WTI $75.03 +20c, Brent $78.31 +22c, Diff -$3.28 -53c, NG $5.87 +45c, UKNG 241.04p +8.26p
By Malcolm Graham-Wood
Very little to report on the first day of the quarter and with the new December Brent contract. Maybe this is because Opec + meets on Monday and will still I feel, roll over the existing +400/- b/d for October. Markets and the oil price have rallied softly as a new a Covid drug is revealed by Ridgeback with Merck.
Union Jack Oil/ Reabold Resources
Rathlin’s planning application for the West Newton A well site expansion was refused by a narrow margin by The East Riding of Yorkshire Council Planning Committee, despite it being recommended for approval by The Council’s own planning officers. Rathlin is awaiting the formal decision notice but based on their current understanding of the reasons for refusal are confident they have a strong basis for a successful appeal.
The fact that this application was turned around came as a surprise to most parties, primarily as the application had been recommended for approval by the said Council’s own planning officers. I suspect that most surprised would have been Rathlin who have invested a considerable amount of time and money in the local area and to me had a good relationship with the local community.
Indeed I have some significant reservations about some of the views expressed during the process and quite how much of the opposition were of a local nature than of an anti fossil fuel one. That is of course perfectly fair but I’m not sure it was what was being asked of the Council. An appeal will be expensive for council tax payers but what if the participants just decided to call it a day and pack up their expensive tents and move on.
When the demand for hydrocarbons of all types is headlines across the board and clean, efficient recovery can be achieved in this country it does seem at odds to be contemplating closing down domestic oil and gas production which will be replaced by cargoes from Russia, Qatar or Norway. No one has a problem with investing with a conscience if the repercussions are taken into account and the views of everybody in society are taken into account, if not the long road to the end of fossil fuels will be an expensive and less than comfortable one. The choice is yours and with it the consequences…
Scirocco has announced, further to its 25 August 2021 RNS, the completion of the acquisition of Greenan Generation Limited (GGL) and its 0.5MWe Anaerobic Digestion (AD) plant in Northern Ireland by Energy Acquisition Group Ltd (EAG).
This marks the first acquisition under the joint venture with EAG that was announced last month, whereby Scirocco holds a 50% interest in the EAG joint venture. Scirocco Energy platform company EAG has acquired 100% of GGL and its 0.5MWe AD plant in Northern Ireland.
GGL is a cash generative, operational AD plant which can be optimised to enhance EBITDA margins and free cash flow and the anticipated gross initial annual turnover from GGL is c. £1.1m. This aligns with the new strategy, approved by Scirocco Energy’s shareholders on 9 July 2021, to deliver value through acquisitions in the European sustainable energy and circular economy markets
Tom Reynolds, CEO at Scirocco Energy, comments:
“I am delighted to announce the completion of this acquisition today, marking important progress in Scirocco Energy’s new strategy to target assets within the European sustainable energy sector.
GGL has been the subject of rigorous DD by the JV which confirms that this is a robust first asset that will deliver immediate cash-flows and provides clear opportunities for optimisation that will further enhance the value of this acquisition.
Most importantly, it provides the blueprint for future acquisitions within EAG’s pipeline of opportunities. We see the AD and biogas sector as an attractive market landscape within Scirocco’s “Energy” investment channel and are delighted to be able to access the unique expertise and network afforded by EAG.
We’re also pleased to be growing the portfolio with assets that support the UK’s net zero targets which will be at the heart of everything we do going forward.”
Chris Kerr, Managing Director, EAG added:
“We are excited to complete the first transaction since the establishment of our JV with Scirocco, highlighting the complementary strengths of both firms. The partnership is well positioned to take advantage of the growing UK biogas market and this initial acquisition can serve as the template for other opportunities that we are screening, given its proven operational status and clear scope to enhance free cash flow and EBITDA margins through a programme of plant optimisation techniques.”
Tom Reynolds has said that getting the Scirocco strategy up to speed was expected to take time but with the first deal complete this should now be easier to deliver in the way of further deals which the EAG team have been busy identifying. Also interesting to see how the team can drive additional value from the assets in due course with various optimisation options. Shareholders have been very patient but a recent substantial rally in the shares should really only be the start, there are a good number of things that should combine to deliver value for them.
Echo has announced that it has successfully agreed the restructuring of the Company’s £1.0 million loan originally provided to the Company in March 2017 and now held by Spartan Class O, a sub-fund of Spartan Fund Limited SAC with the Lender.
The details are that maturity is extended by 2 years such that the then outstanding remaining principal and accumulated accrued interest will mature on 8 March 2024 following four quarterly cash prepayments of £25,000 commencing on 31 March 2023.
Interest reduction such that all Loan interest will be accrued and paid on Maturity at a reduced rate of 8% per annum from Amendment (previously 12% per annum) on outstanding principal on a non-compounding basis. 15% of the remaining £850,000 Loan principal, representing £127,500, has now been converted into 10,200,000 new Echo ordinary shares (the “Conversion Shares”) at an effective issue price of 1.25p – a premium of 108% to the closing mid market price per Echo ordinary share on 30 September 2021. Conversion Shares to be locked-in for a period of 6 months from Admission.
Martin Hull, Chief Executive Officer of Echo Energy, commented:
“The successful restructuring of the loan represents an important and positive step for the business as we continue to make great progress in 2021 both commercially and operationally. It materially reduces the near term cash outflow by delaying maturity whilst additionally reducing ongoing debt servicing costs, further strengthening our financial platform. These steps free additional resources to support our ongoing strategy of reinvestment in rapid payback production growth opportunities at a time of commodity price strength, reinforced by our attractively priced gas contracts. By investing in Echo at a more than 100% premium to the prevailing share price and agreeing to the lock up period, not only are the Lenders strengthening the balance sheet but also demonstrating confidence in the business and its strategy.“
San Leon Energy
San Leon has noted the announcement made yesterday by Decklar Resources Inc in Canada. (San Leon has entered into a conditional subscription agreement with Decklar Petroleum Limited, the local subsidiary of Decklar Resources, which entitles San Leon to purchase US$7,500,000 of 10% unsecured subordinated loan notes of Decklar Petroleum and 15% of the enlarged share capital of Decklar Petroleum).
In addition, Decklar Petroleum and San Leon have entered into an option agreement which, at San Leon’s sole discretion, entitles San Leon to purchase an additional US$7,500,000 of loan notes and further Decklar Petroleum shares representing an additional 15% of the enlarged share capital of Decklar Petroleum. Further details of these conditional investment agreements can be found in San Leon’s announcement of 1 September 2020. This transaction is still awaiting final conditions precedents to complete.
As I see it this is the important part of the statement , “Oza-1 Well Re-Entry and Testing Update reveals the initial flow testing of the L2.4 sand resulted in a flow rate of 10.3 million standard cubic feet of natural gas per day. The initial flow testing of the L2.2 sand resulted in a flow rate of 1,361 barrels of oil per day.
The well is expected to be put on commercial production after the completion equipment is installed.
The biggest takeaway from this press release is that Decklar are on the cusp of becoming a producing oil company. With the growth profile building, expect the market to increasingly focus on how near-term and relatively low-risk these proven undeveloped fields really are. This has to be good for both companies and I remain delighted with the performance from Decklar with its knock-on value add for SLE.
President yesterday announced its unaudited interim results for the six months ended 30 June 2021. Group turnover of US$17.1 million up 24.5% over the same period in 2020, with free cash flow from core operations of US$6.2 million up 134% over the same period in 2020 (1H 2020 US$2.6 million) and approximately equal to the whole of 2020.
Adjusted EBITDA of US$4.5 million up 309% over the same period in 2020 and over 114% versus the full twelve months of 2020 and third party financial borrowings US$5.8 million (1H 2020 US$3.7 million) with the balance being covenant lite*,(?) long-term debt from an affiliate of our largest shareholder. *(Wrong on so many levels)
Net profit after tax before non-cash items (comprising depletion, depreciation, amortisation, impairment, non-operating gains/losses and deferred tax) of US$2.1 million (1H 2020 US$1.8 million), loss for the period of US$3.4 million (1H 2020 US$4.0 million) after non-cash DDA charge of US$5.1 million (1H 2020 US$5.2 million).
Agreement signed with a substantial Northern Hemisphere state-owned energy company to farm in for a 50% participating interest in the Pirity Concession, Paraguay.
Atome Limited formed as a UK intermediate holding company focusing on the commercial production, sales and marketing of hydrogen and ammonia.
Operationally, average Group net daily production in the period of 2,648 boepd down 2% on the previous year, impacted by a 34% decline in US production as explained below. Group production split 64% oil and 36% gas (1H 2020: 71% oil and 29% gas) and a new oil treatment plant in Puesto Flores constructed on time and within budget bringing estimated opex savings of some US$ 4 per barrel coming through in H2.
Well operating costs per boe decreased by 7% over same period last year with four new gas wells successfully drilled.
Positive results from secondary recovery pilot project in the main Puesto Flores field
In Louisiana, both the Triche and Simmons 2 wells remain offline as they have for the last three months awaiting workover of the Triche well to reinstate production. The operation of the Triche well is required for the Simmons 2 well to operate, as the Simmons 2 well used the gas produced from the Triche for gas lift. The Triche well has not performed optimally all year due to the progressive breakdown of the downhole gravel pack used to constrain sand production. The frustrating delay in fixing the problem was materially exacerbated by the effects of Hurricane Ida which devastated the locality.
Management reports show average Argentina monthly revenue for the first two months of Q3 2021 ran at the rate of US$2.9 million, a 21% increase over the monthly average of US$2.4 million in H1.
Sales price for oil in Argentina improving and expected to show an 8% increase in H2 compared to H1
Drilling services contract signed for three firm wells to be drilled at the Puesto Guardian Concession commencing in October, including an option to retain the rig into the New Year for further wells after drilling of the third firm well.
Each new Puesto Guardian well is estimated to cost US$3.5 million and have a drilling time of 45 days with a mean success case initial projected oil production of 40 m3/d (250 bopd).
In Louisiana, the Company is planning for the workover of the Triche well to be completed by the end of October and the wells will work at the levels enjoyed last year namely at 300 boepd net to President half being oil. Realisation prices there are robust with oil currently at approximately U$70 per barrel.
President continues its focus on reducing costs with the objective of further reducing its operational expenses next year assisted by the savings from the new treatment plant in Puesto Flores
On current trading, average production for H2 2021 in Argentina is estimated to be approximately 2,700 boepd
Following prolongation of the Pirity as well as the Hernandarias exploration concessions terms, approval by the relevant regulatory authorities in Paraguay to the transfer of interests contemplated under the farm-out agreements is expected in the near future, with completion of the Paraguay farm-out following thereafter
In relation to Atome, significant work is being progressed as is an intended spin off and separate flotation on the London Stock Exchange. Atome currently has no attributable value in the Group’s balance sheet
Subject to appropriate advice and approvals, President is contemplating declaring a dividend in specie of certain of its holdings in Atome at or around admission to the stock market.
Commenting on today’s announcement, Peter Levine, Chairman said:
“The results for the first half of the year demonstrate an operationally profitable and solid business with very significant near-term potential.
Within the next six months, we look forward to the results of the three key value drivers mentioned below, each of which can have a materially beneficial impact on the Group.
“Preparation works for the commencement of drilling at the end of October of at least three wells in Salta Province, Argentina are underway.
“The conditions attaining to the long-awaited farm-out in Paraguay are well on their way to being satisfied with drilling of the large-scale oil prospect scheduled for H1 2022.
“Finally, work is progressing towards the spin-off and separate flotation of Atome, our hydrogen and ammonia production business later this year, subject to regulatory approval. Whilst no guarantee can be given as to both timing and suitability, on the assumption that the flotation does take place, then subject to court sanction of the cancellation of the share premium account of the Group recently approved by shareholders, the Company will have at its disposal adequate levels of distributable reserves from which to make a declaration of dividend in specie of certain of its Atome shares, should the Directors so determine.
“Accordingly, it’s going to be a very busy next few months and we look forward to keeping shareholders appraised on material developments as and when they occur.”
Interims from Getech yesterday, they reported strong H1 trading – revenue £2.4m, up 16% y-o-y. Petroleum operations returned to cash profit. The orderbook was fully replenished (£2.7m), annualised recurring revenue steady (£2.2 million). Cash £6.8m (31 Dec 2020: £2.2m), plus £2.3m of receivables (31 Dec 2020: £1.4 m).
£6.25m fundraise (£5.7m net of costs) in Mar-21 – reshaping Getech around NetZero, the potential opening to us growing exponentially as the pace and tangibility of the Energy Transition accelerates.
Hydrogen – Getech is in advanced discussions on securing its first hydrogen asset. It is ideally positioned for access to high demand customers. It is part of an initial high-graded portfolio of 5 sites, with a combined peak capacity of 14,000 tonnes of H2 per year.
Geothermal and Strategic Minerals – first phases of investment complete, new products to be delivered from October through an innovative new platform. This has been designed to agglomerate Energy Transition data and knowledge. Customer engagement is positive.
Outlook – Trading conditions continue on-trend with H1 2021, with a full tender pipeline and busy schedule of product releases.
Dr Jonathan Copus, Getech CEO commented:
“H1 2021 has been a period of fundamental change and significant progress at Getech; gearing the Group for growth in multiple facets of the Energy Transition. Our work in hydrogen, geothermal, carbon capture utilisation and storage, and strategic minerals continues to identify further significant value drivers, which our recent fundraise enables us to translate into layers of product, service, and asset participation opportunity.
“Individually, each of these opportunities has transformational potential and underlying them is an energy heritage that continues to deliver a robust orderbook and annualised recurring revenue. The potential opening to us is growing exponentially as the pace and tangibility of the Energy Transition accelerates, and by combining our proprietary global geoscience data and earth system knowledge with local decision analytic expertise, we believe Getech has a unique role in unlocking the future of primary energy. As the pace of our work continues to build, we look forward to updating shareholders with a rich seam of news.”
Yesterday Zephyr announced its interims to June 2021, given quite how much has been going on, and that the shares have risen around 6 times since January they have clearly been busy.
The first six months of the 2021 financial year, and the period since, were a time of tremendous progress and intense activity during which Zephyr transformed from a single project exploration company into a self-sustaining, cash-generating, carbon-neutral oil and natural gas producer. During this period, significant additional operational and technical milestones were met on our Paradox Project.
In addition, the Company completed five separate acquisitions which resulted in a growing portfolio of operated and non-operated assets located in two established U.S. oil producing basins. The Company also delivered on its ambitious goal to commence 100% carbon-neutral Scope 1 operations by 30 September 2021.
Colin Harrington, Zephyr’s Chief Executive said: “I am delighted by the tremendous growth and progress delivered during the period under review. Zephyr is now ideally positioned as a cash generating platform from which to deliver significant future growth for our Shareholders.
“We’ve worked tirelessly to meet or exceed the goals and timelines we publicly set for ourselves, while doing so on budget and in a low-cost manner – and I’m particularly proud that we successfully executed our strategy in line with our twin core values of being responsible stewards of investors’ capital and responsible stewards of the environment in which we work.
“The next few months will continue to see a flurry of corporate and operational activity as we target production from the Paradox project, increase non-operated production and accumulate cash flows from our assets in the Williston Basin.
“These are exciting times, and we look forward to keeping all our stakeholders updated on our progress.”
It has clearly been a great time for Zephyr and its shareholders. I said at the time I expected the shares to be a ten-bagger, something which might happen sooner than I expected. Without doubt there is still substantial upside for Zephyr and I have full confidence in this exceptional management team to deliver the goods.
After the figures last night I was very fortunate to be able to interview Colin Harrington and the link is below.
Core Finance CEO interview: Colin Harrington, Zephyr Energy
In a busy day for results I also managed to catch up with Andrew Knott, CEO of Savannah Energy who was in Chad which is why the line was slightly patchy. Here is the link.
Core Finance CEO interview: Andrew Knott, Savannah Energy
The big sporting event this weekend is the Prix de ‘Arc de l’Arc de Triomphe at Longchamps where the field is as usual top notch. Racing tomorrow is at Ascot and Newmarket.
Earlier in the day on the rugby field the Pumas host the Wallabies and the All Blacks take on the Springboks. In the Prem the Tigers face Sarries, Newcastle host the Wasps and Sale entertain the Chiefs.
In the footy tomorrow the Toffees go to uncertain Red Devils, Burnley host the Canaries, the Saints go to Stamford Bridge, Wolves host the Magpies and the Gooners head to the Seagulls. Sunday sees the biggest game of the weekend as Liverpool host the Noisy Neighbours whilst the Eagles entertain the Foxes, Spurs take on Villa and the Hammers host the Bees.
The opinions expressed here are those of the author
Malcolm Graham-WoodRead More
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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