Malcy’s Blog – Oil price, Sound Energy, Gulfsands, Touchstone Exploration, Rockhopper Exploration & finally

WTI $68.23 -$2.63, Brent $71.52 -$2.00, Diff-$3.29 -40c, NG $3.83 +14c, UKNG 394.1p +34.1p

By Malcolm Graham-Wood

Oil price

Oil saw a sell-off yesterday, this morning it is reversed, apparently the professional money managers were taking money off the table in WTI ahead of the year end…

Sound Energy

Sound announced on Friday that material progress has continued to be made towards satisfying  the remaining conditions precedent 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, and had been expected to become unconditional on or before 17 December 2021.

Reflecting ongoing progress, the parties to the LNG GSA now anticipate execution of final documentation, including in relation to the key loan note agreement described in the Company’s announcement of 29 July 2021, and the waiver of any outstanding conditions precedent shortly – with documentation in the final stages of preparation. As a result, the LNG GSA long stop date has now been revised to 31 December 2021.

Graham Lyon, Sound Energy Chairman, commented:

“With much progress made we are very pleased to be nearing the finalisation and execution of documentation which will enable the Phase 1 LNG GSA to become unconditional and for the Phase 1 Notice to Proceed to be provided thereafter. I look forward to updating shareholders in this regard in due course”

Further good news from Sound on Friday who continue to deliver on its promises. With the revision only pushed back to the end of December they must be nearly there and the ability to get lawyers to complete this over the Christmas and New Year holidays is some logistical issue… Graham Lyon continues to work his magic.

Gulfsands

Gulfsands Petroleum has announced that it has agreed an extension and expansion of its existing Secured Term Financing Facility with its major shareholders, Waterford Finance and Investment Limited and Blake Holdings Limited.

The Facility, which was due to mature on 31st December 2021, has been extended to 31st December 2023 and has been expanded by the addition of new drawdown tranches of up to £6.5 million to cover expected General and Administrative costs for the next two years and some potential business development activity.

The Facility remains convertible by the Lenders, at any time, into new Ordinary Shares at a price of 5 pence per Ordinary Share.  The Company also has the ability to convert the Facility into new ordinary shares, absent an event of default, at maturity, at a now fixed price of also 5 pence per Ordinary Share.

Gulfsands’ strategy continues to be to protect and preserve its rights in respect of its world class Block 26 asset in Syria, which remains in force majeure due to UK sanctions, and to prepare for a return when circumstances allow.  It continues to work with the international community to facilitate such a return.  The Company is also active in seeking business development opportunities in the broader Middle East and broader MENA region.

Gulfsands’ shares continue to trade through a series of periodic auctions via the Asset Match trading platform.  The next auction is due to close at 4pm on 13th January 2022. Investors can register their interest for further information on the Asset Match auction process by emailing gulfsands@assetmatch.com or by visiting the Asset Match website at www.assetmatch.com.

Gulfsands’ Managing Director Mr. John Bell commented

“We are delighted to receive the continued support of our major shareholders through the extension and expansion of the Facility.  This gives Gulfsands a further two years to both develop its regional presence through business development as well as working with the international community to enable a return to operations in Syria.”

Those who follow Gulfsands know that I have always liked its asset position and the management has stuck with it through thick and thin and this is a proper show of confidence by its major shareholders. I am convinced that one day shareholders will be rewarded for their patience many times over. 

Touchstone Exploration

Touchstone has announced the results of the final production test at the Royston-1 exploration well which has confirmed a light oil discovery in the upper most section of the Herrera Formation. Touchstone has an 80 percent operating working interest in the well, which is located on the onshore Ortoire block on the island of Trinidad. Heritage Petroleum Company Limited holds the remaining 20 percent working interest.

The third Royston-1 completion and exploration test was designed to evaluate an interval at the top of the overthrust sheet of the Herrera Formation. The completion spanned an 84-foot gross interval (56-feet of net pay). The zone was perforated on December 16, 2021 and was opened to flow on December 17, 2021 on a 10/64 inch choke. Initial shut-in surface pressure was 2,900 psi indicating a downhole pressure of approximately 7,100 psi.

The choke was increased to 20/64 inches, and the well flowed at rates up to 1,368 bbls/d of total fluids with indicated oil cuts between 40% and 60% of 31-degree API sweet crude (corrected to 60-degree Fahrenheit). A non-measurable amount of solution gas was also observed during the test. Following an initial shut-in period, the well resumed flow with choke sizes between 20/64 inches and 40/64 inches.

 In aggregate, the well produced 1,786 barrels of total fluid at an average flow rate of 705 bbls/d with oil cuts varying between 40% and 60% throughout the test. We plan to place the well on an extended production test following a seven-day build-up period to re-evaluate bottomhole conditions. The extended production test will be designed to assess optimal flowing conditions to maximize production and data collection. We anticipate providing additional information on the long-term production test during the first quarter of 2022.

 Paul Baay, President and Chief Executive Officer, commented:

 “This third test confirms the commerciality of the newly discovered light oil pool at Royston. Data from all three of the production tests have confirmed that we have a long-term oil project that has the potential to provide future economic benefits to our shareholders and the country.

 This test was the final of three production tests of the Herrera Formation which, as a group, were designed to assess the full 1,014 feet of gross section (393 feet net) identified in the well bore at depths between 9,686 feet and 10,700 feet. The first test evaluated the potential of the intermediate sheet in the lowest portion of the well while tests two and three evaluated the overthrust sheet above. All three of the tests encountered economic oil and confirmed the presence of hydrocarbon over the entire interval. This information, in the context of the 3,156-acre structure as defined in our 2D seismic interpretation, confirms a large volume of resources in place on the Royston property. To clarify, the final production test was the only test properly configured for an oil test and more accurately depicted the productive potential of the reservoir.

We will now be using the data to formulate a long-term field development plan including a drilling program to further evaluate the intermediate and subthrust sheets in the Herrera Formation of the Royston structure. We also have the benefit of being able to use data from the analogous Penal/Barrackpore pool that has in excess of 80 years of production history. With existing road infrastructure in place, we have the ability to monetize our test production volumes by trucking to existing sales facilities to process the oil. This can be achieved in parallel while we design facilities to tie in oil volumes and dispose of produced water. We will take the opportunity to implement best practices both below and above ground to optimize value with minimal environmental impact.

 I would like to thank our stakeholders for their ongoing support and wish everyone a safe and prosperous new year.”

This is a welcome discovery by Touchstone and whilst the market may have misunderstood it shareholders should not make any mistake, this is a substantial oil find and that will keep the company in good shape for a long time. Like other parts of Trinidad it has multiple pools in the structure and a water cut of this nature is no surprise. 

Rockhopper Exploration

Rockhopper has provided the following update on its international arbitration against the Republic of Italy in relation to the Ombrina Mare field.

As announced in the Company’s half-year report on 30 September 2021, Italy made a request, and the Tribunal agreed, to admit a recent European Court of Justice judgment related to intra-EU Energy Charter Treaty disputes, and to reconsider its 2019 decision to reject Italy’s intra-EU jurisdictional challenge in the arbitration. The Tribunal had requested Rockhopper’s legal advisers to respond by 6 October 2021.

On 21 December 2021, the Company was informed that the Tribunal had rejected Italy’s request.

Rockhopper continues to believe it has strong prospects of recovering very significant monetary damages – on the basis of lost profits – as a result of the Republic of Italy’s breaches of the Energy Charter Treaty. All of Rockhopper’s costs associated with the arbitration to date have been funded on a non-recourse (“no win – no fee”) basis from a specialist arbitration funder.

This is very good news for Rockhopper, probably because it isn’t the bad news that would have been the case if the Tribunal had gone the other way if you understand my brain pull. With this case still quite possibly showing a potential victory it is another piece of good news for the company. 

And finally…

Tonight it’s the League Cup and the Gooners host Sunderland.

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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