Malcy’s Blog – Oil price, PetroTal, UOG, Jadestone, President, Block, Pharos & finally

WTI $78.50 +$1.75, Brent $82.31 +$2.61, Diff -$3.81 +86c, NG $4.97 +18c, UKNG 230.0p +18.0p

By Malcolm Graham-Wood

Oil price

The attempt to manage the oil market by the US Government and its cronies failed yesterday, the release of 50m barrels of sour crude from the SPR of which 32m is loaned over 18 months the other 18m is already planned. Various others joined the gang including India with 5m bbls and UK companies 1.5m with China and South Korea still to join.

Even if you are happy to assume that the US crude is not the right type of crude for US refineries and may be exported (say China…) it still takes some believing. After all if my memory is right and that the SPR is for natural disasters only (and it wasnt used when hurricane IDA took out so much of the GoM production) then what on earth is going on?

Opec+ will meet next next week safe in the knowledge that they have seen the US’s hand of cards and the decision about the extra 400/- b/d may go some way to deciding the oil price, funny that…

PetroTal Corp

PetroTal has advised of community social disruption that is impacting the Company’s operations in the Bretana oil field.  The social unrest situation evolved quickly near the barge loading area of the field.  The oil field remains safe and producing; however, protestors are currently blocking access to the dock, preventing the Company from loading oil barges.  The civil unrest is being conducted by a group seeking assistance from the Government of Peru.

 PetroTal will curtail production to manage its oil tank storage capacity, however, if this situation persists, a full field shut down may be required within a few days due to the lack of excess storage capacity and route to market.  PetroTal is in direct communication with the local communities and the government to enact a quick resolution to this situation.  As previously announced by PetroTal, implementation of a community social development fund that should be acknowledged and supported by the Peruvian government, will go a long way to providing harmony and equitable social development. 

Although this may concern investors there are a number of offsetting factors that may influence the outcome. As a rule PTAL not only do the right thing by their local communities, they have become an important broker between the government and broader communities within Peru.

They are working hard on the engagement with the government and communities to bring the current situation to a swift close, something they have done a number of times recently with significant success. They also point to the implementation of the community social development fund that should be acknowledged and supported by the Peruvian government, which will go a long way to providing harmony and equitable social development. 

Despite this, it is all against a backdrop of stellar operational performance – making me continue to feel very positive that whatever the outcome of this unrest PetroTal will eventually succeed in longer term value accretion. 

United Oil & Gas

UOG has announced that the request for a two-year extension for the Walton Morant Licence, Jamaica, has been granted by the Jamaican Cabinet. Following completion of the approval process, the licence will run to 31 January 2024. An amendment to the Production Sharing Agreement will be submitted to the Ministry of Science, Energy and Technology for final signature in mid-December 2021. 

There is strong evidence of a hydrocarbon system in Jamaica, including source, reservoir, and seal rocks. An independent evaluation by Gaffney Cline & Associates, as announced by the Company in December 2020, of 11 high graded leads and prospects indicated the potential for a combined estimated 2.4 billion barrels mean prospective resources. United started a formal farm-out process for the Walton Morant Licence earlier this year. The Company is seeking a strategic drilling partner(s) with a view to drilling the primary 3D seismic defined Colibri prospect, which is estimated to hold mean prospective resources of 406 million barrels.

 United holds and operates a 100% equity interest in the Walton Morant Licence, Jamaica.  

Brian Larkin, Chief Executive Officer commented

We are delighted to have received approval for the two-year licence extension in Jamaica. United has done extensive technical work on this asset, which has over 2.4 billion barrels of unrisked oil potential and the basin-opening Colibri prospect at a drill-ready stage.  The extension allows us to continue the farm-out campaign with confidence as we look for a strategic partner(s) to unlock the vast potential in this region. The support and encouragement of the Government of Jamaica has been excellent and reflects our strong relationship and the positive outlook for the industry in Jamaica. With the licence extension, the outlook for higher commodity prices, sentiment for exploration and anticipated recovery of the investment cycle we look forward to pursuing this significant opportunity in the region for the benefit of all stakeholders.

The Walton Morant licence has always had an appeal for UOG shareholders and todays news will have come as positive to them. As the CEO says this really does show testament to a really good relationship that UOG has with the Government and that before long a partner can be found to get under way with the prospect. 

Jadestone Energy

Jadestone has announced the acquisition of a 10% interest in the Lemang Production Sharing Contract.  Through this transaction, Jadestone’s interest (pre local government back-in rights) in the Lemang PSC will increase to 100%. The 10% interest is being acquired through the execution of a Settlement and Transfer Agreement between Jadestone and PT Hexindo Gemilang Jaya (“Hexindo”).  

In return for the transfer of Hexindo’s 10% stake, Jadestone will waive unpaid amounts relating to Hexindo’s interest in the Lemang PSC and pay a consideration of $500,000 (inclusive of transfer taxes, which Jadestone will remit directly to the Indonesian government).  The transaction is subject to the approval of the Indonesian government, the shareholders of Hexindo and the shareholders of Eneco Energy Limited, Hexindo’s parent company.

The Lemang PSC contains the fully appraised Akatara gas field, the development of which will substitute coal for locally produced gas in power generation, as well as condensate sales and LPG for local residential and domestic use.  Once onstream, the Akatara gas field will broaden Jadestone’s production base, as well as increase the proportion of gas in the production mix, thereby reducing the Company’s greenhouse gas emission intensity.

The field has been independently estimated to contain a 2C gross resource (pre local government back-in rights) of 63.74 bscf of natural gas, 2.45 mm bbls of condensate and 5.64 mm boe of LPG, equating to a combined 18.7 mm boe of resource. The acquisition of the Hexindo interest would add circa 1.9 mm boe of resource, or US$0.26/boe of 2C resource acquisition cost, based on the consideration paid.  This compares to the $0.70/boe acquisition cost Jadestone paid for its original 90% interest in the project in 2020.

Paul Blakeley, President and CEO commented:

 “We are pleased to announce this acquisition which adds resource to the Company at minimal cost and has the added benefit of removing a defaulting partner.

The Lemang PSC is a key organic growth project for Jadestone and will provide meaningful gas production to the local market; displacing coal-fired power generation. We continue to make significant progress on commercial terms, with negotiations over a fully termed gas sales agreement at an advanced stage, and I would like to thank the buyer and the Indonesian government for their continued constructive engagement. A final investment decision is still expected in H1 2022 with first gas also still on track for H1 2024.”

It seems a while since I have heard anything from Jadestone but this looks to be a small piece of housekeeping. Maybe the company will be coming over sometime so then we can catch up in person. The Bucket List is up for its MOT so December will be time for a review, this a favourite so should hang on in there!

President Energy

President has issued an oversubscribed US$8,950,000 Corporate Dollar Denominated Bond which has been
successfully publicly placed with qualified investors in Argentina. This is the first time that any member of the President Group has issued a Corporate Bond, the Bond has been rated A- local investment grade by the Argentine affiliate of the respected worldwide credit rating agency Fitch.
Covenant lite with an interest rate of 1.24% p.a. and a term of 2 years solely secured on 60% of the sales proceeds of oil from the Company’s Puesto Flores field, Río Negro Province, Argentina. The proceeds to be mainly used for capital investment purposes in Argentina as well as working capital.

The Bond will list on the Bolsa y Mercados Argentinos (“BYMA”), the Main Argentine exchange will trade on the Mercado Abierto Electrónico (MAE). The Argentine subsidiary of the Company, President Petroleum S.A., a dollar based business, has successfully issued and placed a US$8,950,000 Dollar denominated Corporate Bond. This is the first time that any member of the Group has issued a Corporate Bond.

The issue, which was oversubscribed nearly three times, was successfully placed by a line-up of local institutions led by BACS, Banco de Crédito y Securitización S.A. and Banco Hipotecario S.A. on behalf of the Company with the Bond carrying an interest rate of 1.24% p.a. and having a term of two years (with four quarterly amortization payments during the second year). The covenant lite Bond is solely secured on 60% of the sales proceeds from oil sales of the Puesto Flores Concession, Río Negro Province, Argentina. Production from all other Río Negro fields and the Puesto Guardian field in Salta as well as all gas production in Argentina are not subject to nor affected by this security.

Of particular note is that the Bond has given the credit rating of A- local investment grade by the Argentine affiliate of the worldwide credit rating agency Fitch, Fix SCR. The proceeds from the Bond will be mainly used for capital expenditures of the Argentine operations through the whole of next year including the drilling and seismic operations at the long term Puesto Guardian Concession as well as working capital. The Bond is expected to list on BYMA and to trade on the Mercado Abierto Electrónico (MAE)

Peter Levine, Chair, commented as follows:
“The issue of the Bond is a first for our Group. It is a matter of taking the opportunity for low cost capital available to us on attractive terms in the local Argentine market through our dollar-based business, President Petroleum S.A. It provides flexibility and allows us to take advantage of better terms and prices.
“The fact that this covenant lite Bond issued with an interest rate of 1.24% p.a. has received a local investment grade rating of A- from Fix SCR, the affiliate of the world-renowned Fitch Group credit rating agency, is reflective of the standing of President in Argentina.

“It is furthermore a clear message to equity investors as to the strength of and value attributed to our Group.
“The proceeds will be mainly used for capital expenditures in Argentina as well as working capital supplementing our free cash generation from existing operations as we move into an intensive investment period to expand our oil production to take advantage of higher prices and economies of scale in our production assets in Salta Province
“In the meantime the various important strategic workstreams continue in other parts of the Group including the forthcoming IPO of Atome Energy and the Paraguay farm out of our significant prospective exploration acreage to be concluded now within a matter of a week.

“Whilst it may seem to investors that many things are happening in succession, President has been working away on all these initiatives for a considerable period of time and they are in no way happenstance. All is under control.”

Don’t you just love the vernacular? All is under control and I’m sure it is and investors who want to partake in what will be a rewarding ride with President and Atome should climb aboard before it’s too late.

Block Energy

Block has announced that gas sales from well KRT-39, located in Block XIB, have commenced. Since before Block Energy acquired Block XIB, the associated gas produced (currently 140,000 scf per day) from KRT-39 has been flared. Its monetisation will further reduce Block’s environmental footprint in Georgia and is part of the Company’s wider strategy to minimise carbon emissions.

The sale of gas from KRT-39 commenced following the installation of two gas separators and the construction of a 4.2km pipeline to the Company’s early production facility (“EPF”). Since acquiring the licence block in November 2020, it has been one of the Company’s goals to monetise gas associated with oil production from Block XIB.

In the case of West Rustavi in Block XIF, Block commenced gas sales in February 2021, following the installation of the EPF and the construction of a gas gathering flow line.

Preparatory operations, utilising the ZJ-40 drilling rig, for the JKT-01 side-track, the next well in the fully funded drilling campaign, are making good progress. Spudding the well is expected during early December 2021 and further operational updates will be provided in due course.

Block Energy plc’s Chief Executive Officer, Paul Haywood, said:

“Commencing gas sales from well KRT-39 provides a dual benefit to the Company and the wider community around Block’s assets. It supports our ambition to create a sustainable energy company that minimises its environmental footprint while supporting the energy demands of Georgia. It also delivers a further stream of revenue that can be reinvested into supporting operations and creating future value for shareholders. Furthermore, the infrastructure now in place will enable the rapid monetisation of any associated gas produced from the JKT-01 side-track. I am pleased with the operational progress at the wellsite of JKT-01, and with the technical design of landing the horizontal completion high in the Middle Eocene, where multiple fracture corridors are expected to provide the best chance of high productivity.”

This is good news albeit relatively modest in terms of contribution especially to the atmosphere. Plenty of good news is probably needed before any re-rating can be considered.

Pharos Energy

Yesterday I had a chance to catch up with Ed Story, President and CEO of Pharos but it was a good time to do so after the completion of the Egypt farm-out and recent return to drilling there and in Vietnam. The interview is in the link below.

Core Finance CEO Interview: Ed Story, President and CEO of Pharos Energy

And finally…

Last night in the Champions League Villareal went down 0-2 to The Red Devils who qualify and Chelski stuffed Juve 4-0.

Tonight it’s Liverpool v Porto and the Noisy Neighbours entertain PSG at the Emptihad.

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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