Malcy’s Blog – Oil price, Sound, Chariot, San Leon, Angus, Orcadian, Prospex & finally

WTI $66.18 -$3.77, Brent $70.57 -$2.87, Diff -$4.39 +90c, NG $4.57 -29c, UKNG 238.02p -11.28p

By Malcolm Graham-Wood

Oil price

Very much as I spoke about yesterday, the big fall was already underway thanks to Moderna man’s comments. With Opec+ tomorrow the market has risen by some 3 dollars as I write ahead of that decision. It seems that with the Covid situation, SPR sales and the possibility of Iran returning at some stage the organisation will probably keep that 400/- b/d up its sleeve.

Sound Energy

Sound has announced that material progress has continued to be made towards satisfying the remaining conditions precedents to the Phase 1 LNG Gas sales Agreement announced by the Company on 29 July 2021.The LNG GSA, in relation to the Phase 1 liquified natural gas based development of the Company’s Tendrara Production Concession, is in addition to the Phase 2 development gas sales agreement announced by the Company on 30 November 2021 in relation to the wider, pipeline based, development plan.

 Reflecting ongoing progress, the parties have agreed to extend the date by which conditions precedent to the LNG GSA are required to be satisfied or waived to 17 December 2021. Sound Energy has now satisfied all CPs within its direct control and the material remaining CP to the LNG SPA not currently satisfied relates to the entry of the loan note agreement with Afriquia Gaz described in the Company’s announcement of 29 July 2021 (the “Loan Note Agreement”). Other CPs not satisfied by the date on which the Loan Note Agreement is entered as currently expected to be waived.

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

“Much work has been completed in the last month and contracts finalised with Ital Fluids.  We are confident that all conditions precedent to the LNG GSA will be satisfied imminently and consequently the ‘Notice to Proceed’ with Phase 1 development can be announced once all contracts are executed.” 

Sound continues to deliver the goods on the Phase 1 LNG development at Tendrara and the news that ITAL fluids is on side with a contract ready is exceptionally good. Indeed with the key remaining part being the loan facility which looks like being ready to close by the end of the year is highly encouraging. 

A really good day at the Bourse is only what Sound deserve as all the hard work the management have put in at Tendrara is at long last being appreciated in the share price.

Chariot

Chariot has announced that the Stena Don drilling rig has commenced its mobilisation to Morocco. Chariot has contracted this rig to conduct drilling operations on the Anchois gas field within the Lixus licence, offshore Morocco, with operations anticipated to commence in mid-December 2021.

 Adonis Pouroulis, Acting CEO of Chariot, commented:

“We are excited for drilling operations to get underway at Anchois and we look forward to keeping the market updated on developments as appropriate.”

Not much to add here, this is very good news for Chariot as it moves to drill the Anchois gas field on schedule for mid-December and should represent a very good opportunity which is one of several high return plays building in the Chariot portfolio. 

San Leon Energy

San Leon has provided the following update regarding the outstanding loan notes due from Midwestern Leon Petroleum Limited (“MLPL”).

Further to the announcement on 2 November 2021, San Leon has agreed with MLPL, Midwestern and Martwestern to a further extension of the Conditional Payment Waiver in relation to the payment of approximately US$32 million that was originally due on 5 July 2021 to the end of December 2021 or, if sooner, the termination of discussions or the signing of an agreement to effect the Potential Transaction, as defined below (but otherwise on the same terms as announced on 7 July 2021), which includes a further waiver on the same terms of Midwestern’s obligations to make payment on 30 September 2021 of an amount equal to approximately US$30 million (collectively the “Extended Conditional Payment Waiver”). The sums to which the Extended Conditional Payment Waiver relates (and those falling due within 30 days after the expiry of the Extended Conditional Payment Waiver) will be payable 90 days after such expiry, save for, inter alia, if there is an event of default.

Angus Energy

The Company’s seismic reinterpretation of the Lidsey field is complete and, having been subject to rigorous third party verification, will now be considered by our partners in this Licence. This is the last part of the most comprehensive review of the Lidsey structure ever carried out and includes the reprocessing of all historical seismic lines, the use of a newly acquired east-west seismic line over the field and the data from both the wells on the field and also nearby wells.

This remapping has resulted in some further changes to the shape of the structure but it now fits and is consistent with all of the available data.  The Company is confident that the new field mapping explains the issues which were experienced with the Lidsey X2 well in 2017.  It is now the Directors’ clear belief that the structure culminates near the wellsite area and extends to the east and northeast.  Prior to the drilling of Lidsey X2, it was thought that the structure extended to the west and the westerly trajectory of the Lidsey X2 well accordingly targeted an area close to the edge of the structure.

The new mapping shows there to be a significant structure not dissimilar in area to the original structure considered by the previous Competent Person’s Report, which continues to support a commercially significant estimate of oil in place.

However, the interpretation does allow Angus to narrow its field of focus in target selection and explore low-cost options for remediation of the field’s productivity centre around the reuse, work-over or side-tracking of the existing wells and these will be considered with our partners in the next stage of the work.

The Company’s re-mapping of the structure also shows it to extend a significant distance out of the licence area in some scenarios and Angus is now opening a dialogue with the holder of that surrounding licence to consider how we might proceed together to address the future of the field.

 We continue to work with suppliers and contractors to maintain our procurement and build schedule targeting First Gas at the Saltfleetby Gas Field at the end of February.  The full schedule involves over a thousand pieces of equipment, including valves, actuators, circuits, vessels, pipes and flanges.  Most of the componentry is off the shelf, but taking here the highlights of only the more significant bespoke items:  with our Kaldair Flare now on site, this will be followed by:

 1)    Elster-Honeywell Metering and Analysis skid in early December 2021

2)    Condensate and water storage tanks in early January 2022

3)    Site power gas fired Caterpillar generator from mid January 2022

4)    First Service Compressor and Caterpillar engine in late January/early February 2022

5)    Electrical/control housing units 2nd to 3rd week February 2022

6)    Gas process plant elements commencing mid February 2022

7)    Second Service Compressor and Caterpillar engine in March 2022 – this is for additional flow arising from the side-track itself scheduled for April/May 2022

 Site civil engineering is under tender and slated to begin in mid-December running through to mid-January, starting with piling, foundationing and, where appropriate, bunding for the flare, storage tanks and compressors and ending with pipe racks supports.  Pipework procurement has also begun and welding is scheduled to take place on a continuous basis from early January through to the end of February.  Electrical, control and instrumentation installation layout will begin at the end of January with tie-in to particular skids as they arrive. 

Of necessity, we operate amidst the backdrop of a disrupted supply and logistical environment, and our suppliers, whilst advising us of the same, have shown a willingness to work with us to tighten advised delivery timetables wherever possible.  Further updates will be provided as appropriate.

 Saltfleetby SF07 Side-track Timing

The rig procurement for the side-track continues to be held back by logistical issues and rather than risk a drilling programme running over into our commissioning timetable, the Company has decided to defer the side-track until shortly after First Gas (as set out in Item 7 of the timeline above).  Whilst simultaneous drilling and commissioning operations are not considered to be safe, simultaneous drilling and production operations are manageable once the plant can evidence reliable and stable flow of sales gas and good functioning of all safety equipment.  The Company is preparing for the requisite risk evaluation of a drilling programme commencing in April without disrupting production.

This report from Angus contains everything except a comment from the CEO which is a shame as there is much to commend in it. The potential for the structure shown by the mapping is very positive as is the opportunity to develop it in a very economical way despite the large amount of kit and logistical challenges associated with it. Angus has come a very long way this year and looks very interesting indeed. 

Orcadian Energy

Orcadian has announce that it has received a “Letter of no objection” from the Oil and Gas Authority in respect of the development concept for the Pilot field.  This letter signals the finalisation of the “Assessment phase” and the entry into the “Authorisation phase” of development planning for the Pilot Field.

The letter acknowledges receipt of the Concept Select Report and subsequent Addendum (the “Concept Select Documents”), which were submitted in accordance with the OGA’s Requirements for the planning of, and consent to, UKCS field developments guidance:

https://www.ogauthority.co.uk/media/7803/fdp_guidance_111021.pdf.

The development concept for the Pilot field is based upon the use of polymer flooding to maximise economic recovery, implemented using an FPSO, two wellhead platforms and over thirty production and injection wells. Energy requirements for the development are to be largely supplied by a floating wind turbine unit supplemented by associated gas. This is as detailed in the Company’s Admission Document, and as amended by the submission of the CSR Addendum in July 2021, described in the announcement dated 15 July 2021.

The letter states that, based on the information provided to date and the OGA’s current understanding of that information, the OGA has no objection to Orcadian preparing a Field Development Plan (FDP) for the Pilot Field as described in the Concept Select Documents.

The facilities concept delivers a well optimised process heat management scheme and includes a local wind power system, with highly efficient backup gas engines, to significantly reduce emissions. Scope 1 and Scope 2 emissions over the life of field have been estimated, by the Company’s client engineers Crondall Energy, to be 2.6 kgCO2e per barrel, about an eighth of the North Sea average emissions in 2020: 20.0 kgCO2e/boe, and less than half of the lowest emitting oil facility currently operating on the UKCS:

https://www.ogauthority.co.uk/the-move-to-net-zero/net-zero-benchmarking-and-analysis/carbon-emissions-intensity-analysis/

 The Company is preparing a plan to advance the FDP and progress the project through the Authorisation phase, with a particular focus on securing a contract for the provision of a FPSO (a floating production, storage and offloading vessel). As already announced the Company has engaged Crondall to assist with this and a short list of three providers have been identified (see announcement dated 28 October 2021). The Directors believe this vessel selection to be a crucial step in the process of finalising the basis of design for the rest of the development at Pilot and the commercial terms offered by the contractors will fundamentally define the capital requirements of the project. Further updates will be provided as appropriate.

 Steve Brown, Orcadian’s CEO, said:

“The letter of no objection for the concept select study from the OGA is a really important step in the progress towards the development of the Pilot Field.

“This is also particularly pleasing for us given the extensive work that the team have done to address the net zero aspects of the development.  We believe the plan that we have developed, once executed, will ensure that the Pilot Field emissions will lie in the lowest 5% of global oil production, an incredible achievement and one in keeping with the drive to net zero whilst continuing to ensure energy security in the UK.

“We look forward to continuing to work with the OGA and our other partners in taking this development forward.”

Ever since I met the Orcadian team some time ago I felt that the Pilot field had a lot going for it and that it is a very investible project, this letter from the OGA takes the development a large step further forward. Only on the market since the summer Orcadian deserves to be on investor watch lists.

Prospex Energy

Prospex has provided an update on the El Romeral plant optimisation project in southern Spain, in which the Company holds a 49.9% working interest, through its interest in Tarba Energía.

The plant optimisation programme was delayed by computer technology supply chain issues which have since been addressed.  The last items of equipment necessary to automate plant operations arrived to allow the plant automation upgrades to commence on 21 November 2021.  After some technical issues were encountered with the installation of the new control systems and the completion of a run-in and optimisation programme, the plant upgrades have been successfully integrated. As a result of these actions the plant recommenced continuous stable electricity generation on 26 November 2021.

The El Romeral power plant can now be operated 24 hours a day, 7 days a week, switching between the two operational generators as required.  Continuous operations resulting from this system optimisation project may allow an increase in power generation income of up to 65%.  With the installation of the new remote monitoring and control systems, the plant can now be run with reduced manual intervention, thereby also reducing the overhead and the operational expenditure of the project.  In addition to this, reservoir management is also optimised because a constant flow of gas from a gas well is preferable to shutting in production every week as the plant was hitherto not usually operational on a Sunday.

Mark Routh Prospex’s CEO commented:

“Whilst it is frustrating that the global semiconductor supply shortages delayed the start of this optimisation programme, I am very pleased to report that the project has now completed safely and on budget.  We will of course continue to monitor the performance of the plant and the gas reservoirs very closely and will record the performance statistics of the expected increased power generation capacity, which I expect to share at the next operational update.”

Good news at last from Prospex as the Spanish plant eventually gets underway. Operationally it seems to be up and running and for that the company will be very grateful. The next update will be very important as it will show just how much power the plant is generating and more importantly how much money it will make.

Without pre-judging that it will have to be pretty substantial as previous form shows a mixed bag of production from the gas wells and also it is not without technical hurdles. The jury is still out here and of course much is resting on Spain in the absence of corporate additions…

And finally…

In the Prem last night the Magpies and the Canaries drew 1-1 but Leeds saw off the Eagles 1-0. Tonight as Amazon week with all matches live on Prime we can see the Saints hosting the Foxes, Chelski at the Hornets, the Hammers entertain the Seagulls, Burnley are at Wolves, Villa host the Noisy Neighbours and it’s the Liverpool derby at Goodison Park.

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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