Malcy’s Blog – Oil price, Serica Energy, President Energy, Trinity Exploration, SDX Energy & finally

WTI $78.39 -11c, Brent $82.35 -6c, Diff -$3.86 +5c, NG $5.11 +11c, UKNG 228.0p -2.0p

By Malcolm Graham-Wood

Oil price

A very Happy Thanksgiving today to all my US readers, have a great day off and of course Black Friday tomorrow…

Interesting that the IEA stuck its nose into the process by allegedly accusing Opec+ of creating an artificial tightness in global oil and gas markets and should accelerate supplies. They went on to say, ‘We recognise that the rise in oil prices is placing a burden on consumers and has added to inflationary pressures during a period when the economic recovery remains uneven and faces a range of risks’.

Whatever the game is, it is in 1Q 2022 as Opec+ are still on schedule to add 400/- b/d and the SPR partners will add some 300/- b/d at best and that is loaned to the market and will have to be bought back later, roll on Dec 1/2…

The Baker Hughes rig count added 6 rigs overall to 569 with oil up 6 at 467. I am seeing some signs of US production rising despite an anti-energy policy from The White House and banks and investors resisting oil companies requests to open up the spigots which at $80 WTI would obviously be highly profitable.

Houston – Texas

Thanks for all your interest in the blog coming from Houston last week. I can report that on many fronts signs of activity are all around. Firstly people are flocking to the City and oil deals are very much back on the front burner, at $80 WTI Houston is buzzing and just looking at the costs of flights into town are eye watering. Restaurants and bars are packed and also expensive as inflation has definitely taken on.

I went primarily to go to the Diversified Energy Capital Markets Day and as I wrote last week I wasn’t disappointed, it was a great opportunity not only hear the formal presentations but also to meet with line management and many had come to the day.

I also met with a couple of specialist debt providers to E&P companies who told me that business is very good and confirmed that they and the banks are not letting oil companies go mad, at least not yet. Finally just between you and me the biggest commodity in town is coal where, like it or not buyers abound..

Finally like a number of my readers for many years  I have tried to get hold of Frontera Resources boss Zaza Mamulaishvili but I wasnt feeling confident, my use of a local Attorney to find the office a while ago failed and I used a local phone to dial his number just in case but to no avail. I admitted  some time ago that I made a mistake with Frontera which really irritated me as I didnt think at the time that I had got it so wrong on both the man and the company.

Serica Energy

Serica has provided an update on its Columbus field, located in the Central North Sea. ‘We are pleased to announce that first production has been achieved from Columbus. Hydrocarbons from the C1z development well started flowing into the Arran subsea system on 24 November. The comingled Arran and Columbus production streams are now being exported to the Shearwater platform for processing and onward export to the gas and liquid sales points. Columbus is expected to be producing at its potential by early December. Further information on flow rates will be issued as part of an Operations Update in mid-December’.

 Mitch Flegg, Chief Executive of Serica Energy, commented:

“I am delighted that first production has been achieved, as planned, during Q4 2021.

This marks a significant milestone for Serica as it reaches the successful conclusion of its first development project. The Company was involved in the original discovery of Columbus and has acted as Operator through the appraisal and development phases and now into operations. I look forward to updating the market in mid-December by which time we expect to have ramped up production to a stable level.

Serica’s approach to increasing its production base and providing much needed energy to the UK while seeking lower carbon emission solutions, has been achieved by using shared existing infrastructure to progress the development of Columbus.

This has been a complex project and I would once again like to acknowledge the skill, hard-work and dedication of our project team, the Shearwater and Arran Operators and our joint venture partners Waldorf Production UK Ltd. and Tailwind Energy Ltd.”

Another operational success for Serica who have now added more hydrocarbons and hence revenues at today’s still extremely high prices. Come mid-December we will get a handle on the more exact numbers, they will be very pleasing. The share price is off the top from when gas prices peaked on October 3rd at 301p but today’s price is still a more than handsome 228p and rest assured Serica is doing very well indeed and I’m sure will remain on the upcoming renewal of the Bucket List…

President Energy

President has confirmed that the farm-out to CPC Corporation, Taiwan (“CPC”), the state owned energy company of Taiwan as inter alia referred to in the Company announcements of 8 June and 3 September 2021, has now fully completed, on the terms referred to in the announcements, after satisfaction of all applicable conditions.

CPC and President, through their subsidiary companies, now have an equal 50/50 interest in the Pirity Concession, Paraguay with President continuing as operator under an international form of Joint Operating Agreement.

Both CPC and President look forward to the drilling of the exploration well at the Delray Complex within the Concession. The Company estimates that this complex has 230 million barrels of Pmean unrisked original oil in place. The location of the exploration well within the complex has been identified and planning has begun for the drilling of the well in H1 2022 after the end of the rainy season.

The well to be drilled is in a different part of the Concession, with completely differing sub-surface features and structure to the two wells drilled by President in 2014. Whilst all exploration drilling is prudently and necessarily weighted heavily to the downside in terms of success, Delray with its complex of prospects is the stand-out exploration location to be drilled in the Concession geologically as well as in relation to the size of the container aka the prize.

Peter Levine, Chairman of the Company commented:

“We are very pleased to have CPC as a partner in our oil business in Paraguay and look forward to working with them

“It is obvious that all exploration carries a health warning with material risks to the downside. However, the learnings from our previous wells in an entirely different structure within the Concession together with subsequent sub-surface studies at Delray points to the fact that the forthcoming exploration well and size of the prize is a compelling well to drill

“The Taiwanese authorities have acted honourably and transparently throughout our discussions which were intersected and understandably lengthened by the COVID epidemic. It is clear CPC have significant in-house expertise and that their involvement in this project has been carefully and thoroughly considered from a technical point of view. Their expertise will be mutually beneficial going forward

“Taiwan has long established links with Paraguay and is a great and valued friend of the country. We look forward to playing our part in strengthening those relations further by this newly established venture and also look forward to possibilities of expanding our relationship with CPC as opportunities may present themselves”.

It is a busy time at President and this confirmation of the Paraguay farm-out is very welcome although I wonder if many would have guessed the identity of the farminee. With things going well operationally in Argentina, debt financing and the potential from Atome if these things don’t get the share price up then nothing will…..

Trinity Exploration & Production

Trinity has announced that it has received approval for the Field Development Plan for the Galeota Asset Development Project from the Ministry of Energy and Energy Industries. The comprehensive and relatively quick approval by the MEEI review team, against the background of the pandemic, is extremely helpful and provides a suitably matured development concept which can be reviewed by potential funding partners as part of the farm-down process.

The FDP is focused on the Phase 1 development of the Galeota licence, which has the potential to add additional peak production of c4,000 bopd on the submitted development concept. More recent dynamic modelling has indicated that intra-year peak production could be significantly higher, at up to 7,000 bopd. It is also worth noting that a large proportion of Trinity’s total tax loss position (cUSD 165 million of USD 237 million as at YE 2020) can be applied to the Galeota field development, which further underpins its economics.

Jeremy Bridglalsingh, Chief Executive Officer, commented:

“We would like to thank the MEEI for their comprehensive and speedy response to our FDP submission. Their approval is a critical milestone as we move towards a Final Investment Decision.  The next milestone on the critical path is to commence the farm-down process in early December.  The Competent Person’s Report will be finalised in advance of this process, and will form a key assurance document within our Data Room.

“We are pleased by the feedback from the MEEI as to the quality of the FDP submitted, and are encouraged by their view to consider increasing the facility size to increase the recoverable reserves.

“We are continuing to work assiduously on a number of fronts as we move towards FID at the earliest opportunity and are extremely excited by the potential of this development. We believe that the quality of the asset and project maturity, the potential for meaningful fiscal incentives for the sector and the applicability of a significant proportion of our tax losses to Galeota make it a highly attractive opportunity.

“Furthermore, the agreement of a new 25 year Licence earlier this year, and the associated improvement in the commercial terms governing Galeota, were crucial milestones that should further enable Trinity to attract funding partners as part of a farm-down process and move towards a FID.”

The approval for Galeota is a very welcome move for Trinity and should make for a long term, economically attractive asset. The shares have found it difficult to progress this year but as long as short term production is still growing then this longer term news is very welcome. 

SDX Energy

I missed the SDX  results last week as I was flying back from Houston so I took the chance when kindly offered to have a catch-up with Mark Reid and Nick Box yesterday. Whilst the results themselves are important I was keen to hear about prospects for the next few month with the drillbit. Here’s what Mark said last week

Mark Reid, CEO of SDX, commented:

 The first nine months of 2021 delivered strong growth in revenue, Netback and EBITDAX and resulted in a 50% increase in operating cash flows versus the same period in 2020, predominantly due to increased gas demand in Morocco and improved commodity pricing. The Company ended the period with a strong liquidity position and a significant net cash position of just under $10 million, which fully funds our work programmes for 2021 and 2022. Our producing assets in Egypt and Morocco continued to perform well in the period meaning that we remain above our mid-point guidance for the year with significant development opportunities in the next eighteen months to increase production further. We look forward to the imminent start of our second drilling campaign of the year in Morocco, drilling two wells before the year-end and obtaining the results of the first development well in a 13-well campaign at West Gharib in Egypt, which will give the Group the opportunity to instantly increase its exposure to the current high oil prices.”

Having started to become more positive on SDX it has been good to have been able to have two meetings with the company recently. I am excited to see a very full and diverse drilling programme in 2022 in South Disouq, West Gharib and Morocco. 

South Disouq has Sobhi East, a compartment of the Sobhi Field, undrained by the original SD-12X well and drilling that will be an 80% COS to be followed by Warda (40%) and Mohsen (40%) wells. At Warda SDX think that IPR may elect to participate but at Mohsen perhaps less likely to. A complication, albeit a potentially exciting one is that the El Deep prospect may be connected to Mohsen and of course the giant Shikabala Deep has a P50 of 59.9bcf. 

West Gharib which is now licence extended to November 2031 will see SDX drill 13 relatively cheap wells, around $500,000 each, as well as facilities upgrades to be completed. Finally in Morocco it is ‘business as usual’ 2 wells first then another 2 making 4 wells to complete in 2022 which should see highly rewarding revenue.

So SDX has a full and diverse programme in the next year and despite a very wide range of gas prices received from South Disouq at $2.85 up to $11.50 in Morocco it is all self funding so will not require any additional shareholder commitment unless circumstances change, indeed I suspect a return to shareholders is also a possibility should success come knocking. The company should be back on the radar screen for 2022 and the opportunities it may present. 

And finally…

Last night in the Champions League the Noisy Neighbours beat PSG 2-1 and Liverpool beat Porto 2-0.

Tonight in the Boropa Cup the Hammers visit Rapid Vienna, the Foxes host Legia Warsaw, Rangers host Sparta Prague and Celtic are at Bayer Leverkusen.

And Richard Madeley has already left the Welsh castle, get me out of here

The opinions expressed here are those of the author

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 blog


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