordinary dividend subject to approval at AGM on 24 June 2022

o  $65 million interim dividend, expected to be paid on 13 May 2022, based on a record date of 29 April 2022 and ex-dividend date of 28 April 2022

o  The Company will disclose the US dollar and pounds sterling rate per share for both dividends prior to their ex-dividend dates

·     Assuming timely payment of invoices and continuing strong oil prices, we are expecting strong cash flow generation in 2022. This would provide flexibility to fund a potential increase in capital expenditure, with progress on the FDP, and the opportunity for further distributions to shareholders, while preserving adequate liquidity and maintaining a robust balance sheet

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:

“I am pleased to report a year of strong operational and financial delivery in 2021. With a 19% increase in gross average production to 43,440 bopd, our leverage to the recovery in oil prices and continued cost and capital discipline, we generated substantial revenue and free cash flow.

We continued to deliver on our strategy of balancing investment in sustainable growth and shareholder returns, as we resumed drilling activities and submitted a draft Field Development Plan to the Ministry of Natural Resources while also returning $100 million of dividends to our shareholders in 2021. Following the $50 million dividend that we paid in February 2022, we are pleased to announce today the declaration of an additional $90 million of dividends. This brings aggregate shareholder distributions declared since 2019 to $340 million.

Looking ahead to the remainder of 2022, we remain focused on delivering gross annual production of 44,000-50,000 bopd by bringing SH-15 online in Q2 2022 and optimising production with well interventions and workovers. While constructive engagement continues with the MNR on the FDP, timing of approval remains uncertain and further progress is required before we fully execute FDP activity.

Following my first year as GKP’s CEO, I would like to personally thank the Company’s teams in Kurdistan and the UK for all of their efforts. We are in a strong position and I am excited about safely delivering the significant growth potential of the Shaikan Field to drive sustainable value for all of our stakeholders.”

This is an impressive set of results from GKP and with production of 43,440 b/d and at 45,000 b/d in 2022 to date at current oil prices and with guidance of 44,000-50,000 b/d the outlook is positive. With capex guided at $85-95m and opex of $2.9-3.3/bbl all that remains are to think about is the longer term. 

The 13 and 14 wells came on stream at the end of last year and the 15 well has spudded and expected to hook up in Q2 2022, the 12 well had water issues and is shut-in waiting on a decision regarding water handling. As for the FDP and the intended increase in production to some 85-95/- b/d there are ‘complexities’ which make final timing ‘uncertain’. 

Putting all this together has lead to substantial free cash flows which means that last year and this shareholders will benefit from dividends from the excellent Shaikan field, for the future assuming the FDP is safely finalised there will be more. With no thoughts of M&A from the statement, GKP will always be the Shaikan of KRG play.

Coro Energy

Coro has announced that gas production at Sillaro has resumed and is currently producing at a stabilised rate of circa 17k scm/d with an expected 2022 average production rate of circa 13.5k scm/d.

As previously announced, buoyed by the strong European gas market backdrop and at current gas prices, the Company expects to generate in excess of €5 million per annum of free cash flow from its Italian portfolio now that Sillaro is back in production.

Further production enhancing activity is scheduled across the Italian portfolio during the course of the year.

The Coro share price has been improving in recent months and with management seemingly with a hands-on approach and this better news from Italy, which itself is a rarity, will help.

And finally…

Last night in the international friendlies England beat ten man Ivory Coast 3-0, Scotland drew 2-2 in Austria, Northern Ireland lost 0-1 to Hungary and Wales drew 1-1 with the Czech Republic.

I have just watched the commemoration to Shane Warne at his memorial service in Melbourne this morning. It was a truly magical display from family, friends and sports and entertainment friends. I said at the time of his death that he was a legend and the best cricketer of all time, the GOAT as someone wrote to me. If you get a chance to watch this it will be time well spent and if you don’t shed a tear during his children’s eulogies to their father then you are better than me, Gunga Din…

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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