Malcy’s Blog – Oil price, San Leon Energy, Kistos, Touchstone Exploration, Serica Energy & finally

WTI ( Aug) $104.79 +$2.06, Brent (Aug) $107.02 +$2.37, Diff -$2.23 +31c.

Author @mgrahamwood

USNG $6.35 +19c, UKNG (Aug) 228.96p -70.84p, TTF €170.0 -€10.585

Oil price

Oil rallied on Friday and at the end of the week but the damage done on Tuesday was enough to see WTI down $3.64 on the week and Brent off $4.61. The swing factors are well known but recessionary worries on one side play off shortages from pipelines on the other.

The rig count rose modestly, up 2 overall to 752 and also up 2 in oil to 597 and the biggest swing factor is the shortage of product, particularly in the US, increasing oil rigs by 2 isn’t going to change much. With Sleepy Joe off the meet MbS at the weekend he had better get his prayer mat out…

San Leon Energy

RESTORATION OF TRADING ON AIM – SAN LEON ENERGY PLC

Trading on AIM for the under mentioned securities was temporarily suspended. The suspension is lifted from 11/07/2022 7:30am, an admission document having been published.

I commented on San Leon on Friday after a long chat with CEO Oisin Fanning and there is nothing more to add to today’s news that the shares have returned to trading on Aim. 

The company returns with a stake in the world class OML 18 which should provide solid cash flow, later in the year the completion of the pipeline will make all the difference eradicating wastage, indeed the barging that they are already doing should already be increasing efficiency.

Record prices will make the economics excellent and returns to shareholders have been committed to by the company. ‘San Leon is proposing a capital restructuring and issue of preference shares to San Leon Shareholders immediately prior to completion with the preference shareholders having a preferential right to the first US$40m of future dividends paid by San Leon’.

I have been a strong supporter of San Leon in recent years as I believe that when they stated that they would return 50% of free cash to shareholders that amount of money could mean that the company will yield over 20% on an ongoing basis. There are still things to clear up such as free float and timings of some parts of the deal but as the shares return and the markets gets it the share price should rise significantly.

The shares on return have come off around 4% which is understandable in the short term as some holders locked in for a year needed to sell for various reasons. However at these levels when the market gets to understand the potential of the operational and then yield paybacks the shares should be a great deal higher than here. 

Kistos 

Kistos has announced the completion of the acquisition of a 20% interest in the Greater Laggan Area (“GLA”) producing gas fields and associated infrastructure alongside various interests in certain other exploration licences, including a 25% interest in the Benriach prospect, from TotalEnergies S.E. The effective date of the Acquisition is 1 January 2022.

Completion of the Acquisition marks Kistos’ entry into the United Kingdom Continental Shelf, adding about 6,000 boe/d (net) to Kistos’ production in 2022, with 2P reserves increasing by 6.2 MMboe. This substantially increases Kistos’ total production base to approximately 12,000 boe/d.

Further details of the Acquisition:

·    Kistos has acquired a 20% working interest in the producing Laggan, Tormore, Edradour, and Glenlivet gas fields, located offshore the UK, West of Shetland.

·    The Acquisition includes a 20% interest in the undeveloped Glendronach gas field. The Glendronach field was discovered in 2018 and it is anticipated that the development will utilise existing infrastructure and a final investment decision is expected later this year.

·    The Acquisition also includes a 25% interest in block 206/4a, which contains the 638 Bcf (operator’s P50 resource estimate) Benriach prospect.

·    Emissions from GLA production operations are forecast by Kistos to be approximately 13 kg CO2e/boe in 2022, which is significantly below the North Sea average of 22 kg CO2e/boe (as estimated in the NSTA’s “UKCS natural gas carbon footprint analysis” of 26 May 2020).

Glendronach will be developed via a single production well. The net cost of the project is estimated to be approximately £20 million and Kistos’ share of this expenditure is expected to be subject to the super deduction in the UK’s Energy Profits Levy.

The terms of the transaction are as per the RNS of 31st January 2022, with the acquisition being financed out of cash resources.

Andrew Austin, Executive Chairman of Kistos, said:

“We look forward to working with TotalEnergies and our partners within the GLA. The addition of the GLA interest to our portfolio is an important step towards expanding and diversifying our producing asset base in one of the largest gas hubs in the UK. In addition to the immediate significant increase in our daily production, these assets also offer investors significant upside potential from the Glendronach development project and the highly prospective Benriach exploration target. Progression of these two projects is expected to meet the investment criteria for the UK’s recently implemented Energy Profits Levy.”

The confirmation that the GLA deal has been completed is very good news for shareholders who now own 20% of the producing Laggan, Tormore, Edradour, and Glenlivet gas fields, as well as 20% of the crucially important Glendronach field where FID is expected later this year and gains from the Looney tax as does the Benriach exploration prospect of which they have 25% WI.

This acquisition is already making a big impact on Kistos as the effective date of the deal is 1st January 2022 thus the company is taking advantage of this year’s high gas prices. Going forward I would expect another deal to not be far away and it seems that the share price agrees with me, the shares are at an all time high and I see no reason why they can’t go a lot higher. 

Touchstone Exploration

Touchstone has announced the appointments of Dr. Priya Marajh and Jenny Alfandary to our Board of Directors with immediate effect. Dr. Marajh will serve on the Board’s Health, Safety, Social and Environmental Committee and Compensation and Governance Committee and Ms. Alfandary will serve on the Board’s HSSE Committee and Audit Committee. In conjunction with these appointments, Touchstone also announces that Mr. Thomas Valentine has stepped down from the Board with immediate effect and will remain the Company’s Corporate Secretary.

John D. Wright, Chair of the Board, commented:

We are pleased to welcome both Jenny and Priya to the Board. Their varied experiences and skills will be extremely valuable to Touchstone as we deliver on our strategy to build a leading Trinidadian energy producer. We look forward to adding their expertise and knowledge to our strategic oversight during this time of transition and growth. On behalf of the Board, I would also like to extend my thanks to Tom for his significant contributions and oversight to the development of Touchstone since he joined the Board in 2015. We are grateful to have Tom’s continued participation at Touchstone as our Corporate Secretary.

I wouldn’t normally mention NED appointments but I do feel that these are important steps that TXP has taken as it moves to being a substantial company with not just an exploration portfolio but a sizeable production one as well that gives off substantial cash flow. This is another step in the process of Touchstone being a full cycle, highly regarded E&P company in the true sense of the words. 

Serica Energy

Serica has announced that the North Eigg exploration well has spudded.

Well 3/24c-NE1 was spudded at 04:30 this morning by the Transocean Paul B. Loyd Jr. harsh environment semi-submersible drilling rig. Serica is operator and 100% interest owner in this High Pressure, High Temperature (HPHT) exploration well targeting Upper Jurassic turbidite sands, similar to those encountered in the nearby Serica operated Rhum field.

If successful, it is anticipated that the reservoir will be gas filled and will be capable of providing low emissions gas to the UK domestic market during the key energy transition years of 2025 to 2035. It is anticipated that a discovery at North Eigg would be developed utilising Serica’s nearby 98% owned and operated infrastructure on the Bruce platform.

Results of the North Eigg well are expected in mid-October and will be announced by RNS.

Mitch Flegg, Chief Executive, commented:

“This is an exciting exploration prospect located very close to Serica owned and operated infrastructure. In a success case, this means that any development could utilise the existing production facilities on the Bruce platform, thereby reducing the need for extensive investment in new facilities and reducing the carbon footprint of the development and subsequent production period. 

Our internal estimates indicate that the field could contain unrisked prospective resources (P50 recoverable) of 60 million barrels of oil equivalent. This is a 100% Serica project and so the benefits to the Company could be significant. Not only are the prospective resources valuable but we anticipate that the development could add significant life to the existing Bruce facilities.” 

This is a pretty straightforward well really, it is similar in its properties to Rhum and very near to the Bruce facilities which would provide existing infrastructure and little new construction. Ticking these boxes, as well as reducing the carbon footprint would add significantly to field economics. Add to that the ability to provide gas to the high demand UK domestic market and if it came in would be a huge plus for Serica, already a Bucket List favourite. 

And finally…

England beat India in the third T20 but lost the 3 match series 2-1. Tomorrow sees the start of the ODI series at The Oval.

In F1 the Austrian GP saw Chas Clark beat Max with Lewis 3rd as Sainz and Perez DNF.

In SW19 After losing the first set Djoko came back and beat Kyrgios in 4 sets and set up a proper bromance in the process.

And tonight sees both the home sides in the Women’s Euros on duty as Northern Ireland play Austria at 5pm and England face Norway at 8pm.

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


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