Malcy’s Blog – Oil price, President Energy, Empyrean Energy, Capricorn Energy & finally

WTI $106.13 +42c, Brent $107.45 -6c, Diff -$1.32 -48c, NG $7.74 +10c, UKNG 190.0p -5.45p

By Malcolm Graham-Wood

Oil price

Oil will be up today but down on the week after the EU are continue to dither and delay about taking oil & gas from Russia. Also Enercom today names and shames some of the world’s refiners who are still taking Russian crude, there are a lot of Indian names on that list…

President Energy

President has announced key highlights from the independently reviewed Q1 2022 results from Argentina

Q1 Argentina Financial Results

Pursuant to the Mini-Bond issued last year and announced in November 2021, President’s Argentina subsidiary, President Petroleum S.A is obliged to file auditor reviewed results in Argentina for each calendar quarter.

The results of PPSA for the first three months of 2022 have been reviewed by Crowe, the President Group auditors and are today filed with the relevant Argentine authorities. The results have been determined under Argentine GAAP rules. Such filing does not relate to President Group as a whole, only PPSA. The full Group audited accounts being prepared under IFRS rules for the year ended 2021 are expected to be published in June. Note the difference in accounting standards will produce anomalies in the various versions of the accounts.

The Q1 Argentina Financial Report, converted from Argentine Peso’s into United States Dollars shows inter alia:

·       Turnover of US$8.7 million. President is currently projecting turnover in Argentina for the full year in excess of US$40 million

·       The results do not include any beneficial impact from the successful new wells in Salta. These are expected to positively impact results from this current Q2 (see below)

·       EBITDA* and free cash generation for the quarter of US$4.5 million

·       Profit before tax for the first three months of US$5.3 million, after tax US$4.5 million

·       Average oil price received in Rio Negro of US$54 per barrel which has since the quarter end increased by 8% and is projected to increase further this year

Salta New Wells

The new well DP2001 has been successfully stimulated as a final part of pre-production testing and is now on stream to the battery. The initial results are encouraging with production estimated at approximately 200 bopd and higher than expected gas which is being used to partially alleviate diesel use and thereby reduce cost in the facility.

The next well to have its final stimulation is DP2003 where similar results are projected. The workover rig is completing the new well PG13, with initial test results as previously stated available at or around end of May.

The old well PE8, is, after a work over, ready to start up again after many years and is awaiting spare parts for its pump which are expected to be received by the end of May.

Louisiana update

Production continues to improve. The Triche well seems to have stabilised, exceeding expectations both as to oil and gas with Triche gross production now in excess of 300 boepd and the Simmons well steady at 50 bopd.

Peter Levine commented:

“The recent progress in Salta is encouraging with new wells coming on line step by step. The mission is now to exploit the enlarged well stock including opportunistic workovers as appropriate, commencing the secondary recovery capex programme and managing and optimising production and opex.

“The long awaited increasing domestic prices in Argentina and export where appropriately possible should assist in continuing our positive momentum.

“Daniel Musri, our new CEO, has within the short time he has been with us, rolled up his sleeves, shown a commitment to detail by spending time in our fields and is leading by example commanding respect from our teams, partners and customers alike. A commendable start which bodes well. With the new Salta wells now coming on stream Daniel’s role aligns with President’s objectives of increasing average production and expanding our portfolio of assets.

“We anticipate announcing full year results for the year 2021 in June. Average Group production figures will be given twice yearly on the issue of half and full term reports. The announcements to the market of the Quarterly Financial reports in Argentina will, as today, cover the key financial metrics published in Argentina”.

A good but regulation set of figures from President where as always CEO Peter Levine reports that everything is going well. The shares remain massively undervalued and the some of the parts calc makes it more so…

Empyrean Energy

Empyrean has provided the following update on capital raising, debt restructure and preliminary regional oil charge analysis and its implication for Topaz prospect at its 100% owned Block 29/11 permit, offshore China.
Empyrean is the operator of Block 29/11 in China and has 100% working interest during the exploration phase. In the event of a commercial discovery, its partner, China National Offshore Oil Company (“CNOOC”), may assume a 51% participating interest in the development and production phase.
· £1.83m raised at a price of 1.5p per share
· Convertible Loan Note debt restructured
· Regional oil charge and migration analysis being conducted with CNOOC assistance following the results from the
Jade well
· Main focus of the migration work is to assess viability of the Topaz prospect receiving oil charge
· Preliminary analysis indicates the Topaz prospect is located in a better location for potentially receiving oil charge
from the proven source rock – Baiyun East Sag via the CNOOC LH-16 oil field – as well as from the Baiyun North Sag
source rock that lies in between Jade and Topaz identified on Empyrean’s 3D seismic
Issue of Shares

Empyrean is pleased to advise that it has entered into binding subscription agreements to issue 121,750,001 new ordinary Shares in the Company at a price of 1.5p per New Ordinary Share, raising £1.83m (before costs).

The funds raised from the Subscription will be used to complete further post well analysis of the Jade well, satisfy any further costs associated with the Jade drill, conduct a comprehensive oil migration study in conjunction with CNOOC for potential oil charge to the Topaz prospect, and for the Company’s general working capital requirements.

The Subscription is being completed under the Company’s existing authorities and is not subject to the approval of
shareholders. Following the Subscription, the Company’s enlarged issued share capital will comprise 788,431,892 ordinary shares of 0.2p each. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, securities of the Company under the Financial Conduct Authority’s Disclosure and Transparency Rules.

Application will be made for the New Ordinary Shares to be admitted to trading on AIM. Admission is expected to take place on 19 May 2022. The New Ordinary Shares will rank pari passu with existing Shares in issue.
Regional Oil Charge Analysis – Preliminary assessment

Geoscientists from the Shenzhen branch of Empyrean’s partner in the project, China National Offshore Oil Corporation are providing assistance in regional oil charge analysis in and around Block 29/11. Whilst comprehensive analysis is currently underway, initial conclusions are encouraging for the Topaz prospect.

The CNOOC four light oil discoveries along the western boundary of the block clearly demonstrate a working petroleum system and light oil charge to these nearby oil discoveries. All successful wells have been drilled on traps that were in place at the time of oil migration. The dry wells drilled during the 1990s by Amoco were drilled into traps that came into existence after the time of oil generation and migration in the basin and therefore could not trap that oil. However, weak oil fluid inclusion fluorescence (in the core) at both Amoco wells to the east of Topaz suggests these wells are located on paleo migration pathways that received oil migration. Topaz lies along these paleo migration pathways in between the CNOOC discovery LH 16-2 to the west and the Amoco wells to the east.

In addition, regional oil geochemical evaluation conducted by CNOOC indicates oil is migrating updip from Baiyun East Sag and charging the LH 23-1d and LH 16-2 oil discoveries. This analysis, in conjunction with regional 3D data, also indicates oil to most likely be migrating east from LH 16-2 towards the Topaz prospect because the geological setup doesn’t allow the oil to migrate either to the south, west or to the north of the LH 16-2 discovery because those directions are downdip or have a downdip component or they are in a migration shadow.

At the same time, thermal maturity modelling completed by CNOOC indicates the Baiyun Sag North has been generating and expulsing oil around 5 million years ago when the Topaz prospect was optimally located to receive oil charge.

Current plan
EME is working closely with CNOOC geoscientists on this migration analysis and aims to complete the study around the end
of May. At that stage, a final decision to enter the second phase of exploration is likely to be made and further
announcements will be made in due course.

Mako Gas Field
Empyrean is pleased to report that regional gas prices in Europe and South East Asia remain strong and that the macro environment is creating incentive for the negotiations of the current Heads of Agreements for gas offtake at Mako to be negotiated to a binding Gas Sales Agreement (“GSA”). Mako is one of the largest gas discoveries in the West Natuna Sea and the largest undeveloped resource in the area. Pipeline quality methane gas has become a critical component of the energy mix that sees Singapore as a major gas hub in the region. Empyrean also notes that Conrad Asia Energy Ltd, the operator and owner of 76.5% of the Duyung PSC within which Mako sits, has an IPO in Australia as a key milestone for delivery. This planned IPO may present, at the least, a useful benchmark for valuation of the Mako Gas Field.

Debt Restructuring
In December 2021, the Company announced that it had entered into a Convertible Loan Note Agreement with a Melbourne based investment fund (the “Lender”), pursuant to which the Company issued a convertible loan note to the Lender and received gross proceeds of £4.0 million (the “Convertible Note”). The Convertible Note bears interest at a rate of 10% per annum and is secured by a senior first ranking charge over the Company, including it’s 8.5% interest in the Duyung PSC and
Mako Gas Field.

As subsequently announced, in March 2022 the Company received conversion notices from the Lender to issue a total of 27,500,000 Shares at a conversion price of 8p, reducing the principal owing on the Convertible Note to £2.2 million, including upfront capitalised interest.

Following the announcement regarding the Jade well on 27 April 2022, the Company and the Lender proactively entered discussions to amend the key repayment terms of the Convertible Note, which included the right by the Lender to redeem the Convertible Note within five business days of the announcement of the results of the Jade well.

The parties have now agreed the following key amendments to the terms of the Convertible Note:
1. The face value of the Convertible Note is increased to £3.3 million;
2. The Company may, at its sole and absolute discretion, redeem the Convertible Note at any time;
3. The Lender will not redeem the Notes prior to 31 July 2022;
4. If a binding GSA is entered into with regard to the Mako Gas Discovery in Indonesia on or before 31 July 2022, the
Lender will not redeem the Convertible Note prior to 1 December 2022, with interest accruing thereafter at a rate of
£330,000 per calendar month;
5. If a binding GSA is not entered into with regard to the Mako Gas Discovery in Indonesia on or before 31 July 2022, the
Lender may redeem the Convertible Note at any time thereafter, in which circumstances the face value of the
Convertible Note will be reduced to £2.67 million;
6. If the Company completes a sale of its interest in the Mako Gas Discovery, it will redeem the Convertible Note
contemporaneously with that agreement; and
7. The Company will not execute any agreement in respect of a sale of its interest in the Mako Gas Discovery if the
proceeds are less than the expected value of the Convertible Note on the date of completion of that agreement.

Empyrean CEO, Tom Kelly, stated:

“CNOOC assistance is proving a defining step in better understanding the oil migration pathways in the area, and Empyrean is appreciative of CNOOC’s ongoing support. We are aiming to complete the current post-drill analysis and comprehensive oil migration studies with a deep focus on oil migration pathways from CNOOC oil discovery LH16-2 towards Topaz in short order to enhance the prospectivity of Topaz as a world class large exploration target for the second phase of exploration in Block 29/11.

This capital raising and debt restructuring will allow Empyrean to move forward with its plans to maximise the value at the Mako Gas field whilst completing a comprehensive analysis of all pre-drill and post-drill technical data to ensure that we proceed with the drill preparations at Topaz with due diligence and confidence.”

Nothing to add to this, all the chips are now headed for Topaz. 

Capricorn Energy

Simon Thomson, Chief Executive of Capricorn Energy PLC, made the following statement at the Company’s Annual General Meeting for shareholders on Wednesday.

The last twelve months have been transformational for Capricorn, with the delivery of two key strategic goals:

  • Receipt of the India tax refund of US$1.06bn has allowed us to return US$500m to shareholders via tender offer and embark on a buyback programme of up to a further US$200m, whilst retaining significant net cash to drive expansion of the business.
  • Completing the acquisition of our Egyptian assets from Shell delivered the first step in rebuilding our portfolio with a strategic emphasis on low cost, short capital cycle producing assets with a clear path to decarbonisation, supported longer term by infrastructure-led exploration.

We are pleased with the progress made in our Egyptian operations in the seven months since acquisition and continue to work with our respective JV partners to optimise the development programme and deliver growth. Notably, we have a near term focus on liquids production in the current strong oil price environment. We expect to deliver production within the previously stated guidance range of 37,000 – 43,000 boepd for 2022, with expected capital and operating cost guidance for Egypt also unchanged. We anticipate being towards the upper end of previously guided liquids percentage of production (35-40%).

Production is stable and we are executing new wells successfully, currently in the BED/Sitra and AESW concessions. There are three rigs currently operating with two more expected to be added over the summer. Work-over activity continues to reinstate and optimise production from existing wells and to complete new wells for production or injection.

Exploration in 2022 is focused on Egypt, the UK and Mexico, with much of this activity operated by Capricorn and targeting wells which can be rapidly commercialised if successful. In the UK, we expect to commence drilling the Diadem well in Q2 and are evaluating new 3D seismic data across our Southern North Sea acreage in preparation for a drilling decision later this year. In Egypt, Capricorn-operated drilling is expected to begin later this year in the South Abu Sennan concession, with 3D seismic acquisition taking place this year across the South-East Horus, West El Fayum and North Um Baraka concessions. Elsewhere, we expect to complete our final commitment well in Mexico (Block 7, operated by Eni) this year, and we are reviewing the next phase of investment together with partnering strategies in our acreage offshore Mauritania and Suriname.

Progress continues towards our accelerated net zero greenhouse gas emissions target of 2040 or earlier, with decarbonisation actions underway in our Egypt operations, including the replacement of diesel generation with cleaner burning gas and the centralisation of power and electrification. Capricorn’s role in the global energy transition is of particular importance to your Board, and recognising this, a Sustainability Committee has been established to provide oversight of our progress on energy transition and the broader environment, social and governance objectives of the Company.

Looking forward, our focus will continue to be on further expanding the producing asset base by delivering production growth in Egypt and by advancing our targeted exploration programme, whilst also pursuing value accretive strategic opportunities. The Company also expects to benefit from material contingent payments linked to oil price and production levels resulting from the terms of the divestments of its UK producing assets and Senegal development. From this position of strength, we aim to build on our differentiated track record of value creation which has seen us create, deliver and return US$5.5bn to shareholders over the last fifteen years.

I republish this from Wednesday as I wasn’t able to publish then and I think that Capricorn looks very interesting right now. Readers know that I like Egypt a great deal and this, along with the rest of the portfolio has every opportunity of rewarding shareholders well. 

The tender offer and the buy-out have impressed shareholders and despite this the company is comfortable at balance sheet level. 

And finally…

Tomorrow sees the FA Cup final where Chelsea take on Liverpool.

In the Prem the key fixtures see the Noisy Neighbours at the Hammers whilst Leeds host the Seagulls, Burnley are at Spurs and the Toffees entertain the Bees in the relegation battle.

Racing has seen a great week at York and moves to Newbury for the Lockinge Stakes.

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 th

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