Malcy’s Blog – Oil price, PetroTal Corp, Gulfsands Petroleum, Egdon Resources, Union Jack Oil, Challenger Energy Group, Petrofac & finally

WTI $110.33 +56c, Brent $114.03 +47c, Diff -$3.70 -9c. 

Author @mgrahamwood

USNG $8.97 +17c, UKNG 146.0p +8.6p, TTF €86.90 +€1.39.

Oil price

Oil continues to slowly move upwards which I would suggest reflect accurately the fundamentals, I still think that the boot remains on the buyers foot for the time being. What I would reiterate is the situation with regard to the product market, I can’t stop feeling that when Sleepy Joe and his mates realise that it’s not just crude oil that causes gasoline prices to rise.

Indeed, a further point that can be taken from the EIA  inventory stats from yesterday. Crude drew 1m barrels which is good at a time of SPR being released whilst there was a small draw in gasoline and a build in distillates, again no surprise there. What may have surprised people is that the refinery utilisation rate was up 1.4% to a staggering 93.2% which is a high since December 2019 and is indeed providing plenty of gasoline ahead of the driving season which starts on Memorial Day this coming Monday.

What they might not have realised from the White House is that the USA is filling product short markets in Europe and Asia particularly in the diesel market. I have warned before recently that product shortages around the world have been under estimated and that should the USA decide that the sensible thing to do would be to stop selling valuable gasoline abroad then those markets are in for a mighty shock.

It is unbelievable that the expense-fest over at Dav-oh is still going on, the cards have been topped up and the mini-bars refilled so spending other peoples money just goes on and on. And that goes for CNBC and Bloomberg too as they set up camp to interview these nobodies.

Finally the market is full of talk of a windfall tax on the major oil companies to pay for the increase in utility inflation. Whilst I am strongly against such a tax what is more criminal in all these cases is that the management of the companies have been atrocious in the presentation of their case and what they can do to spread the profits amongst the country.

PetroTal Corp

PetroTal has announced its financial and operating results for the three months ended March 31, 2022.

Selected financial, and operational information is outlined below and should be read in conjunction with the Company’s unaudited consolidated financial statements, and management’s discussion and analysis for the three months ended March 31, 2022, which are available on SEDAR at www.sedar.com and on the Company’s website at www.PetroTal‐Corp.com.  All amounts herein are in United States dollars unless otherwise stated.

Q1 2022 Highlights

·    Achieved record quarterly production of 11,746 barrels of oil per day and record quarterly sales of 15,518 bopd, up 60% and 80%, respectively, from Q1 2021, representing the Company’s sixth straight quarter of growth, despite production being either constrained or completely shut down during six weeks of the quarter due to social protests;

·    Based on the 67 production days in the quarter, average production was 15,778 bopd;

·    Completed well 10H on January 30, 2022, Peru’s longest ever horizontal well, with an all-in cost of $11.5 million that averaged 10,500 bopd over its first ten days, accumulating 251,320 barrels in the month of February 2022, delivering a pay back of four weeks;

·    Achieved a new daily Company production record of 21,000 bopd twice in the month of February 2022;

·    Received Ministry approval for the Company’s central processing facility (“CPF-2”) to operate Bretana  to its maximum capacity range of 24,000 to 26,000 bopd allowing the Company significant running room for development;

·    Generated record net operating income (“NOI”) and EBITDA(a) of $64.2 million and $58.7 million, respectively, more than tripling the equivalent amounts from Q1 2021;

·    Generated record free cash flow(a) of $41.2 million before changes in non cash working capital and debt service, providing the Company with a liquidity buffer which allowed it to navigate the downtime experienced in March due to social unrest and repay $20 million of its long term debt, on April 1, 2022;

·    Invested $17.5 million in capital expenditures, under budget by $18.5 million (50%) due to drilling delays from the March social protests.  Of the $17.5 million invested, approximately 65% was related to drilling activities and the remainder mostly on infrastructure projects; and,

·    On February 22, 2022, PetroTal announced a $120 million fully funded capital program that could potentially generate up to $230 million of free cash flow in 2022, allowing the Company the optionality to redeem the remaining $80 million in bonds early and implement its strategy of returning capital to shareholders in Q4 2022 or Q1 2023, subject to Board approval and economic viability.

Guidance Revisions for 2022

Given that the social protest impact during the first four months of the year have already surpassed the 13% downtime assumed on our 2022 production guidance and have also delayed the Company’s 2022 drilling schedule, we have adjusted our 2022 guidance, now assuming a 5% social unrest impact for the remainder of the year plus the normal 5% technical downtime.  Below is a summary of adjusted guidance for the year:

Adjusted Guidance

Q1 (actual)

Q2

Q3

Q4

2022

Oil wells completed

1 (10H)

1 (11H)

1 (12H)

1 (13H)

4

Average Production (bopd)

11,746

~13,500

~16,600

~20,000

~15,500

CAPEX (millions)

$18

$29

$34

$30

$111

In USD millions

 Original Budget

Adjusted Budget

Contracted Brent (USD/bbl)

$88

$102

Average Production (bopd)

18,250 (13% downtime)

15,500 (22% downtime)

Net operating income

$335

$351

G&A

($22)

($22)

Net derivative settlements(1)

$37

$13

Adjusted EBITDA1,a

$350

$342

CAPEX

($120)

($111)

Free cash flow

$230

$231

(1)   Approximately $34 million in anticipated 2022 true-up revenue has now been deferred into 2023 as a result of the ONP maintenance.

Adjusted Guidance Summary

The cash flow impact of the 2,750 bopd reduction to the production guidance is more than offset by a higher Brent future price strip, which has maintained EBITDA and increased free cash flow estimates. 

March’s downtime from the social protests contributed approximately 1,140 bopd to the production guidance reduction, with the remaining 1,620 bopd of the decrease related to the delayed drilling impact for the remainder of the year’s drilling schedule. The Q2-Q4 2022 drilling schedule now anticipates well 14H being drilled in late 2022 with completion deferred into early 2023.  The Company expects to surpass production of 20,000 bopd, and will require use of the ONP route by Q4 2022, which coincides with its estimated maintenance completion. 

The 2022 capital program has been reduced by approximately $9 million comprised of infrastructure project deferrals into 2023. 

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

“PetroTal was able to pivot through social downtime challenges extremely well while still showing quarter over quarter production growth and a revised 2022 budget that shareholders should be very excited about considering the drilling delays encountered in March.  The social trust working table has been formed, met initially on May 3, 2022 and ongoing meetings will continue to advance the formal policy and procedure formation for the social trust.  The positive response for this initiative has been overwhelming and we are excited about formalizing additional items as the year progresses.”

This story gets better and better and the numbers speak for themselves. In this 1Q announcement we can see record production and sales, up 60% and 80% on Q1 2021 with 15,778 b/d in the quarter and twice days of some 21/- in February. The company completed the 10H well, a huge operational and financial success and with a four week  pay-back into the bargain. 

The company is fully funded for its significant capex programme and should generate up to $230m of cash flow this year enabling it to repay the bonds and be true to its word of returning cash to shareholders in 2022. With the CPF-2 receiving approval for an increase in production to 24-26/- b/d the upside for production is not just possible but easily achievable. 

On April 28th I increased my Target price to 100p, at the time the shares were 40p, today they are little changed at 41.25p but I’m nearly ready to increase the TP again. I will listen to the big webcast this afternoon but will have to publish this before it ends, if anything else comes from it then I will write again tomorrow. This company and its management struck me as being something special when I first met Manolo, that has only increased since then. 

Gulfsands Petroleum

Gulfsands has announced that it has reached mutual agreement with the Agencia Nacional De Hidrocarburos (“ANH”) in Colombia to terminate the Llanos-50 (“LLA-50”) E&P Contract on environmental grounds, prioritizing environmental protection in an area of particular ecological sensitivity.

The mutual termination was agreed without liability to either the Company or ANH under regulations which allow for such termination in situations where it is not possible to perform activities due to environmental limitations. As a result, the original contractual work commitment of US$15.2 million has been cancelled, and the Certificate of Deposit (“CDT”) funds, which secured those work commitments, totalling £1.22 million (US$1.52 million), have been returned to the Company

Environmental concerns specific to the LLA-50 area were first raised in 2017 and 2018 as a result of preliminary environmental studies; the Environment Impact Assessment and the Medidas de Manejo Ambiental (“MMA”).  The Company has worked diligently with the ANH, and environmental authorities, since then to assess the various possibilities for development, with the protection of the Llanos natural environment as a priority.  After pronouncements obtained from the local Environmental Agency (“Corporinoquia”) confirming the non-viability of the exploration program due to the severe environmental restrictions present within the Block, we have now agreed to the mutual termination agreement of the Contract.

Gulfsands accepts this decision and believes that this is the correct decision for the ANH, the Company and for the environmentally sensitive area of LLA-50.

This is one of the particular instances available under the provisions of the relatively new regulation “Agreement 2” of 2017, whereby contracts can be terminated by mutual agreement where there are demonstrable special environmental conditions applicable to a particular location. Under article 7 of Agreement 2, ANH seeks to prioritize the environment protection over oil and gas contractual obligations. In this case it was evident to both the Company and the ANH, that in situ conditions within the LLA-50 area had to prevail.

LLA-50 was Gulfsands’ last outstanding Contract in Colombia, following the successful farm-out of its Putumayo-14 contract to Amerisur Resources Plc in 2018.  Following this termination of the LLA-50 E&P Contract, the Company will now focus on completing its orderly administrative exit from Colombia, in compliance with applicable regulations.

Gulfsands’ Managing Director, Mr. John Bell commented:

“We are sorry to be leaving Colombia, but environmental considerations must be paramount in both ours and the Colombian Government’s thinking.  We are pleased, however, that this long running issue has been amicably resolved with an outcome that suits all parties. This process that we have been throughwhich is specifically addressed under Colombian regulations, shows that the oil and gas industry can make the right and responsible decisions in respect of environmentally sensitive areas, and we are pleased to have been part of this ground-breaking process in Colombia, with the collaboration of the environmental authorities and ANH.

Gulfsands has now completed the tidy-up of all its legacy assets and now has a clean platform from which to focus on its return to Syria, when circumstances allow, and to explore further business development opportunities in the MENA region.”

It is vital these days for the oil and gas industry to be conscious of its effect on the environment, so it is refreshing to see a situation where companies, governments and regulators can come together and make sensible decisions that benefit all parties.  One such event has just occurred at Gulfsands who have just announced that they have agreed with ANH and the Colombian Government to prioritise the environmentally sensitive area of Llanos and mutually terminate the Company’s Llanos-50 E&P Contract rather than force an environmentally sensitive and, as a result, commercially and technically challenging project to progress.

The mutual termination was agreed without liability to either the Company or ANH under regulations which allow for such termination in situations where it is not possible to perform activities due to environmental limitations. It appears that everyone is a winner here, not least Gulfsands who have had a $15.2million potential liability alleviated and have been returned a not unsubstantial $1.52m.  All parties deserve congratulations on how they have navigated this challenging issue…

I have watched Gulfsands from a distance since well before the Syrian problem caused the major change in its circumstances and it is a very welcome sight to see it cleaned up, ready to return when circumstances allow and looking expand its business in the  MENA region.

Shareholders and potential investors should be keeping a very close eye on GPX as it starts to make progress in the international oil industry. The shares remain on the Asset Match platform with its quarterly auctions and I have been watching that closely. With what has been going on at the company lately I see significantly more excitement imminently, exciting times…

Egdon Resources

Egdon has provided an unaudited financial update for the third quarter of the Company’s financial year (February to April 2022) and to advise the repayment of a £1 million loan.

Revenues

·      Revenue for the three-month period from February to April 2022 was £2.23 million (2021: £0.31 million and H1 2022: £2.55million).

·      Revenue was primarily from the Wressle and Ceres fields, with average realised oil prices during the period February to April 2022 of $106.67 per barrel of oil (“bbl”) (February to April 2021: $62.43/bbl) and averaged realised gas prices of 217p per therm ($149 per barrel of oil equivalent (“boe”) (February to April 2021: 45p/therm ($44/boe)).

Loan Repayment

·      On 25 May 2022 the £1 million commercial loan facility was repaid to Union Jack Oil PLC along with accrued interest as per the agreed terms. 

Wressle Deferred Consideration

·      As advised in the Company’s interim results (26 April 2022), during March 2022, Egdon paid the £0.417 million deferred cash consideration for the additional 5% interest in PEDL180 and PEDL182 (Wressle) which was acquired from Celtique Energie Petroleum Limited during June 2018.

Net Current Assets

·      Accounting for repayment of the Loan, on 1 May 2022 the Company held unaudited cash and cash equivalents of £2.73 million (31 January 2022: £2.08 million) and net current assets of £2.76 million (31 January 2022: £1.16 million).

Commenting, Mark Abbott, Managing Director of Egdon Resources plc, said:

“I am pleased to report that continuing strong production from Wressle and Ceres coupled with high oil and gas prices have translated into a robust year to date financial performance for Egdon.  The material cash flow generated has been transformational, enabling the Company to become debt free and funded for all near-term commitments in parallel with considering further growth opportunities.”

Egdon find themselves in a much stronger financial position thanks to increased production from Wressle and obviously much higher oil prices have led to it being debt free and fully funded for all upcoming commitments. Indeed as Mark Abbott says the company is considering ‘further growth opportunities’. Also it being a quarterly update it is he not the Non-executive Chairman doing the briefing. 

Union Jack Oil

Just got its million quid back, with interest………………

Challenger Energy Group

Challenger Energy has provided the following update in relation to the AREA OFF-1 petroleum licence offshore Uruguay.

·    The AREA OFF-1 licence was awarded to the Company in May of 2020. Since that time there has been an extended period on non-activity, largely as a result of the Covid-19 pandemic, during which formal signature of the licence was pending.

·    Following final approvals being granted by decree of the President of Uruguay, the AREA OFF-1 licence was formally signed on 25 May 2022. Consequently, the first 4-year exploration period under the licence has commenced.

·    The Company’s minimum work obligation during this initial period is to undertake relatively modest, low-cost reprocessing and reinterpretation of selected historical 2D seismic data. There is no drilling obligation in the initial phase. The Company’s work program and budget for the balance of 2022 and into 2023 includes sufficient allocation of funds to progress the agree minimum work obligation on AREA OFF-1.

·    AREA OFF-1 contains a management estimated resource potential exceeding 1 billion barrels of oil equivalent recoverable (BBOE), based on current mapping from multiple exploration plays and leads in relatively shallow waters, and with significant upside running room. This estimate is corroborated by formal resource estimates provided by ANCAP (the Uruguayan national oil company) of 1.36 BBOE as a P50 expected ultimate recoverable resource.

·    The AREA OFF-1 play system is directly analogous to the recent prolific, conjugate margin discoveries made offshore Namibia by Total (the Venus well) and Shell (the Graff well), where reported multi-billion-barrel Cretaceous turbidite reservoirs have been encountered. The AREA OFF-1 licence exhibits the same Aptian play source rock and petroleum systems being present.

·    The Company has received multiple indications of interest in relation to potential partnerships for the AREA OFF-1 licence. The Company intends to explore such possibilities, with a view to potentially expediting a 3D seismic acquisition into the first licence exploration period. Further updates will be provided as and when appropriate.

Eytan Uliel, Chief Executive Officer of Challenger Energy, said:

“Two years ago, at the peak of a period of industry inactivity due to the pandemic, we identified a compelling opportunity to apply for the OFF-1 licence in Uruguay.  For very low cost we were able to secure an exploration licence of an extremely high quality, with a greater than 1-billion-barrel recoverable resource potential.

Since then, while waiting for formal approval of the licence, the world has changed in a way that makes this licence even more attractive. Globally significant developments are now underway along the South American Atlantic margin in Guyana and Suriname – basins with analogous technical characteristics. Even more significantly, very recent mega-discoveries from the South Atlantic conjugate margin to Uruguay, offshore Namibia, from two wells drilled by majors in the past few months, have calibrated and confirmed the play source rock and petroleum systems evident on seismic in OFF-1.

With the licence formally signed, we are now able to begin pushing ahead with our initial low-cost work program. At the same time, over the remainder of 2022 and into 2023 we will explore partnering options that could lead to an accelerated work program – the object being to quickly and fully evaluate the licence’s potential, and to thereby create what we hope will be an opportunity of great value to shareholders.”

 A year on since Eytan Uliel took over at CEG things are just showing signs of growth as they have re-evaluated the Uruguay well and found it to be still of significant interest, in fact even better than before as a result of success in similar basins. 

Whilst not running before he can walk I still have a strong belief that if anyone can turn the company around then it is Eytan. This gives shareholders some feeling of upside in their investment and I wouldn’t be at all surprised for those patient ones to be rewarded in due course.

Petrofac

Petrofac is holding its Annual General Meeting today. Alongside this event, the Company provides the following update on current trading and reiterates the Company’s medium-term prospects.

The outlook for new awards in E&C is robust, supported by high energy prices and increased focus on energy security. Bidding activity is high, and we expect that the second half of 2022 will mark an inflexion point for a sustained period of growth in the E&C backlog.

On the current portfolio, the lingering impact of the pandemic continues to impact progress, increasing costs and deferring revenue and profit recognition to later periods.

E&C has limited exposure to the current inflationary environment given that procurement is substantially complete on much of the portfolio and construction is mainly based on fixed unit-rate contracts already in place. Nevertheless, as mature projects advance towards completion, we are experiencing cost overruns and some relatively unfavourable commercial settlements with clients.

These dynamics will largely play out within the year, with a number of projects scheduled for completion over the course of the year and early 2023. As a consequence, we now expect a small EBIT loss in E&C in 2022.

Notwithstanding these short-term headwinds, we are confident that with high current bidding activity and strict bidding discipline, E&C will rebuild its backlog and grow its margins over the medium term.

Asset Solutions has performed well in the year to date and full year EBIT margins are expected to be in line with the 5% to 6% guidance range. Order intake has been strong, with significant awards in the Wells & Decommissioning service line in Australia, the Gulf of Mexico and Mauritania as well awards for Asset Operations and Asset Developments in the UK and India. In New Energy Services, the strong momentum in 2021 has continued to increase in 2022 with a series of early-stage awards and we are making material progress with developing further strategic alliances with technology providers.

IES is performing well, with the high oil price having a positive impact on earnings. Assuming an average US$100 Brent price for unhedged production for the remainder of 2022, this business unit is expected to deliver EBITDA of between US$80 million and US$90 million.

Overall, principally as a result of the E&C performance, the Group is now expected to have a modest free cash outflow for the year.

Group Chief Executive Sami Iskander will comment:

“I am pleased with the strategic progress we made in 2021 to establish a strong platform and I want to thank our shareholders, clients, and other stakeholders for their continued support as we position the business to capitalise on the multi-year upcycle ahead of us, underpinned by structural tailwinds from high energy prices.

“We are experiencing some near-term headwinds as we complete a number of EPC projects in our relatively small, mature portfolio, which will impact E&C’s 2022 performance. However, the outlook for order intake in E&C remains robust with a diverse and active bidding pipeline, giving us confidence that we will achieve our medium-term performance ambition. This includes achieving Group revenue of US$4-5 billion, including c.US$1 billion from new energies, with a sector leading 6-8% EBIT margin and a return to a net cash position. Delivery of these medium-term objectives will create significant value for all Petrofac stakeholders.”

“In current trading, Asset Solutions and IES continue to perform well, benefitting from the strong macro environment and our differentiated service offering across core and new markets.

I am not surprised that there is a tinge of caution in this statement, when I went more positive at Christmas it was very much for the longer term and historically you have to climb aboard these stocks when no one likes them. Accordingly I am not one bit worried about the lingering impact of the pandemic continuing to hinder progress, increasing costs and deferring revenues and pushing back profit recognition as when those profits are being published. I am sure that at that stage the increase in the order book should be adding value, at least that’s the plan..

And finally…

The new season of the T20 Blast started last night, the competition has always been popular which makes the arrival of The Hundred last year even more surprisingly. Now that the ECB have despatched Mr Harrison whose idea it was, maybe the tournament can go the same way.

With a couple of days without an and finally there will be many people hanging on the news from McDiarmid Park, Perth where the mighty St Johnstone took on Inverness Caledonian Thistle in the Scottish Premiership play-off. Good news for Saints fans was that they won 4-0 making it a 6-2 aggregate win

The opinions expressed here are those of the author

Author @mgrahamwood

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


Linking Shareholders and Executives :Share Talk

If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates. Terms of Website Use All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned
Share Talk
Share via
Copy link
Malcare WordPress Security