Malcy’s Blog – Oil price, Tower Resources, United Oil & Gas, Prospex Energy & finally

WTI $66.48 -$1.80, Brent $69.04 -$1.66, Diff -$2.56 +14c, NG $4.06 -8c, UKNG 110.67p +2.63p

By Malcolm Graham-Wood

Oil price

The oil price fall continued yesterday as Chinese data in particular oil imports disappointed markets. Oil imports were 9.7m b/d in July, the 4th month below 10m b/d which along with more Asian lockdowns panicked the market. The fact that this is likely to be a short term problem has meant that crude has rallied this morning with some short closing but at present oil traders are nervous Ninnies not Masters of their Universe…

Tower Resources

Tower has announced that it has executed a binding Heads of Agreement in respect of a farm-out to Beluga Energy Limited (“Beluga”) of a 49% non-operating working interest in its Thali Production Sharing Contract in Cameroon, conducted through its wholly-owned subsidiary Tower Resources Cameroon S.A.

This is excellent news for Tower shareholders and they point out the key economic elements as follows. The farm-out covers US$15 million towards the cost of the NJOM-3 well that Tower is planning to drill on the Thali block; Beluga will receive a 49% working interest in the PSC, subject to an overriding royalty of 10% for Tower’s subsidiary TRCSA on the contractor share of production accruing to Beluga under the PSC;

The well cost is currently expected to be approximately US$16.8 million, of which approximately US$3 million has already been spent and each party will recover costs actually funded and recoverable under the PSC, pari-passu; Tower will effectively contribute its non-recoverable costs in consideration of the 10% overriding royalty on the contractor share of production referred to above;

Costs in excess of U$15 million, and future costs, will be funded pro-rata with respect to Tower’s and Beluga’s working interests.

The HoA are binding subject only to final documentation, a financing contingency requiring Beluga’s shareholders’ approval, and approval of the Minister of Mines, Industry and Technological Development (“MINMIDT”). The draft Joint Operating Agreement (“JOA”) between Tower and Beluga has already been prepared, and together with the draft farm-out agreement will shortly be submitted to MINMIDT for approval, which is expected to occur within 60 days of submission of the file according to the Petroleum Code. Tower and Beluga intend to complete the transaction by 30th September 2021, subject to any delays in completing the conditions precedent.

Warebibo Soroh, the CEO of Beluga, commented:

“We are pleased to be associated with Tower’s management team in the development of the Thali block in Cameroon. This investment fits perfectly with our strategy to invest in de-risked upstream assets, and supports the integration of our services from downstream to upstream. Our technical team has extensive experience in developing assets in the Gulf of Guinea and will collaborate with Tower in bringing the Thali block to first oil.”

Jeremy Asher, Tower’s Chairman and CEO, added:

“We are delighted to have the opportunity to work with Warebibo Soroh and his colleagues at Beluga, and to fulfil our shared ambition to move this project forward to oil production in Cameroon. Short-cycle oil and gas development projects such as this have excellent economics, which reflect their importance to Africa’s overall energy balance. The Njonji structure on which we are drilling the NJOM-3 well is one of several attractive structures on the Thali block, and we are looking forward to a great future developing these resources together.”

This is undoubtedly great news for patient Tower shareholders which include Tower boss Jeremy Asher who has more than once put his hand into his pocket to keep the Thali project on the go. The market share of C. £11m would seriously undervalue the company if Jeremy’s vision is in any way realistic, and I think it is.

United Oil & Gas/Prospex Energy- You couldn’t make it up…

WOW! United and Prospex have announced that UOG has sold its 20% interest in the Podere Gallina licence, which includes the Selva gas project, for €2.165m in cash which they say is a ‘modest premium’ to its total Italian assets and removes any further development liability. It also ends UOG’s presence in Italy and now they are just concentrating on Egypt, the Greater Mediterranean Area, the Caribbean and Latin America.

For Prospex I am aghast, after a recent deposition of its CEO and immediate replacement by Mark Routh, an experienced industry player, the market was expecting some restructuring, not more of the same. This would increase the non-revenue producing Italian asset to 37% hardly what the new owners wanted. Keeping a stake here might have been OK with parallel diversification of the company to offset it but more eggs in this particular basket and with borrowed money I am still coming to grips with.

It gets worse, my jaw had only just retreated from the floor when I noticed that the consideration is to be financed by debt as they get the cash ready for UOG. Readers will know that I have always, well since Enterprise Oil anyway, a deep concern about the ability to make a decent return in Italy.

For UOG it is a great deal, without any certainty that revenues will get under way in full next year the economics look compelling, cash in now along with a removal of future costs tick many boxes for them.

Brian Larkin must have thought all his Christmases had come together when the call came in and he would have taken the arm off Prospex as he did the sums in his head. But I suspect that it would be unwise to spend all the money at once, at least on a party to celebrate. After all it is only recently that Prospex shareholders have proved their ability to express their displeasure and when you look at it all this deal does is more of what the old management was doing except with borrowed money so I can’t see them being overly happy about this.

This one will run and run…

And finally…

A quiet week after the Olympics and before the English Premier League starts up on Friday. Its all about transfers as Jack Grealish has a ‘tearful’ departure from Villa and Messi receives a two year contract from PSG.

Rangers are in Champions league action tonight as they welcome Malmö FF tonight, 1-2 down from the first leg.

And Sebastian Vettel has had his appeal against the D/Q in Hungary turned down…€€

The opinions expressed here are those of the author

Malcolm Graham-Wood

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Website Link www.malcysblog.com

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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