Malcy’s Blog – Oil price, San Leon, Arrow Energy, Europa Oil & Gas, Angus Energy, Petro Matad, i3 Energy & finally

WTI (May) $75.67 +$1.30, Brent (June) $79.89 +$1.29, Diff -$4.22 -1c.

Author @mgrahamwood

USNG (May) $2.21 +11c, UKNG (May) 119.0p +11.0p, TTF (May) €47.645 +€2.69.

Oil price

The announcement from Opec yesterday that they were planning to take another 1.16m b/d off the market has sparked into life a market that only a few days ago was asking when the White House when they were going to buy back the sales of the SPR. Well the answer to that is no particular time soon as seven Opec countries have pledged to tighten up the market a wee bit more.

Indeed, the Opec brethren have done one on sleepy Joe in no uncertain terms and with the cuts due to take place as the US driving season starts I can see plenty of trouble ahead on the gasoline pricing front. The reason was apparently that Opec think that this ‘reflects the state of the global economy’ and want a consistent price. More tomorrow…

San Leon Energy

San Leon has announced a further update in relation to: i) the proposed transactions with Midwestern Oil & Gas Company Limited and the Company’s further conditional investments in ELI; ii) its current refinancing discussions; and iii) an Energy Link Infrastructure (Malta) Limited (“ELI”) operational update.

Details of the Proposed Transactions were announced by the Company on 8 July 2022.

Update on the Proposed Transactions

Further to the announcement made on 24 March 2023, all of the longstop dates in relation to the Proposed Transactions have now been extended to 30 June 2023, in agreement with Midwestern and the other relevant parties. The longstop dates are in relation to the New Eroton Debt Facilities, the Sahara OML 18 Acquisition Agreement, the MLPL Reorganisation Agreement and the ELI Reorganisation Agreement.

As announced on 24 March 2023, the Board continues to believe that the Proposed Transactions will be transformational for the Company and it continues to work towards completing them. However, the Board notes the recent challenge by NNPC Limited and OML 18 Energy Resource Limited to the operatorship of Oil Mining License (OML) 18 (“OML 18”) and the potential delays this will cause to the Proposed Transactions.  The extension of the longstop dates, inter alia, reflects this.

Update on the refinancing discussions

Also as announced by the Company on 24 March 2023, San Leon remains in discussions on the proposed refinancing.  Those discussions continue to progress and the Board expects to make progress in relation to the proposed refinancing in the near term.  Further announcements will be made as and when appropriate.

Energy Link Infrastructure (“ELI”) – operational update

The Company is also pleased to announce that Century Energy Group Partners (“CEG”) has partnered with ELI for the spread-mooring completion, operations and maintenance of the Floating Storage and Offloading (“FSO”) vessel, the ELI Akaso.

The FSO ELI Akaso terminal is an integral component in OML 18’s Alternative Crude Oil Evacuation System’s (“ACOES”) infrastructure. The partnership between ELI and CEG is under a risk service contract in line with standard terms for oil and gas asset commercialisation and production enhancement.

CEG has deployed its personnel, infrastructure and expertise towards the engagement and has made significant progress in the completion of the FSO spread-mooring. CEG is scheduled to complete the important milestone of spread-mooring the FSO by 10 April 2023. Upon completion of the spread-mooring for the ELI Akaso, CEG will be responsible for the daily operations and maintenance of the FSO ELI Akaso terminal. The terminal will serve as a dedicated crude oil storage and export terminal for OML holders and marginal field producers in the Eastern Niger Delta, including OML 18. This partnership will enable ELI to not only facilitate improved realised production and revenue streams from OML 18 but also generate revenues from third party oil & gas companies operating in the Eastern Niger Delta.

ELI’s ACOES infrastructure comprises a new 47-kilometre secure undersea pipeline from OML 18 to the FSO ELI Akaso terminal.  The ACOES pipeline component is expected to have a throughput capability of 100,000 barrels per day (b/d) of oil, while the FSO ELI Akaso has a storage capacity of 2 million barrels of oil. This ACOES infrastructure will enhance crude oil commercialisation, primarily through the reduction of downtime and crude losses associated with the existing export routes. The ACOES pipeline is expected to be completed in the second half of 2023.

Kolapo Ademola, CEO of ELI and a Non-Executive Director of San Leon, commented:

“ELI is delighted to collaborate with Century Energy Group. CEG’s proven expertise and experience in the sector provides ELI with a reliable partner towards the attainment of our corporate goals within the midstream oil and gas sector in Nigeria. Our collaboration with CEG should expedite our ability to deliver value to our key partners and stakeholders; Crude Oil producers in the Eastern Niger Delta, the Federal Government of Nigeria and the Nigerian economy at large.”

Unless otherwise defined herein, the capitalised defined terms used in this announcement have the same meaning as those used in the Company’s Admission Document published on 8 July 2022.

This to me seems to be two pieces of good news, firstly the important extension of longstops until 30th June, an important blanket date. The company reminds us that the transactions will be ‘transformational’ still but does note that the challenges on OML 18 and potential delay.

Secondly the fact that CEG is now involved as a partner is very good news indeed and in my view a significant forward step in this process. Overall in a process which has had a number of delays, it is better news than I might have expected.  

Arrow Energy Corporation

Arrow has provided an update on the drilling of Rio Cravo Este-5 (“RCE-5”), a development well on the Rio Cravo oil field within the Tapir Block in the Llanos Basin of Colombia, and is providing an operations update.

RCE-5 Update

The RCE-5 well reached total depth on March 29, 2023. The well was drilled to a total measured depth of 10,200 feet (8,100 feet true vertical depth) and encountered six hydrocarbon bearing intervals totaling 90 net feet of oil pay (measured depth).

The following hydrocarbon bearing intervals have been identified:

·    Carbonera C7: 36 feet net oil pay over two intervals

·    Lower Gacheta: 54 feet net oil pay over four intervals

Interval thicknesses are not necessarily indicative of long-term performance or ultimate recovery.

It is expected that the RCE-5 well will begin production in early April 2023. The rig will then be moved to the Carrizales Norte-1 (CN-1) location with the intention that CN-1 will spud late April or early May.

RCE-3 and RCE-4 Update

At RCE-3, the submersible pump has been engaged and the well is currently producing at 800 BOPD gross (400 BOPD net) with 10% watercut. Plans are to increase production on a measured conservative basis to achieve balance between maximum production and ultimate recoverable reserves. The same incremental approach will be applied to RCE-4 and RCE-5.

RCE-4 continues to flow naturally at 700 BOPD gross (350 BOPD net) with 1% watercut.

Marshall Abbott, CEO of Arrow commented:

RCE-5 was drilled under budget and on time. The team continues to become more experienced in the play and this is resulting in cost and time savings. The net pay encountered in RCE-5 is one of the largest to date in the RCE field. We now have six wells drilled into the RCE structure and a very good understanding of the distribution of the various oil-bearing reservoirs we have encountered.”

We’re currently completing the C7 zone at RCE-5, targeting to be on stream in early April. These wells continue to increase Arrow’s production and reserves. Arrow will bring RCE-5 on slowly and increase production to best manage the oil reservoir as it continues to do with RCE-3 and RCE-4.

Despite the lost production at the Capella field, Arrow is on a trajectory to exceed 3,000 BOPD in the near term. These wells are quick to payout providing positive cashflow for the Company during a high commodity price environment. This is an exciting time for Arrow, and we look forward to providing further updates on our progress.

Arrow is fast getting a reputation for delivering on its promises and bringing on these RCE wells on time and under budget, any minute now we are also going to get the big one, the achievement of the 3/- b/d target, also in plenty of time. With today’s news from Opec and oil up 5% this morning the number crunchers at AXL will be delighted and the shares are up by a modest 10% this morning. 

I’m happy with having Arrow in the Bucket list and of course my target price of 50p is going to look laughable when Arrow proves just how good it is over the next few months. All the details of the 5 well are above but it is one of, if not the, largest RCE well, after this the team are off to CN-1 which it should be remembered is a step-out from the Carrizales field itself. Happy days may well be here again and I take my hat off to Marshall and the team…

Europa Oil & Gas

Europa has announced the appointment of Alastair Stuart as Chief Operating Officer and an Executive Director of the Company, effective immediately.

Mr Stuart has over 30 years of experience in operational, commercial and technical roles in the energy and IT sectors. As a 1982 graduate of Herriot Watt’s Masters programme in Petroleum Engineering, he began his career with Total CFP in Paris before joining Enterprise Oil in 1986, shortly after it was established, where he focussed on projects in the North Sea and the Far East. He was later promoted to New Ventures Manager, where he led the evaluation and progression of new ventures in South America, Eastern Europe and the Far East. After ten years with Enterprise, he worked briefly with Hardy Oil & Gas, before setting up his own consulting group in 1998 which developed processes and systems for managing capital allocation across large portfolios of investments in the oil & gas, pharmaceutical and venture capital sectors.

Mr Stuart has been a consultant at Europa since 2012 and more recently has been intimately involved in the development of the Wressle Field. He will be relinquishing his other commitments and focusing on ensuring that the full potential of Europa’s existing assets can be rapidly realised as well as supporting the CEO on further building the Company.  

In order to ensure that the finance function within Europa is suitably resourced, the Company has increased its existing mandate with Clifton Financial Solutions Limited (“Clifton”). Clifton already provides accounting services to Europa and going forward, will also provide administrative services that would typically fall under the remit of a CFO. More information on Clifton can be found on its website: www.cliftonfinancial.co.uk/

Will Holland, CEO of Europa, said:

“I am delighted that Alastair has agreed to join Europa in a full-time capacity. He has been consulting for Europa since 2012 and has played an integral part in not only the development of Wressle but also has deep knowledge of our operated assets. He brings a wealth of engineering and M&A experience in the upstream sector that will be of crucial importance as we continue to develop our existing asset base and concurrently grow the business. I look forward to working with him at this very exciting time for the Company.”

I don’t normally comment just on director appointments but things are changing significantly for EOG at the moment under the new leadership of Will Holland. Alastair Stuart comes from being formerly at Enterprise Oil which always add a bit to the cv. 

Angus Energy

Angus Energy has announced that well initial clean-up operations concluded early on the weekend since which time the sidetrack SF07V well testing programme has been progressing satisfactorily.

The well flowed at 2.1 mmscfd shortly after start up and flow rates have increased over the last 60 hours to 4 mmscfd with a near constant 30 barg wellhead pressure.  The rate of increase has been linear and there is, as yet, no deviation in that rate of increase.

By way of context, deliverability from pre-existing wells has averaged around 5.4 mmscfd during the quarter and our competent Persons Reports of March 2020 and October 2021 set a P90 target just shy of 10 mmscfd for the plateau rate of flow from all three wells.

Throughout this period we have seen the steady removal of residual drilling fluids from the well and expect the clean-up to take several days before we reach the final deliverability.

Connection to the plant for gas processing and export is planned directly after the clean-up and we expect to realise the combined flow rates of all three wells later in the month.

Quarterly Flow Rates – Existing Wells

Gas volumes produced and sold equalled 5.4 million Therms in aggregate for the months of January, February and March combined or 1.8 million Therms per month being in excess of hedge requirement.  This yields an average of 5.4 mmscfd for daily flow rate.

Average daily flow rates were highest in January but suffered somewhat from work on the second compressor during February and March.

Peak achieved flow rates from the two wells remained at around 6.0 mmscfd throughout the period and pressure was stable to gently falling at around 30 barg in line with management expectations.

Gas condensate (liquid) production averaged 120 bbl/day which continues to be somewhat higher than expected.

This is further good news from Angus and shareholders will be pleased to see numbers like this being bandied around and of course with better than expected liquids as well.

Petro Matad

Petro Matad has provided the following operational update.

Key Company Updates

·    The Velociraptor 1 well is scheduled to spud in June 2023 as soon as the rig is released from its current programme.

·    Documentation to certify the Block XX Exploitation Area as special purpose land is being prepared by the Ministry of Mining and Heavy Industry for submission to cabinet for approval.

·    Negotiations between Petro Matad and the government for a new block in Mongolia’s 2023 Exploration Tender Round have commenced.

Block V Exploration

Following discussions with selected drilling contractor, Major Drilling (“Major”), a spud date for the Velociraptor 1 well has been confirmed for June 2023 following completion of Major’s current programme for another operator. All required equipment for the well is in country. Field work has commenced to make ready the water supply well that will be used to supply the operation. Site construction will commence during May in good time for the scheduled June spud. The well is expected to take around 30 days to drill to a prognosed total depth of c.1500m.

Block XX Exploitation Licence

Documentation has been prepared by the Ministry of Mining and Heavy Industry and circulated to other relevant ministries in advance of submission to cabinet to secure approval to certify the Block XX Exploitation Area as a Special Purpose Area. The certification is being proposed on the basis that the Heron development is a project of national importance. We are pushing for the matter to be brought to cabinet urgently in order to allow in-field activities to commence to make the Heron 1 well ready for production.

2023 Exploration Licencing Round

Negotiations have commenced with MRPAM on the block for which Petro Matad has submitted an application in Phase 1 of the 2023 open tender exploration licencing round. Phase 2 of the round has recently been announced and the third phase is expected to be announced in the next few months. The Company is reviewing the newly offered blocks and plans to submit applications on those it has high-graded.

Mike Buck, CEO of Petro Matad, said:

“As shareholders will know, we have wanted to drill Velociraptor for some time now and so we are very excited to have agreed a firm schedule with the drilling contractor. The necessary preparatory work is already underway and all equipment for the well is in country ensuring we are ready to spud in June.

We continue to push the Mongolian Government for the certification of Block XX Exploitation Area as Special Purpose Land and are pleased that the Ministry of Mining and Heavy Industry is proposing the certification on the grounds of this being a project of national importance.”

I have a great deal of time for Mike Buck and I too am excited about drilling Velociraptor and also getting licenced up but I am not exactly sure what this RNS is about, it tells us nothing that we didnt know already. 

i3 Energy

i3 Energy has announced the results of its 2022 year-end reserve report, for its subsidiary i3 Energy Canada Ltd.

i3’s independent reserve report was prepared by GLJ Ltd. in accordance with standards contained in the Canadian Oil and Gas Handbook (COGEH) and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”), with an effective date of 31 December 2022.

 Highlights

·    Successful Execution of 2022 Capital Programme Provided Year-Over-Year Reserve Additions Across All Reserve Categories 

o  Total Company Interest proved plus probable developed producing reserves (“2PDP”) increased 9% to 65.7 million boe, total proved (“1P”) reserves increased 10% to 93.5 million boe and total proved plus probable (“2P”) reserves increased 18% to 181.5 million boe, compared to the prior year.

·    Strong Organic Reserves Replacement Ratio, Long Reserve Life Assets and Low Decline Profile to Support the Company’s Total Return Model

o  The Company’s organic Working Interest reserves replacement ratio in 2022 was 176% on a 2PDP reserve basis, 214% on a 1P reserves basis and 479% on a 2P basis.

o  2PDP, 1P and 2P reserve life indices of 8.8 years, 12.2 years and 22.5 years, respectively, combined with our low base corporate decline rate of approximately 17% and our extensive inventory of highly economic development drilling locations, underpin i3’s ability to sustainably grow production per share from our existing asset base and generate significant distributable cash flow for our shareholders. 

·    Material Increase in the Company Interest Reserve Value

o  As evaluated by GLJ, the Before-tax Net Present Value (“NPV”) of cash flows attributable to the Company’s reserves, discounted at 10%, has been determined to be $511.0 million (CAD 689.8 million), $623.0 million (CAD 841.0 million), and $1,161.5 million (CAD 1,568.0 million) for its 2PDP, 1P and 2P reserves, respectively, being indicative of the Company’s strong production base, successful 2022 drilling program and robust portfolio of economic development opportunities.

o  2PDP NPV per share, using a 10% discount rate, increased by 50% to £0.36 per share (CAD 0.58 per share), 1P NPV increased by 43% to £0.43 per share (CAD 0.71 per share) and 2P NPV increased by 56% to £0.81 per share (CAD 1.31 per share), as compared to the prior year.

·    Strong Finding, Development and Acquisition (“FD&A”) Cost Metrics and Recycle Ratios Reflective of Efficient Development and Opportune Acquisition Strategy

o  Efficient development provided strong FD&A costs of $7.68 per boe on a 2PDP basis, translating to recycle ratios of 2.84x.

o  Over the three-year period since its entrance into the Western Canadian Sedimentary Basin, i3 has delivered FD&A costs of $2.96 per boe on a 2PDP basis, translating to a recycle ratio of 6.0x.

·    Partial Recognition of the Company’s Undeveloped Locations Leaves Significant Inventory of Future Unbooked Upside

o  Successful conversion of undeveloped locations to production, while increasing the total net undrilled booked locations by 25% to 376 gross (255.1 net) locations across the Company’s four core areas, for a total Company inventory (undrilled booked and undrilled unbooked) of 881 gross (502 net) undeveloped locations.

o  Material increases in booked Montney and Cardium oil locations, with 32 net and 12.2 net locations added, respectively.

o  Total undeveloped inventory represents greater than 30 years of development drilling assuming the current annual capital program. 

Ryan Heath, President of i3 Energy Canada Ltd., commented:

“The Canadian reserve report reflects the hard work and commitment of the entire i3 team. The Company’s 2022 capital programme was executed with efficiency, while meeting or exceeding production expectations and corporate guidance. The efforts of 2022 have placed i3 in a strong position for 2023 as we continue to build upon the Company’s predictable low-decline base production and further expand its extensive portfolio of high-return development opportunities.”

Majid Shafiq, CEO of i3 Energy plc, commented:

“2022 was another very successful year for i3 Energy. In 2021 our reserves replacement was primarily driven by acquisitions. In 2022 we pivoted to growth via the drill bit and very successfully grew production and our reserves base. We proved the quality of our asset base and the expertise of our staff by organically delivering growth in our P1 reserves by 10% and 2P reserves by 18%. Our 2P reserves are now independently valued at circa $1.2 billion or £0.81 per share at year end, with their longevity demonstrated by a reserve life index of 22 years. Whilst this reflects year-end commodity pricing it demonstrates the material upside in our portfolio and the potential for year-on-year growth in production and total shareholder return.”

This extensive reserves report shows how well i3 have been doing and whilst I wouldn’t normally comment on such things way out of my training but shareholders will be impressed.

2022 Reserves Review

The Company’s year-end reserves were evaluated by GLJ in accordance with the definitions, standards and procedures contained in the COGEH and NI 51-101 as of 31 December 2022. The reserves evaluation was based on the average forecast pricing of GLJ, McDaniel & Associates Consultants Ltd. and Sproule Associates Limited (“3 Consultants Average”, or “3CA”) and foreign exchange rates as of 1 January 2023.

Reserves included are Company Interest reserves which reflect i3’s total working interest reserves before the deduction of any royalties and include any royalty interests payable to the Company. Additional reserve information as required under NI 51-101 will be included on Forms 51-101 F1-F3 which will be filed on SEDAR. The numbers outlined in the tables below may not sum precisely due to rounding.

Summary of Reserves

The tables below outline GLJ’s estimates of i3’s reserves as of 31 December 2022.

 Through the Company’s productive 2022 drilling programme, i3 successfully converted a suite of high-return undeveloped locations to production, while increasing the total net undrilled booked locations by 25% to 376 gross (255.1 net) locations across its core areas, for a total Company inventory (undrilled booked and undrilled unbooked) of 881 gross (502 net) undeveloped locations. 

Material increases in booked reserves were predominantly a direct result of i3’s successful 2022 Montney and Cardium development initiatives, in its Simonette and Wapiti fields, resulting in an increase of 32 net and 12.2 net booked oil locations added, respectively. Total undeveloped inventory now represents greater than 30 years of economic development drilling, based on the Company’s current annual capital programme.

Reserve Reconciliation

The following table sets out the reconciliation of the Company’s Working Interest reserves based on forecast prices and costs by principal product type as of 31 December 2022 relative to 31 December 2021. 

 Performance Measures – Finding and Development (“F&D”), Finding, Development and Acquisition (“FD&A”) Costs and Recycle Ratios

F&D and FD&A costs for 2022, 2021, 2020 and the three-year average are presented in the tables below. The capital costs used in the calculations are those costs related to land acquisition and retention, seismic, drilling, completions, tangible well site, tie-ins, and facilities, plus the change in estimated future development costs (“FDC”) as per the GLJ report.  Net acquisition costs are the cash outlays in respect of acquisitions, minus the proceeds from the disposition of properties during the year. The reserves used in this calculation are working interest reserve additions, including technical revisions and changes due to economic factors. The recycle ratio is the net operating income (revenue minus royalties, opex, transportation and processing) per barrel divided by the cost per barrel (F&D or FD&A).

Reserve Life Index (“RLI”)

RLI is calculated by taking the Total Company Interest reserves from the GLJ Report and dividing them by the projected 2023 production as estimated in the GLJ Report.

Forecast Prices Used in Estimates

GLJ has employed the 3 Consultants Average forecast prices in the GLJ Report. The 3CA forecast prices, exchange rate and inflation (2% post 2037) assumptions as of 31 December 2022 are tabulated below.

 Notes:

1.     $ = USD.

2.     Any figures converted from CAD to USD are done so at CAD 1.35 to USD 1, and any figures converted from CAD to GBP are done so at CAD 1.63 to GBP 1.

3.     Reserves estimates have been prepared by GLJ in accordance with standards contained in the Canadian Oil and Gas Evaluation Handbook (COGEH).

4.     Total Company Interest – Represents the sum of the company’s working interest and any royalty interests it may hold.

5.     Working Interest – Represents the percentage of ownership in a specific property’s mineral rights that a company holds.

6.     Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal to or exceed the estimate.

7.     Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable (2P) reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate.

8.     Developed reserves are those reserves expected to be recovered from known accumulations from existing wells and facilities where no significant expenditure is required to render them capable of production. They must fully meet the requirements of the reserves category (for example proved or probable) to which they are assigned.

9.     Developed producing reserves are those reserves expected to be recovered from completion intervals that are open and producing at the effective date of the estimate.

10.   Proved plus Probable Developed Producing (2PDP) reserves are those reserves for which there is a 50% probability that the actual quantity of oil and gas that will be recovered from the current producing assets will equal or exceed the 2PDP estimate.

11.   Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example, when compared to the cost of drilling a well) is required to render them capable of production. They must fully meet the requirements of the reserves category (for example proved or probable) to which they are assigned.

12.   The Company is in a tax paying position due to fully utilizing its Canadian non-capital tax loss pools during the year ended 31 December 2022.

13.   Recycle ratio is calculated as the operating netback per boe divided by F&D or FD&A costs per boe as applicable. The operating netbacks used in the respective years are as follows: 2022 (unaudited) – $29.48/boe; 2021 – $18.45/boe and the three-year average is $23.87/boe

14.   Reserves replacement ratio is calculated by dividing the annual reserves additions in the year, in boe, by i3’s annual production in that year, in boe.

And finally…

In the footy the Gooners won easy and the Noisy Neighbours beat Liverpool with some to spare. The Bar Coders beat the Red Devils going into 4th and Spurs visit the Toffees tonight and a point gets them into the top 4. The Hammers beat the Saints 1-0 and soar out of the relegation spaces.

But the bigger news was that both the Foxes (Brendan Rodgers) and Chelsea (Graham Potter)  sack their managers respectively.

Max wins in Melbourne with Lewis second seems like the old days but the race was carnage from start to finish.

And Anthony Joshua beating Franklin on points wasn’t the answer anyone wanted…

Author @mgrahamwood

Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion