Malcy’s Blog – Oil price, Sound Energy, Diversified Energy, Advance Energy, Longboat Energy & finally

WTI $69.95 +$1.80, Brent $73.44 +72c, Diff -$3.49 -$1.08, NG $4.85 -62.3c, UKNG 249.3p +9.3p

By Malcolm Graham-Wood

Oil price

Having risen sharply yesterday, although it had been higher during the day, this morning oil has lost just over $1.50 after an interview with the FT by the Moderna CEO who suggested that current vaccines may be less effective against the Omicron variant. He must of been saying those words just as I was having my Moderna booster, thank you very much mate!

In addition to that Fed Chairman Powell said that Omicron ‘poses downside risk to the US economy and muddle an uncertain inflation outlook’. If any more was needed a US State Department envoy said yesterday that the US would release more barrels from the SPR if necessary, the US has to understand that the SPR is simply isn’t big enough to make a difference, ‘a drop in the ocean’ as G Sachs said recently. Finally to rub salt in the wound, the nuclear talks resumed yesterday but given that Iran has said that sanctions would have to be lifted before they made any concessions you would have thought that it was a non-starter but then the incompetence of this administration is proving to be awesome.

Retail gasoline is remarkably quiet given it is what Sleepy Joe is grumbling about with a gallon of Exxon’s finest going for an average of $3.38 last week down 1.5c w/w, falling 1c m/m but obviously up $1.26 y/y. As if all that wasn’t enough the Opec+ meeting is scheduled for Thursday after the two committees have met tomorrow and will decide on the policy then but don’t be surprised if it runs through Friday or longer.

Sound Energy

Sound has announced that it has entered into a binding gas sale and purchase agreement in respect of the Phase 2 development of the Tendrara Production Concession with Morocco’s state-owned power Company ONEE for the sale of natural gas from the Tendrara Concession in Eastern Morocco over a 10 year period.

The Company has entered into the GSA, which is in addition to the conditional Phase 1 micro liquified natural gas TE-5 Horst development related gas sales agreement entered into by the Company with Afriquia Gaz and announced by the Company on 29 July 2021, alongside its state-owned Tendrara Production Concession partner ONHYM.

Under the GSA, the Tendrara JV Partners have conditionally committed to producing, processing and delivering gas from the Tendrara Production Concession, in accordance with required ONEE gas specifications, to the Gas Maghreb-Europe pipeline connecting Algeria to Spain and crossing Morocco, for an annual contractual volume up to  350 million cubic meters of natural gas per year for a period of 10 years, with an annual take or pay volume of 300 million cubic meters.

The GSA includes a fixed unitary price for the annual volume of 0.3 bcm per annum (approximately 29.0 MMscf/d or a minimum amount of energy of approximatively 10.5 million MMbtu per annum to be delivered at the point of sale), which will result in annual gross revenues attributable to the Tendrara concession (100%) as envisaged in the original binding memorandum of understanding between the parties announced by the Company on 30 October 2019

The GSA is conditional upon, inter alia: (i) all necessary authorisations and permits having been granted for the construction of the Phase 2 gas installations (ii) the final investment decision, when taken, by the Tendrara JV Partners, being approved by the Moroccan Ministries of Transition Energy and Sustainable Development and Economy and Finance; and (iii) the entry by the Tendrara JV Partners of an interconnection agreement with the operator of the GME Pipeline, and the commencement of works, for the connection of the Tendrara Production Concession to the GME Pipeline. The conditions to the GSA are required to be satisfied within 90 days of signature, however an extension is allowable with the consent of all parties.

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

“The agreement of the GSA is an important and long-awaited step which will allow the Company to progress development planning for the proposed TE-5 Horst Phase 2 development. It also underpins the ongoing discussions with potential and identified funding partners. These potential partners have expressed strong interest in participation in the proposed regional infrastructure and asset development via vendor financing, equity participation and alternate lending solutions, in order to build the long-term domestic infrastructure and gas supply in and for Morocco. Satisfying the conditions precedent within a tight 90-day timetable is challenging, however all parties have expressed support to conclude with financiers.

We are delighted with this confirmation that the UK-Morocco, ONHYM and Sound Energy partnership is working well, and such a business partnership can enhance, with the strong support of our shareholders and our local partners, the expected 5.7% economic growth of the Kingdom of Morocco despite the COVID-19 pandemic.”

Things have been going well for some time as Chairman Graham Lyon continues the restructuring and this is further good news for investors. Getting the State company buying the gas, as well as infrastructure to be added in the area to facilitate further exploration and development of the Tendrara Horst is game changing for the company and Morocco as they build partnerships with investing companies. 

Finally the news adds to the micro LNG which gives Sound a significant revenue stream post first gas and for the longer term. Today the shares have added c.6% which is good but as this news starts to build value for Sound the shares should be starting to make much more progress. 

Diversified Energy Company

Diversified Energy announced today that to support methane-reduction commitments it made at its Capital Markets Day event, it has engaged Bridger Photonics, a leading provider of methane leak detection technology, to perform multi-year aerial scans of the Company’s natural gas production and distribution assets starting with the Appalachian region.

Bozeman, Montana-based Bridger specialises in the application of precision laser imaging, detection, and ranging (LiDAR) equipment to identify methane emissions from gas and oil facilities. “We are thrilled to support Diversified Energy’s leadership role and strong commitment to emissions reduction,” said Pete Roos, President and CEO of Bridger Photonics. “Our Gas Mapping LiDAR technology will efficiently detect, pinpoint, and quantify typically more than 90% of basin emissions to inform and streamline Diversified’s repair and maintenance activities,” Roos added.

In early 2021, Diversified collaborated with Bridger to aerially detect fugitive natural gas emissions in a large segment of pipeline the Company acquired in Appalachia. During the field trial, Diversified confirmed that Bridger’s advanced LiDAR technology detected emissions well below the EPA-defined leak definition of 500 parts per million.

Based on the successful field trial and as part of its $15 million annual initial funding commitment, the Company will expand its investment in aerial emissions scanning activities by spending $3 million per year on this aerial methane emissions detection over the next three years. This partnership with Bridger further validates the Company’s investment in aerial LiDAR announced at its 17 November 2021 Capital Markets Day. Initially, Diversified will focus its scanning efforts on its Appalachian operations, and expects to expand the programme to cover its assets in the Central Region.

The aerial emissions detection scans, coupled with newly deployed handheld detection devices, support Diversified’s commitment to perform comprehensive fugitive emissions assessments at all Appalachia wells by mid-2023, reflective of Diversified’s zero-tolerance policy toward fugitive natural gas emissions. Diversified’s investment in aerial emissions detection is an extension of its Smarter Asset Management programme focused on operational excellence, stewardship of existing assets and enhanced asset integrity that serves as a return on this methane emission-reduction investment.

Reflecting its ongoing commitment to Environmental, Social and Governance performance, the Company continues to evaluate additional emission reduction investment opportunities. The Company remains committed to documenting and publicly disclosing the results of its emissions detection and repair activities, which it designs to meet or exceed state and federal regulatory requirements.

Rusty Hutson, Jr., CEO of the Company, commented:

“Today’s commitment to invest $9 million over the next three years into advanced LiDAR technology supports our near-term goal to reduce our 2020-level methane emissions by 30% by 2026 on the way to net-zero by 2040. Adding aerial emissions detection to the handheld devices we’ve placed in the hands of our skilled well tenders further enhances our ability to detect and repair fugitive emissions across our asset base. Our partnership with the Bridger team is another important milestone as we continue to evaluate other investments that will support our methane-reduction initiatives.”

I was at the Capital Markets Day recently and having met many of the on the ground executives and listened to their talks I can confirm that DEC is 100% committed to the net zero from the top down. For choice I would expect those execs to beat their targets and this deal will make that job significantly easier. At below 100p DEC is outstandingly cheap and offers a huge yield both in income and capital return and will stay in the upcoming Bucket List thoughts I’m sure.

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 project offshore Timor-Leste ahead of the drilling of the Buffalo-10 well.

The Operator, Carnarvon Petroleum Timor, Lda., has been advised that the Valaris JU-107 jack-up rig is in the final stages of its current operations with another operator, with rig handover expected within the next two weeks. The operations team is waiting and ready to receive the Valaris JU-107 jack-up rig to commence drilling operations at the Buffalo-10 well-site.  Logistics teams are in place, and all appropriate support services and equipment have been contracted, with the last remaining regulatory approvals expected prior to receipt of the rig.

 The Buffalo-10 well is designed to test the presence of a significant attic oil accumulation that remains after the original development was closed-in and convert the 2C certified resources of 34.3 MMstb to reserves following re-certification. A further update will be provided upon mobilisation of the drilling rig to the Buffalo Project location.

Leslie Peterkin, CEO of Advance Energy, commented:

“We are pleased to note that the drilling preparations are all going smoothly and that the Operator has confirmed the rig handover will occur in a couple of weeks.  The drilling of the Buffalo-10 well is a major event for Advance Energy and we look forward to providing further updates at the appropriate operational milestones.”

Exciting times for Advance shareholders who are waiting for the Buffalo well to start which is now imminent, the well is in shallow water depth of 30 metres, with reservoir depth between 3,200-3,300 metres and has a mid case recoverable volume estimate of 34 million barrels (gross, 2C contingent resource).

Buffalo-10 is considered by RISC Advisory to have an 85% probability of confirming a sanctionable development project based on the minimum economic field size and on success Buffalo-10 is to be retained as first production well in any development program. With the company in the process of discussions to facilitate accelerated first production the development  should prove to be a very swift return to shareholders and the outlook is highly promising.

Longboat Energy

Longboat has announced the posting of a new presentation on its website and whilst I don’t normally comment on such announcements I think it is a useful if brief update on where they are right now. 

Firstly, the Egyptian Vulture evaluation underway to quantify upside resource potential and drilling at Ginny/Hermine is expected to commence in December.

The 2022 programme is expected to commence in Q1 with the Kveikje well followed back-to-back by Cambozola and a high impact drilling programme continues with four wells targeting a further 75mmboe (net).

Longboat has cash at 31 October 2021 of £34.9m (unaudited) and further tax rebates for 2021 of £16m (unaudited).

To me Longboat looks to be a very exciting opportunity to participate in an exciting drilling programme put together by a proven management team who have delivered before in cash… 

And finally…

Plenty of Prem matches over the next few days with tonight seeing two new managers facing up to each other as the Canaries visit the Magpies and Leeds host the Eagles.

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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