Malcy’s Blog – Oil price, Savannah, Advance, GKP, SDX, Lamprell, Chariot & finally

WTI $85.14 -41c, Brent $87.89 -49c, Diff -$2.75 -8c, NG $4.00 +20c, UKNG 200.0p +14p

By Malcolm Graham-Wood

Oil price

Last week the prices rose a short $2 for reasons we all know about. There are only two changes, firstly the situation in the Ukraine is certainly worsening and at the moment nothing is certain. Secondly, last night the UAE intercepted 2 ballistic missiles over its land and today we have heard that in response the missile station controlled by Houthi rebels was destroyed by UAE action.

This afternoon Wall Street has fallen sharply as the R word is being bandied around ahead of the Fed meeting on Thursday, oil is taking a breather, not a bad thing.

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter in Africa, is pleased to announce a trading update for the full year 2021.

FY 2021 Unaudited Financial Highlights

  • FY 2021 Total Revenues1of US$230.5m (up 7% on FY 2020 on a like-for-like basis after adjusting 2020 Total Revenues of US$235.9m for an advance payment of US$20m from Lafarge Africa which was received on entering a revised Gas Sales Agreement).  This is ahead of the Company’s previously issued FY 2021 guidance of ‘Total Revenues of greater than US$205.0m’;
  • Group cash balance of US$154.3m2 (up 46% versus FY 2020 year-end cash balance of US$106.0m) and net debt of US$370.0m3  (down 9% versus FY 2020 year-end net debt of US$408.7m) as at 31 December 2021;
  • Total cash collections from the Company’s Nigerian assets rose 11% year-on-year to US$208.2m (FY2020 cash collections of US$187.4m); and
  • The Company is updating its guidance on the remaining items to report for FY 2021:

o  Operating expenses plus administrative expenses4   are at or below the lower end of the guidance range of US$55.0m – US$65.0m, driven by the ongoing control of the cost base;

o  Group Depreciation, Depletion and Amortisation of US$20m fixed for infrastructure assets plus US$2.3/boe (amended from US$19m fixed for infrastructure assets plus US$2.6/boe), an overall reduction due to the 27% reserves’ increase in Nigeria as announced in the publication of the updated Nigeria Competent Persons Report on 23 November 2021; and

o  FY 2021 Capital Expenditure for the year is significantly below the guidance of up to US$65.0m, following the successful drilling of the Uquo 11 gas development well and ongoing compression works which are now scheduled to complete in 2022.

FY 2021 Nigeria Operational Highlights

  • FY 2021 average gross daily production was 22.3 Kboepd, a 14% increase from the average gross daily production of 19.5 Kboepd in FY 2020.
  • Of the FY 2021 total average gross daily production of 22.3 Kboepd, 88.1% was gas, including a 15% increase in production from the Uquo gas field compared to 2020, from 103 MMscfpd (17.1 Kboepd) to 118 MMscfpd (19.7 Kboepd).

Nigeria Average Gross Daily Production

 

Uquo Gas (MMscfpd) Uquo Condensate (Kbopd) Stubb Creek Oil (Kbopd) Total (Kboepd)
1 January-31 December 2021 118 0.1 2.5 22.3
% of total production 88.1% 0.5% 11.4% 100%
1 January-31 December 2020 103 0.1 2.3 19.5
% of total production 87.7% 0.6% 11.7% 100%
% Increase 15% -3% 11% 14%

N.B. – Percentages in this table are calculated from exact numbers, the figures above are rounded.

Note that Nigeria production levels are largely driven by customer nomination levels, while cash collections are largely driven by contractual maintenance adjusted take-or-pay provisions.

Niger

The amalgamation of the R1/R2 and R3/R4 Production Sharing Contract (“PSC”) areas into the new R1234 PSC has been approved.  The first stage of the R3 East development project is to potentially commence in 2022

New Renewable Energy Division

Opportunities exist throughout Africa in the renewable energy sphere and Savannah has recently established a new Renewable Energy division to pursue such projects. Savannah believes that its proven hydrocarbon asset operational management skills are directly transferrable to the renewable energy space, which in Africa represents a potentially vast target market of over 310GW by 2030. Savannah expects to update on this potentially significant investment opportunity in due course.

ESG Reporting Update

Savannah continues to progress plans to harmonise and enhance its approach to sustainability reporting across the enlarged Group. We look forward to providing further updates later this year.

Footnotes:

  1. Total Revenues are defined as the total amount of invoiced sales during the period. This number is seen by management as more accurately reflecting the underlying cash generation capacity of the business in comparison to Revenue recognised in the Consolidated Statement of Comprehensive Income
  2. Within cash balance of US$154.3m, US$106.9m is set aside for debt service, of which US$75.5m is for interest, and US$1.6m relates to monies held in escrow accounts for stamp duty relating to loan security packages
  3. Net debt (defined as ‘Total long and short term debt exclusive of lease liabilities less Cash at bank and other escrow monies) includes a Senior Secured Note with a call option, which is subject to final review. Any change in this option value will impact the reported net debt.
  4. Operating expenses plus administrative expenses are defined as total cost of sales, administrative and other operating expenses excluding transaction costs, royalty and depletion, depreciation and amortisation

Andrew Knott, CEO of Savannah Energy, said: 

“I am extremely pleased to be able to announce a strong set of initial results for 2021. We have exceeded our guidance set out at the beginning of 2021, with our Nigerian assets continuing to perform well throughout the period. In addition, our financial performance in the year was very strong and operationally we were able to announce new gas sales contracts in Nigeria, as well as commencing first gas sales under the FIPL Afam contract. Since the announcement of our acquisition of the Nigerian assets we have clearly demonstrated significant underlying asset value creation: for example, 2017 – 2021 Total Revenues1 have increased by 65% and Cash Collections by 92%.

Looking forward we will continue to seek to execute our “Projects that Matter” strategy as we continue to review opportunities in the renewable energy space and further upstream and midstream asset acquisitions, deliver further operational and financial progress in Nigeria and Niger and close out our planned acquisitions in Chad and Cameroon. We look forward to updating our stakeholders as to the progress we make.”

Whichever way you look at this update it is excellent across the board, with total returns strongly ahead of guidance, strong cash balances and net debt down and total cash collections from the Nigerian assets up 11% to $208.2m. Elsewhere the company is continuing to keep a strong grip on the cost base and DD&A of $20m for fixed infrastructure costs plus $2.3/boe is down some 27% due to the Nigeria reserves increase whilst capex is significantly down due to completion of the Uquo 11 works now completing in 2022.

Operationally SAVE also continues to beat targets set for it and it has announced new gas sales contracts in Nigeria, as well as commencing first gas sales under the FIPL Afam contract. The figures from Nigeria are compelling and with 88.1% of gas show just how good those Uquo production stats are.

Since returning from suspension the shares have started to appreciate but my feeling is that there is still very significant upside, with these excellent historical numbers and of course the changes to come from most recent acquisitions, give me a very much higher target than this level. 

Advance Energy

Advance Energy, the energy company seeking growth through acquisition or farm-in to non-operated interests in discovered upstream projects, provides the following update on the Buffalo-10 well, located offshore Timor-Leste.

The Operator, Carnarvon Petroleum Timor, Lda., has advised the Company that since the last update the wireline logging operations have been completed with only residual oil being encountered.

The well will therefore be plugged and abandoned, and the rig demobilised.

Leslie Peterkin, CEO of Advance Energy, commented:

“The results of B-10 are both disappointing and hugely surprising given the independently verified risk assessment which confirmed a highly likely commercial outcome from the well. Across the JV, we invested a significant amount of technical work into the project which underpinned our high degree of confidence that the well would unlock the significant value of the field.

The post-well evaluation indicates that the well was drilled into the hanging wall of a fault, although uncertainty in seismic resolution also contributed to the reservoir being significantly deeper than expected at this location. It is not the case that this result means that all of the attic oil volumes certified by RISC have been negated. The Buffalo Joint Venture will conduct further technical analysis in the coming weeks to fully understand why the attic was not encountered as prognosed at the drilled location.

We believe it is likely that the JV will relinquish the Buffalo asset as neither company wishes to fund a second appraisal well in the field.

Looking ahead, Advance Energy remains funded for the immediate near-term and the team has been working on a pipeline of identified, attractive opportunities. We will now turn our full attention to bringing at least one of these to fruition this year. These are value accretive opportunities and include an opportunity with cash flow, which would be suitable for debt or vendor financing.  Our immediate priority will be to significantly reduce costs while we assess the next steps for the growth of the Company.”

 This really is one of those cases where I can add virtually nothing, everyone involved, myself included, thought that the well would unlock significant value and that despite such a high CoS, its failure was such a surprise. Whilst it is  a setback I remain confident that the management will get back on the bike and deliver the goods in the longer term.

Gulf Keystone Petroleum

Gulf Keystone, today provides an operational and corporate update.

Operational

·     Continued strong focus on safety in 2021 despite one previously reported lost time incident (“LTI”); currently no LTIs recorded for over 90 days 

·     Gross average production for 2021 of 43,440 bopd, at the upper end of guidance range; gross average production in 2022 year to date of c.46,800 bopd

·     Drilling of SH-15 progressing well; continue to expect start-up in Q2 2022

·     Due to well productivity, the increase in gross production towards 55,000 bopd has been delayed

o  SH-13 & SH-14

§  Following completion of the acid stimulation programme on SH-13, and the clean-up of SH-14, both wells were brought on stream in December 2021 and their productivity has been below  expectations

§  An acid stimulation programme for SH-14 is currently ongoing

o  SH-12

§  Following the early appearance of trace quantities of water, production from the well has been temporarily curtailed, in line with the Company’s prudent reservoir management strategy. The Company is investigating options to maximise near-term production from the well

§  Water ingress is common in fractured carbonate reservoirs like the Shaikan Field. Gulf Keystone has historically experienced trace amounts of water in a few other wells and has been successfully optimising their production levels. The Company continues to expedite plans to add water handling to further optimise production

·     The Company does not expect any material impact on reserves or medium-term production potential. Considering cumulative gross production of c.99 MMstb, 2P gross reserves are estimated to be 489 MMstb at 31 December 2021, based on the 2020 Competent Person’s Report adjusted for 2021 production

Financial

·     Following $100m of dividends distributed in 2021, Gulf Keystone is pleased to announce that the Board has approved the declaration of an additional interim dividend of $50 million, equivalent to 23.394  US cents per Common Share of the Company

·     The interim dividend is expected to be paid on 25 February 2022, based on a record date of 11 February 2022. The Company will disclose the pounds sterling rate per share prior to the ex-dividend date of 10 February 2022

·      $283.2 million ($221.7 million net to GKP) received from the Kurdistan Regional Government in 2021 for payments of crude oil sales and recovery of outstanding arrears, with an additional $89.0 million ($69.7 million net to GKP) received in January 2022 for the combined September 2021 and October 2021 crude oil sales and arrears payments

·     The current outstanding arrears balance is $28.6 million net to GKP related to the January and February 2020 invoices

·     Robust balance sheet, with a cash balance of $228 million as at 21 January 2022

Outlook

·     The Company expects gross average production for 2022 of 44,000 to 50,000 bopd, reflecting the anticipated production contribution from SH-15 and benefits of well workover activities

·     Gulf Keystone continues to engage with the Ministry of Natural Resources (“MNR”) following the submission of a draft FDP in 2021. The Company will revert to the market at an appropriate time with details on the FDP and updated production guidance

·     With continuing strong oil prices and cash flow generation, there may be opportunities to consider further distributions to shareholders and to optimise the capital structure

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:

We are pleased today to declare an additional interim dividend of $50 million, bringing distributions over the past eight months to $150 million in line with our commitment to balance investment in growth with returns to shareholders.

Since the beginning of 2022, gross production peaked at just over 50,000 bopd and has averaged c.46,800 bopd, versus the 2021 average of 43,440 bopd. However, the lower productivity of recently completed wells, SH-13 and SH-14, and temporarily curtailed production from SH-12, have resulted in a delay in gross production increasing to 55,000 bopd. 2022 gross average production is expected to be 44,000 to 50,000 bopd.

GKP’s substantial production base at current oil prices continues to generate significant cash flow and value for Gulf Keystone’s stakeholders. On approval of our recently submitted Field Development Plan, we are well positioned to achieve sustainable growth from the Shaikan Field, which has delivered close to 100 MMstb, and has 489 MMstb of estimated 2P gross reserves remaining.”

 GKP for now is all about achieving the 55,000 bopd and with the problems at SH-13 and SH-14 that is clearly now on the back burner and guidance for this year is between 44,000 and 50,000 which looks eminently doable and still provides meaningful revenue.

That the company can announce a dividend of 23.394 US cents a share costing some $50m obviously shows a great deal of confidence and they have had good settlements from the KRG before and after Christmas. They still have to agree with the MNR the FDP for the extension of Shaikan, something they probably wish had more certainty about given recent quirky decisions but I can’t see it being a major problem. GKP are pretty well set both for being paid and  expanding the portfolio but some evidence will be needed to confirm that. 

 SDX Energy

SDX has announce the spudding of the MSD-25 infill development well on the Meseda field. This well is the second in a fully-funded 12 well development campaign on the Meseda and Rabul oil fields in the West Gharib concession, Egyptian Eastern Desert. The development drilling campaign is aimed at growing production from current gross rates of c.2,100bbl/d to c.3,500 – 4,000bbl/d by early 2023.

The MSD-25 infill development well on the Meseda field (SDX:50% working interest) spudded on 23 January and is targeting the Asl Formation reservoir at approximately 3,250ft TVDSS. It is estimated that the well will take around six weeks to drill, complete and tie-in to the existing infrastructure. MSD-25, with an expected gross cost to drill and tie in of US$0.9-US$1.0 million, is anticipated to come on-line and produce at around gross 300bbl/d, which would have an immediate effect on Group cashflow and result in a payback period of less than one year at current oil prices. The Company expects to update the market on its result in late February.

 The first well in the campaign, MSD-21, has been tied-in and is on production. MSD-21 is currently cleaning-up and should reach its expected production rate of around gross 300bbl/d in the coming weeks.

Mark Reid, CEO of SDX, commented:

 “I am pleased that we have spud MSD-25, the second well in the campaign, so quickly after bringing MSD-21 onto production, which is testament to the efficiency of the operations team in country and bodes well for completing the campaign in a timely manner. West Gharib is a very high margin asset in our portfolio with a netback of US$35/bbl at US$68/bbl Brent in the first nine months of 2021. Given this, it is our intention to execute this twelve well campaign as quickly as possible and thus significantly boost production and cashflow from these fields. I look forward to updating the market further as the campaign progresses.”

Readers know that I am much more positive about SDX than early last year and with these wells coming in I’m confident that the drilling is paid for with upside for distributions hopefully…

Lamprell

Lamprell is pleased to announce that it has entered into exclusive negotiations as preferred supplier with an international client in the offshore wind industry for a very large contract*. Lamprell will now work with the client to confirm the terms of a reservation agreement that will secure capacity in Lamprell’s Hamriyah yard for the work as negotiations proceed towards contract award.

 The signing of preferred supplier exclusivity is a significant milestone in the contract process albeit it is  not a guarantee of contract. The Group will provide further details of the project in the event of successful conclusion of negotiations.

Christopher McDonald, CEO of Lamprell said: 

“We have seen a ramp up in bidding activity from Q4 2021 and we are currently in advanced stages of tendering with several potential clients across the globe, driven by the increased demand in both of our end markets of renewables and oil & gas.  An emerging trend particularly in renewables sector is the introduction of reservation agreements to secure fabrication yard capacity for projects up to a year in advance   We view these agreements as a very positive sign of forward planning and addressing limited capacity in the industry.”

 (*Lamprell defines a very large contract as having a value in excess of USD 150 million)

Lamprell will issue a trading update on 7 February 2022.

As mentioned before Lamprell goes in big cycles and they are at the moment at the beginning of such a cycle and I would expect the shares to follow at a polite interval. 

Chariot

This announcement is from Friday but I wanted to ensure that investors were aware ahead of the webcast on Wednesday. 

Following the Company’s transformational drilling campaign at the Anchois Gas field on the Lixus Licence, offshore Morocco, the Africa focused transitional energy company, will host a webcast for investors at 12 noon GMT on Wednesday 26 January 2022. There will be a question and answer session at the end and details of the webcast will be provided in a subsequent announcement.

Adonis Pouroulis, Acting CEO of Chariot, commented:

“We are excited about the very positive implications on our Anchois Gas field development and we look forward to updating investors during next week’s webcast.”

And finally…

Time is short so I will cover some stories tomorrow, in the Prem Liverpool won at the Eagles, Chelski beat Spurs and City were held at the Saints. With the Red Devils beating the Hammers the top 8 remains very tight indeed

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 the blog


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