Malcy’s Blog – Oil price, Touchstone Exploration, Scirocco Energy, Orcadian Energy, Gulf Keystone, Block Energy & finally

WTI (Sept) $94.42 +53c, Brent (Oct) $100.54 +51c, Diff -$6.12 -2c

Author @mgrahamwood

USNG (Sept) $7.71 -26c, UKNG (Sept) 365.03p +8.03p, TTF (Sept) €205.5 -€0.75

Oil price

Very little to add today until after the Opec meeting later, my best guess is that as it is the first meeting after the ending of the production agreement not much will happen in the short term. They will consider $100 to be OK and there is the small matter of not being able to do much anyway, especially until after the summer.

That is also proven by the retail gasoline price which yesterdays figures showed as being an average of $4.192 nearly a dollar off recent highs albeit $1.033 up from last year. The fact that the White House claims credit for this is laughable…

On a technical note we discovered yesterday that Twitter has changed its technology so that the blog has not been going automatically to subscribers, we are in discussions with them and meanwhile I’m hoping to sort it out manually.

Touchstone Exploration

Touchstone has announced that the Company has submitted a notice to residents in the community that the Coho gas facility and pipeline will commence pre-commissioning and commissioning operations. Pursuant to the Coho Certification of Environmental Clearance, residential notification is required to be made a minimum of five business days prior to the commencement of operations. The Coho area is located in the Ortoire block, where Touchstone has an 80 percent operating working interest and Heritage Petroleum Company Limited holds the remaining 20 percent working interest.

The pre-commissioning of the gas facility and pipeline consists of testing all electronics, alarms, and operating systems in the facility, testing of the flare and emergency shutdown systems, as well as purging air from the system using inert nitrogen gas. Subsequent to these operations, system commissioning operations will commence, which entails the introduction of natural gas from the Coho-1 well into the facility and pipeline in a step rate manner, officially bringing the system onstream to the Central block natural gas facility.

Coho-1 will commence production following completion of the commissioning and pipeline handover process, with the expectation that production will increase over time to 10 MMcf/d (1,667 boe/d) gross, 8 MMcf/d (1,333 boe/d) net. Touchstone will provide further information once production is optimized through the system.

Paul Baay, President and Chief Executive Officer, commented:

“The completion of the Coho facility and pipeline will be a significant milestone for Touchstone, as it will represent our first natural gas production and is expected to double our current production on a boe basis. Throughout this process we have encountered challenges that have provided us valuable knowledge to streamline the construction of the Cascadura facility. During the pre-commissioning and commissioning process, we will need to balance the system with the well, pipeline and Central block facility. We will keep all stakeholders informed of our progress, and I would personally like to thank our shareholders for their continued patience as we proceed to full commercial production.”

Make no mistake this is a highly significant move from TXP today, whilst I am sure they would have liked to have announced first gas these moves are the necessary pre-commissioning actions ahead of such a major announcement.  As it is they are preparing to ramp up production over time to 10 MMcf/d (1,667 boe/d) gross, 8 MMcf/d (1,333 boe/d) net.

The work done at Coho has been a massive learning curve as Touchstone prepare to move on with the EIA and then construction of the Cascadura facility, another milestone development that will take the company to another level and will send a message that new production onshore Trinidad is possible. 

When this is completed the company will have been transported into the big league of major players in the Trinidad oil and gas industry and with growth opportunities at Royston and across the portfolio will make Touchstone a leading energy producer in the Caribbean with all that entails. With that I expect the market cap of the company to grow out of all proportion to the current £125m and be nearer five times that amount. 

Scirocco Energy 

Scirocco is holding its Annual General Meeting today at 10:30 a.m. BST at the offices of Pinsent Masons LLP, 30 Crown Place, Earl Street, London, EC2A 4ES.

At the meeting, Alastair Ferguson, Non-Executive Chairman of Scirocco Energy, will make an opening formal statement, the highlights of which include:

“It has been a transformative period for the Company as, following an extensive two-year sales process, we reached an agreement with Wentworth Resources for the sale of the Ruvuma asset in June of this year for a total headline consideration of up to US$16m. The transaction was subsequently approved by shareholders at a general meeting held on 29 June 2022.

We remain confident that it was the best deal available to the Company, removing a major overhang while retaining exposure to the success case, and providing the balance sheet strength that allows us to pursue a new strategy focussed on sustainable energy and the circular economy, an investment policy that was overwhelmingly approved by over 99% of shareholders in this forum last year

The Company made its initial investment in line with this strategy in August last year by acquiring a 50% interest in Energy Acquisitions Group, creating a joint venture platform capable of leveraging EAG’s strong network and industry leading expertise to gain access to a pipeline of attractive, cash-generative opportunities within the anaerobic digestion and biogas market.

In October 2021, the JV made its first acquisition of Greenan Generation Limited and its 0.5MWe Anaerobic Digestion (AD) plant in Northern Ireland. As demonstrated through the operational improvements implemented to date at Greenan, which has seen revenue increase by 34.5% year over year at the end of Q1 2022, EAG’s team bring significant operational expertise in the anaerobic digestion sector, and we expect to meaningfully progress further similar opportunities in tandem over the coming months.

Our investment into EAG, and the resultant JV platform, positions the Company within the energy transition space at an important juncture on the journey to net-zero, and allows us to target a significant and growing pool of capital in the low carbon sector that was previously unavailable as ESG headwinds limited the availability of funding for small, single-asset oil and gas players in recent years. 

To conclude we expect a timely resolution to the outstanding situation with regards to pre-emption rights and right of first refusal on the Ruvuma divestment and look forward to the successful completion of the transaction as we move forward as a well-funded, strategically focused company with a clear vision to deliver sustainable long-term value for the Company’s shareholders.”

This statement from Scirocco speaks for itself and there is little that I can add to it that would make any difference. Management has decided the future path of the company and I for one have great confidence that it will make the company one with a unique offering in the energy transition space.

Orcadian Energy

Orcadian has announced that, further to the announcement of 11 October 2021, the Company has now executed a formal agreement with Carrick Resources Limited in respect of a sub-area of Licence P2320 which covers the Carra prospect.

Under the terms of the SPA, the consideration for the transfer of the Carra interest is to be satisfied by the fulfilment of certain work milestones (there is no cash consideration).  Carrick will review existing data, acquire a licence to, and reinterpret, the seismic data currently being reprocessed by TGS relating to the Carra prospect, and remap the prospect. In return, on completion of the updated mapping, Orcadian will, subject to North Sea Transition Authority approval, assign a 50% interest in the sub-area of licence P2320, which contains the bulk of the Carra prospect, to Carrick. Carrick may withdraw from the agreement prior to completion of the remapping of the prospect. This work programme is anticipated to take four months.

Carrick has agreed that after the transfer, it will then work up the Carra prospect to drill-ready status and manage a further farm-out process on the prospect.

By entering into this agreement with Carrick, Orcadian is building upon the long experience of the Carrick team in this area and is maximising the potential of this undrilled prospect.

Steve Brown, Orcadian’s CEO, said:

“We are delighted to have signed the SPA with Carrick.  This SPA enables us to further de-risk and maximise value from our assets in a very cost-effective way while developing a drill ready prospect on Carra.  Progressing Pilot and the prospects close to it remains our core focus whilst we continue to extract the maximum value on all our assets. We look forward to working with the Carrick team progressing Carra.”

This is an important move for Orcadian as it progresses towards drilling on Carra and whilst that happens Pilot remains its ‘core focus’.

Gulf Keystone Petroleum

Further to Gulf Keystone’s announcement on 18 July 2022, the Company confirms that it has completed the redemption of its $100 million bond with ISIN NO 001 0828106, leaving the Company debt-free.

‘Nuff said. 

Block Energy

Block has announced the results of a Competent Person’s Report covering the Krtsanisi Anticline part of the West Rustavi and Krtsanisi oil field, which straddles the Company’s licence blocks XIF and XIB.

The CPR supports Block’s sub-surface studies, through a comprehensive and independent evaluation with the reported Reserves in line with the Company’s internal estimates. It provides the basis to seek development financing for the next five wells of Project I, the development of the Middle Eocene oil reservoir in the West Rustavi/Krtsanisi field. The effective date of the CPR is 31 March 2022.

The scope of this CPR was deliberately focused on the Krtsanisi Anticline, and on Reserves only, rather than Contingent Resources or Prospective Resources, to support discussions and negotiations with development finance providers. The Reserves reported are only part of the Reserves reported in the previous CPRs; for West Rustavi by Gustavson Associates dated 1 January 2018 (relating to block XIF), and for Krtsanisi by Bayphase Limited dated 1 July 2015 (relating to block XIB). Therefore, as a CPR focused on a Krtsanisi Anticline five-well drilling programme, it is not directly comparable to previous CPRs with different approaches.

These Reserves are associated with just the first phase of development of the West Rustavi/Krtsanisi field (Project I) to begin to exploit the 19.5 MMbbls of Contingent Resources identified by the Company. Data acquisition from this phase will enhance our sub-surface understanding and guide further phases of development drilling to access the remaining Contingent Resources.


Competent Person

The CPR was undertaken by ERC Equipoise Limited (“ERCE”), a company well recognised across the industry, including by the potential provider with which the Company is in advanced discussions relating to the provision of non-dilutive finance. ERCE consents to the inclusion of the information in the form and context in which it appears.

The CPR is available on the following page of the Company’s website:  www.blockenergy.co.uk/investors/circulars-presentations-and-reports/.

Highlights:

·    Field Gross 2P Reserves: 1.07 MMbbls

·    NPV10 2P Reserves: $17.95 MM

Commodity

Units

Field Gross Reserves

Net Entitlement Reserves

1P

2P

3P

1P

2P

3P

Total

Oil and Condensate

MMbbls

0.19

1.07

3.01

0.14

0.79

2.23

Sales Gas

Bcf

0.34

1.07

2.14

0.25

0.79

1.58

The Reserves were evaluated based on ERCE’s Brent crude oil price forecasts as of 1 April 2022.

Case

CoP Date

Net Present Value ($ MM)

0%

5%

10%

15%

20%

Total

1P

Sep-2024

3.51

3.34

3.18

3.04

2.90

2P

Feb-2034

23.75

20.53

17.95

15.87

14.15

3P

Sep-2048 (Block XIF) & May-2039 (Block XIB)

96.82

72.48

56.98

46.47

38.97

In estimating net present values of the Reserves, ERCE used their own forecast of future production, the fiscal terms provided in each of the production sharing contracts and, having validated them, Block’s estimates of capital and operating costs. Production forecasts were cut off at the earlier of the date of licence expiry and the date the operations cease to be economic, as defined under PRMS. It should be noted that net present values of the Reserves do not necessarily represent the fair market value.

Block Energy plc’s Chief Executive Officer, Paul Haywood, said:

“This CPR independently verifies the work and plans for the initial phase of Project I, which covers five production wells in the West Rustavi/Krtsanisi field. These wells are expected to deliver material returns for shareholders, particularly at current oil and gas prices. The report also provides the audited information necessary to support discussions on non-dilutive financing, to deliver the initial phase of Project I.

Project I will be implemented concurrently with Project II, which will be funded separately using net cash generated from the Company’s existing operations. Block considers this approach to managing Projects I and II to be the most efficient use of Company resources to deliver production and returns to shareholders, in a way that is timely and balanced”.

Block has great confidence that this CPR will lead to Project I’s success and with non-dilutive funding whilst Project II will be funded from cash generated from existing operations. The market will be pleased if that goes according to plan.

And finally…

The Hundred starts tonight with Southern Brave taking on Welsh Fire. This competition has on its own, aided by former ECB boss Tom Harrison done a great deal to completely change the English summer at a huge cost. I’m not saying that it is bad per se as it is very popular but there is no room for it at the Blast ot it and the 50 over game. Yesterday was a perfect example, at Guildford particularly Surrey played with a team of 3rds and Colts which ruined it as a game. It also takes away time from the County Championship in the middle of summer all for the ego of an administrator…

The opinions expressed here are those of the author

Author @mgrahamwood

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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