Malcy’s Blog – Oil price, San Leon, IOG, Sound Energy, UJO/Egdon & finally

WTI $40.27 +35c, Brent $43.52 +27c, Diff -$3.25 -8c, NG $1.80 -3c

By Malcolm Graham-Wood

Oil price

There is only so much you can say about the oil price which is doing next to nothing, last month WTI rose exactly 1 dollar, Brent was up $2.25. This is probably good news, a move either way is best avoided for the time being, particularly upwards which would bring on more US production just when its not wanted.

San Leon Energy

SLE has acquired a 10% interest in ELI the company that owns the ACOES project which is being constructed to provide a dedicated oil export route from the OML 18 asset, comprising a new pipeline from OML 18 and a floating storage and offloading vessel (FSO).

Through this equity interest and by making a $15m loan (with a 14% coupon) San Leon will be excellently placed to make the field and infrastructure economics a good deal more generous. When commissioned later this year the pipeline and FSO will reduce downtime and ullage to well below 10% from its current number of nearer 40%.

In addition ELI (and SLE through its stake) will earn tariffs for transporting 3rd party crude as the pipeline will have a capacity of c.100,000 b/d with FSO capacity of 2m barrels of oil.

Oisin Fanning, Chief Executive officer, commented:

“We are delighted to make this investment, which is in line with our strategy of investing in assets with near-term cash flow, where the initial investment is considered to be of limited risk and where there is material upside. The ACOES is expected to generate regular cash flow once commissioned in the coming quarters, whilst also providing the significant benefits to downtime and losses reduction for OML 18 which we have previously described.

“The structure of the transaction, which combines an equity investment in the project together with a loan, gives us the opportunity to generate a meaningful return from loan repayments in the coming years as well as looking forward to a longer-term dividend return from our shareholding in ELI. Following the recent maiden special dividend paid to San Leon shareholders, the Company anticipates that equity income from the ELI shareholding will contribute to further future dividends to San Leon shareholders.”

I see this as a genuine triple whammy for SLE shareholders, the export route and FSO from OML 18 will see almost total elimination of downtime and ullage, thus increasing revenues and profits. In addition they should see new 3rd party tariff income and as well as that 14% coupon on the $15m they are lending over four years. The distribution policy at San Leon just got a whole lot better for shareholders.


IOG announce the award of the Phase 1 platform EPCI contract to HSM Offshore, an almost entirely lump-sum in nature contract for both unmanned production platforms at the Southwark and Blythe gas fields in the Southern North Sea

Phase 1 comprises the development and production of the Southwark, Blythe and Elgood gas fields through five production wells with gas transported onshore to Bacton via the Thames pipeline. The Southwark Hub platform will be a key installation both for Phase 1 and other planned developments whilst Blythe will be the focal point of the Blythe Hub which includes the Elgood subsea tie-back.

Andrew Hockey, CEO of IOG, commented: 

 “We are delighted to be working with HSM for the fabrication and installation of the Southwark and Blythe production platforms and are pleased to release an accompanying presentation showing recent fabrication progress at the yard. HSM are a highly respected offshore infrastructure fabricator with an extensive history of building platforms for both the Dutch and UK sectors of the North Sea and we are encouraged by the progress they have made to date, particularly in light of the challenges posed by Covid-19. These low carbon footprint facilities at Southwark and Blythe will be key infrastructure for the safe and effective execution of our gas hub strategy, not only for our SNS Core Project assets but also to enable valuable add-on developments.”

IOG are making really good headway with the Core Project and potential investors should be looking at this low carbon, gas company that is delivering on schedule to be a major producer in the SNS. The link below shows recent fabrication process and is well worth a look.

Sound Energy

Sound has announced an additional £725,000 has been raised from the Broker Option announced last week at the Placing price of 2.125p per broker option share. An innovative and shareholder friendly raise has clearly been worth the while for Sound.

Graham Lyon, Sound Energy’s Executive Chairman, commented:

 am encouraged to see a further £725,000 added via the broker option to the £2.75 million placing announced on 29 July 2020. Investor support of the business and its strategy is most appreciated.”

Union Jack Oil

UJO has announced a positive update on progress at Wressle and the approval of their acquisition of a further 12.5% of PEDL 180 and 182 from Humber Oil & Gas.

The Operator, Egdon Resources U.K. Limited, has advised the JV that ‘the Wressle civil engineering contractor has mobilised to site and the development works to reconfigure the existing Wressle site for production operations have now commenced.  These works include the installation of: a new High Density Polyethelene (“HDPE”) impermeable membrane; specialist drain system; an approved surface water interceptor; the construction of a purpose-built bund area for storage tanks; a tanker loading plinth; and an internal roadway system’.

Egdon have said that the JV remains on track for first oil during  H2 2020 and that it is ‘economically robust with an estimated project break-even oil price of $17.62 pb’. For Union Jack, who now hold a ‘meaningful 40% interest’ on completion of their recent deal it means 200 barrels of oil per day net to the Company.

Commenting, David Bramhill, Executive Chairman of Union Jack, said: ‘Tangible progress is being made at Wressle. The guidance given for first oil remains on-track for H2 2020. The expected transformative economic effect on the Company once commercial production is established will be welcomed and will be a major catalyst in achieving our goal of propelling Union Jack to mid-tier status.

In addition to Wressle, we have three other material projects within our portfolio, in particular West Newton where preparations are underway for the drilling of the B-1 appraisal well and the resumption of the Extended Well Test at the successful West Newton A-2 well, plus the future appraisal of the Biscathorpe discovery that has the potential to be another important project, and also at Keddington where there remains, in the management’s opinion, considerable potential to increase production’.

Interesting times for UJO right now as a number of key events are lining up and should add significantly to the company’s valuation. The shares have more than tripled from the lows but still look excellent value with so much near and medium term upside potential.

And finally…

The Gooners won the FA Cup Final coming from behind to beat Chelski 2-1. Honours well spread with Champions League and Boropa Cup representation for losers and winners respectively.

Quite how Lewis Hamilton got over the line is anyone’s guess but just shows that the greed for a fastest lap meant that Red Bull sacrificed a British GP victory…

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 publication.

(The opinions expressed here are those of the author, a columnist for Share Talk.)

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