Malcy’s Blog – Oil price, PetroTal Corp, Pharos Energy, Longboat Energy, Petro Matad, Trinity Exploration & finally

WTI $70.46 +1c, Brent $73.6 +9c, Diff -$3.14 +8c, NG $5.31 +8c, UKNG $167.99 +14.98p

By Malcolm Graham-Wood

Oil price

Oil is better today despite the economic news from China being a bit mixed, retail sales missed badly and industrial production was 5.3% against the whisper of 5.8%. The Us are prepared to draw down from the SPD as post Ida GoM production still lags.

Another call out for the natural gas price which as you can see opened today at 167.99p, up 10% on yesterday and this morning peaked at 194p, in the US HH is $5.31 also on a run.

PetroTal Corp

PetroTal commenced production of its fourth horizontal well 8H on September 4, 2021, with unrestricted flow rates of approximately 7,600 barrels of oil per day over a ten-day period. Initial 8H production rates of 7,500 – 8,000 bopd was excellent and better than expectations and total current field production is now approximately 15,400 bopd, a record production level for PetroTal.

 The 8H well cost came in 3% under budget, at US$11.8 million with estimated pay-out of 8-10 weeks production based on current Brent oil strip, assuming unrestricted rates which is an incredible return even by their high standards. The 8H well targeted oil sand intersected 4 meters higher than prognosed and the horizontal section of the 8H well was completed with autonomous inflow control device technology, which will better control water influx.

PetroTal was able to achieve record field production rates at Bretana due to the ONP being operational again, allowing the Company to unload the approximately 140,000 barrels of oil stored in barges at Pump Station No.1.  The ability to store oil in barges combined with back-to-back exports to Brazil and deliveries at the Iquitos Refinery have proven PetroTal’s ability to manage ONP disruptions.

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

“The initial flow rates from well 8H are very exciting and echo the profile of the prolific 5H horizontal well.  Similarly, the clean sands of the 8H well reflect what we have observed in the recently drilled 7D well and the cores obtained in the 3WD water disposal well.  It is also rewarding that we have now achieved a new record field production level of 15,400 bopd.  The flush production seen from 8H is being monetized into some of the highest Brent oil price markets we have seen all year, providing a significant cash flow impact.  Over the next few weeks, we expect to commence drilling the next horizontal well (“BN-9H”) in our 2021 campaign.  On behalf of PetroTal, I would like to take this opportunity to thank Prime Minister Guido Bellido and the Minister of Energy and Mines, Ivan Merino Aguirre, for responding to the ONP communities’ concerns with in-person negotiations to resolve the matter quickly and peacefully that allowed us to achieve this new record production.”

PetroTal is back with a vengeance indeed and there are a number of serious positives in this announcement. Obviously it is all about the 8H well which has come in better than expected and cheaper than budget so we have a better flow rate adding to total field production but surely there must also be a knock-on increase in reserves.

Also it is good news that the ONP is operational again, another positive of course but it means that the company can unload the oil stored in barges and combined with the Brazilian export route mitigates any blockages in export capabilities. Finally the strong oil price is not only good for current revenues but also there is an unwinding backlog which when valued at $70 increases the value of PTAL substantially.

Indeed with the shares today up 5% which pushes them into new positive territory at the 20p level, I am increasingly of the view that my 50p target is still very possible as the smart operators in the market realise just how good this company is.

Pharos Energy

Pharos has announced its interim results for the six months ended 30 June 2021 and whilst they have technical merit it is the farm-out that the market is interested in. 

So, the Pharos Group has entered into conditional agreements for the farm-out and sale of a 55% working interest and operatorship in each of the Egyptian El Fayum and North Beni Suef Concessions to IPR Lake Qarun Petroleum Co, a wholly owned subsidiary of IPR Energy AG.

The consideration implies a gross (100%) value of up to US$115 million for the Assets and consists of US$5 million cash at completion of the Transaction, funding of the Pharos Group’s retained interest share of the cost of future activities on the Assets for US$38.425 million net (subject to working capital and interim period adjustments from the economic effective date of 1 July 2020), and contingent consideration of up to US$20 million dependent on Brent oil prices in each of the 4 calendar years from 2022 to 2025.

In more detail,  Pharos is to sell a 55% working interest and operatorship in the producing El Fayum Concession and in the North Beni Suef Concession. The Transaction implies a gross value of up to US$115 million for the Assets, dependent on the Brent Price contingent consideration with firm consideration of US$5 million upon completion of the Transaction.

In addition, disproportionate funding by IPR Lake Qarun of US$38.425 million of costs net to Pharos (to be adjusted for working capital and interim period adjustments from the economic effective date of 1 July 2020) and additional contingent consideration of up to US$20 million dependent on the Brent Price from 2022 to the end of 2025 (with floor and cap at US$62 / bbl and c. US$90 / bbl, respectively).

Not surprisingly the deal is expected to strengthen the Pharos Group’s balance sheet and enable a more comprehensive and quicker development of the El Fayum Concession, as well as testing of the low risk North Beni Suef Concession at low cost to Pharos through a sustained drilling programme and completion is currently expected Q1 2022.

Ed Story, Chief Executive of Pharos, said:

“I am extremely pleased to be able to announce the farm-out of a 55% operated interest in each of our Egyptian Concessions, El Fayum and North Beni Suef, to IPR, a group which has extensive experience in Egypt. The farm-out, while instantly boosting our balance sheet, will allow the entry of a partner who has committed to carry Pharos on a capital programme on these Egyptian assets, which will in turn lead to increased production, helping to fulfil the full potential of the concessions.”

The market has waited what seems a very long time for this deal to be announced so the 9% bounce this morning is very much a relief from the market. Indeed IPR as a new partner could not be a much better choice, highly successful, technically specialist in the area and able to fund the drilling programme with its strong balance sheet. Finally it will be able to use kit from sister companies in the drilling and workover operations in both concessions.

I feel like a somewhat stale bull in Pharos but accept that, specially in current circumstances, that these deals genuinely take time and this deal is first class, particularly on how it reduces gearing. The shares had had a long, highly successful run up until the peak in the spring since when hesitation about completion caused understandable nerves, right now I think that Pharos is very well positioned to grow the business with a good portfolio and

Longboat Energy

Longboat has announced the spudding of the Rødhette exploration well and to provide a further operational update.

The drilling of the Rødhette prospect (Company 20%) has commenced using the deep water Scarabeo 8 semi-submersible drilling rig. This is a proven Jurassic play in the Hammerfest Basin with the potential for early monetisation through a 30km tie-back to the Goliat Field.

 The well, operated by Vår Energi, is expected to take up to six weeks to drill with an estimated pre-carry net cost to Longboat of c.$7 million (c.$1.5 million post tax). The Rødhette prospect is estimated to contain gross mean prospective resources of 41 mmboe with further potential upside to bring the total to 81 mmboe. The chance of success associated with this prospect is 41% with the key risk being related to fault seal and oil column thickness. 

The following three additional near-term wells are scheduled for drilling in 2021. Drilling of the Egyptian Vulture prospect (Company 15%) is expected to commence towards the end of September using the West Hercules semi-submersible drilling rig, which is on a long-term contract with the operator, Equinor. The Egyptian Vulture well is targeting gross mean prospective resources of 103 mmboe with further potential upside to bring the total to 208 mmboe on a gross basis. The chance of success associated with this prospect is 25% with the key risk being related to reservoir quality and thickness.

Drilling of the Mugnetind prospect (Company 20%) is also scheduled to commence at the end of September using the Maersk Integrator jack-up drilling rig. The Mugnetind prospect, operated by AkerBP, is estimated to contain gross mean prospective resources of 24 mmboe with further potential upside estimated at  47 mmboe on a gross basis. The chance of success associated with the Mugnetind prospect is 51% with the key risks being reservoir presence/quality.

Drilling of the dual-target Ginny and Hermine prospects (Company 9%) is now scheduled to commence in December 2021, using the West Hercules semi-submersible drilling rig operated by Equinor. These prospects have a combined target gross mean prospective resource of 68 mmboe with further potential upside estimated at 129 mmboe on a gross basis. The chance of success associated with these prospects are 27% and 22%, respectively, with the key risk being related to fault seal and phase risk.

In addition, Longboat has confirmed further details of its 2022 exploration drilling programme which will see the Company participate in three additional wells. The Company has recently been informed by Equinor, the operator, that the Deep Sea Stavanger semi-submersible drilling rig has been contracted to drill the Kveikje (Company 10%) and Cambozola (Company 25%) exploration wells in H1 2022.

 Kveikje is a low-risk, Paleocene injectite play located near the Fram infrastructure offering opportunities for rapid commercialisation. Cambozola is a significant, play-opening well located near some of the largest fields on the Norwegian Continental Shelf. Further details about both wells, including size and chance of success, can be found on the Company’s website.

Additionally, following the well commitment made on Copernicus (Company 10%) at the end of August, the acquisition of a site survey is anticipated to be acquired shortly which will facilitate the drilling of an exploration well during 2022 by operator PGNiG.

Helge Hammer, Chief Executive of Longboat, commented:

“Following the successful completion of our first transactions at the end of last month, I am pleased that we are already under way with exploration drilling. Rødhette is the first of three wells, which we expect will begin drilling over the next few weeks in an extremely busy and exciting time for the Company. The wells have the potential to create significant shareholder value.

“The exploration programme over the next 18 months offers shareholders a unique opportunity to gain exposure to a drilling portfolio of seven wells targeting net mean prospective resource potential of 104MMboe1 with an additional 220 MMboe1 of upside which provides the potential to create a Net Asset Value of over $1 billion based on precedent transactions in the Norwegian North Sea for development assets.”

After what can only be described as a technically difficult start in life which its advisors should have avoided LBE has now got down to the nitty gritty that they are expected to be best at. The beginnings of a portfolio of drillable, meaningful wells with plenty of potential upside is about to start. I am hugely confident that it will provide for investors a Norwegian North Sea play unique in the market.

Petro Matad

Interims from MATD this morning which are pretty much irrelevant. The highlights are that the Group posted a loss of USD 1.02 million for the 6-month period ended 30 June 2021, which compares to a loss of USD 2.35 million for the same period in 2020. The Company’s cash balance at 30 June 2021 was USD 0.40 million (USD 0.38 million in cash and USD 0.02 million in financial assets), which compares to a cash balance of USD 2.08 million (USD 2.07 million in cash and USD 0.01 million in financial assets) on 30 June 2020.

In mid-July the Company successfully raised approximately USD 10 million (net) from strategic placements, which will primarily be used to fund a development work programme designed to bring oil production on stream during the second half of 2022. Funds from the strategic placements will be invested in safe, high yield term deposits until work programme activities ramp up. Petro Matad plans to generate revenue from early production as soon as possible and is working to secure the necessary contracts that will allow this production to get to market.

The Company continues to manage its costs closely and will maintain a small, focused workforce retaining all of the operational capabilities and experience gained from many years of successful operations in Mongolia.

Mike Buck, CEO of Petro Matad, said:

“With the Exploitation Licence successfully secured, we are focused on completing all financial and logistical arrangements to ensure an active operational programme in 2022 with the goal of getting the Heron discovery on stream.

As we enter the winter months in Mongolia, work will continue at pace to secure all the necessary services and contracts for our production to get to market. I am pleased with the progress we have made in the first half of 2021 and look forward to updating our shareholders further in the coming months.”

Investors in Petro Matad have been pretty patient as the company have been negotiating the exploitation licence. 2022 will be crucial as they wait for production from Heron and long awaited revenues, there is no reason that it will not happen and that the management can deliver.

Trinity Exploration & Production

Trinity has announced its unaudited interim results for the six-month period ended 30 June 2021

Trinity assesses the Group’s performance using both International Financial Reporting Standards (“IFRS”) and the Alternative Performance Measures Guidelines (“APM”) governed by the European Securities and Markets Authority (“ESMA”).  Management believes that analysis of both performance measures delivers improved guidance to Management for operational and strategic decision making purposes. The Group was profitable in H1 2021 under both the IFRS and APM basis.  Higher oil price realisations more than offset the modest and expected decline in net production, leading to a 69% increase in Adjusted EBITDA to USD 10.3 million (H1 2020: USD 6.1 million) enabling the period-end cash balance to being broadly maintained at USD 19.0 million (H1 2020: USD 19.7 million) despite investment made to support future growth during the period.

Nicholas Clayton, Non-Executive Chairman of Trinity, commented:

 “I am incredibly proud of the resilience demonstrated by the Trinity team in the wake of the sudden passing of Bruce Dingwall and the ongoing challenges to the business posed by the COVID-19 pandemic. On behalf of the entire Board, I would like to express my sincere thanks to everyone at Trinity for their continued dedication throughout this challenging period.

“The continued hard work and dedication of our team ensures continued focus on profitably scaling the business by acting as a consolidator onshore, working with partners to access larger opportunities that we could not contemplate by ourselves, and diversifying our revenue streams where opportunities exist to enhance the economics of our core asset base.  

“Our strong cash generation, high margin operating model and growing reputation in the region mean that we are extremely well placed to take advantage of an attractive set of new business opportunities.

“It goes without saying that the tragic loss of Bruce last month affected everyone at Trinity, but we are determined to build on his legacy, realising the full potential of the strong position which the Group is now in.”

And finally…

Last night in the Champions League Chelski beat Zenit St Petersburg 1-0 but the Red Devils lost 2-1 to the Young Boys after half a game with 10 men and a disastrous back pass gifted the game.

Tonight the Noisy Neighbours host RB Leipzig and AC Milan visit fortress Anfield.

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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