Malcy’s Blog – Oil price, Union Jack Oil, Chariot, IOG, Rockhopper Exploration, Jadestone Energy, Cornerstone Resources & finally

WTI $109.56 -$8.03, Brent $113.12 -$6.69, Diff -$3.56 +$1.34.

Author @mgrahamwood

USNG $6.88 -58c, UKNG 205.0p -28.62p, TTF €127.5 +€9.762

Oil price

After oil took a caning last week on Fed and sundry lousy interest rate news it is important to notice that Opec+ is still missing by a distance its own quotas, WTI fell $11.11 and Brent by $8.89 The.  price fell sharply on Friday as the Fed said that it would be ‘more aggressive’ in getting inflation back to 2%.

The rig count is yet to help Sleepy Joe as last week it was up 7 overall at 740 units and rose only 4 in oil to 584.

Union Jack Oil

Union Jack has announced that material landmark net revenues of US$7,000,000 have been achieved from the Wressle hydrocarbon development, located within licences PEDL180 and PEDL182 in North Lincolnshire on the western margin of the Humber Basin.

Union Jack holds a 40% economic interest in this development.

Highlights

·    Landmark US$7,000,000 revenues generated to Union Jack since re-commencement of production on 19 August 2021

·    Current daily production figures continue to be an average constrained flow-rate of 750 barrels of oil per day, well in-excess of the prognosed 500 bopd from the Ashover Grit reservoir

·    Well continues to produce under natural flow with zero water cut

·    Union Jack continues to be cash flow positive covering all G&A, OPEX and contracted or planned CAPEX costs, including any budgeted drilling activities for at least the next 12 months

·    At 20 June 2022, cash balances and short term receivables stood at in-excess of £8,400,000

·    Union Jack expects to report a maiden profit for the forthcoming unaudited half year results ending 30 June 2022

·    Debt free

Executive Chairman of Union Jack, David Bramhill, commented:

The ongoing excellent operational and financial performance at Wressle continues to bolster the Company’s cash position, balance sheet and income statement. 

“Net revenues from Wressle have now exceeded US$7,000,000 and, as a result of this exceptional performance, plus revenue contributions from the Keddington oilfield, the Fiskerton Airfield oilfield and North Sea Royalties

“The Board now expects to report a maiden profit in the forthcoming unaudited half year results ending 30 June 2022”.

This is yet more good news from Union Jack where Wressle continues to be the gift that keeps on giving, now to the tune of over $7m. As Chairman David Bramhill says above, with other contributions the company now expects to report a maiden profit in the current period. 

There is so much exciting news around for UJO at the moment as well as other UK domestic hydrocarbon players that I am quite surprised that the shares have not risen more. It is 6 months since it went into the updated Bucket List and the shares have almost tripled but I would expect plenty more given news announced since then.

Chariot

Chariot has announced that it has signed a front-end engineering and design (“FEED”) agreement  with Schlumberger and Subsea 7, as part of a consortium, for the Anchois gas development project in Morocco. Chariot, Schlumberger, and Subsea 7 will continue to adopt a “one-team” integrated and collaborative approach to safely fast-track first gas to maximise the return on investment.

The scope of the Agreement covers:

•     Front-end engineering support and design work for the Anchois gas development, incorporating:

 offshore components including well completions, subsea production systems, and subsea umbilicals, risers, and flowlines (“SURF”) that will be delivered by Subsea Integration Alliance, and

 onshore components including a central processing facility (“CPF”) and flowlines and controls from the CPF to the shore crossing that will be delivered by Schlumberger.

•     Generation of deliverables, such as engineering, procurement, construction, installation, and commissioning (“EPCIC”) costs and schedules, required prior to final investment decisions (“FID”).

•     Opportunity for Chariot to directly-source EPCIC services with Schlumberger and Subsea 7 for the field development and operations and maintenance (“O&M”) of the facilities during commissioning and the early production phase.

•     Commitment to environmental, social, and governance (“ESG”), minimising emissions and contributing to social development through the creation of direct and indirect jobs in Morocco.

Beyond this Agreement, Chariot is managing the additional FEED scopes required for the development, including well construction and onshore infrastructure, including fixed pipelines, to deliver gas to customers.

Olivier Blaringhem, CEO, Subsea Integration Alliance, commented:

“We are delighted to work with Chariot on this FEED project. We remain fully aligned with their objectives and will build upon the work undertaken to date to optimise the design and development of the Anchois Gas Project. We look forward to playing a key role in bringing this project to fruition.”

Adonis Pouroulis, Acting CEO, Chariot Limited, commented:

“Signing this agreement with Schlumberger and Subsea 7 is further evidence that we have accelerated development plans for the Anchois Gas Project, a key tenet of our recent fundraising. It is a pleasure to work closely with both companies on this integrated design phase, to benefit from their experience in working on several similar projects globally, and to leverage their standardised technology which is directly applicable to the Anchois development.

We look forward to building on this relationship and to realise the benefits of an integrated project execution. Reduced interfaces, fewer contingencies, and strong leverage over procurement and the offshore construction schedule will help shorten time to first gas. This streamlined approach will benefit all stakeholders which is a key objective of fast-tracking the project towards cashflow.”

Signing up a FEED agreement is a key part of the timeline of the Anchois gas development and the speed with which it is being done is very exciting for shareholders in Chariot. With definition of progress being made in the key areas of such pre-FID activity the signs are highly encouraging. 

With these encouraging moves being made it must be likely that Chariot is either up with or ahead of the game in the process of developing Anchois and I expect more good news on this front. Despite the tripling of the shares since the December Bucket list I think that the shares have a long way to go up from here. 

IOG

IOG has provided an update on current activities and operational guidance for the remainder of 2022.

Saturn Banks Phase 1 Production

Further to the 1 June 2022 operational update, in which production was confirmed to be restored to an initial gross 30 mmscf/d, temporary modification of the second recycle compressor in the Bacton terminal condensate stabilisation unit (CSU) was completed by its operator Perenco (UK) Limited. In line with the announced plan, this has alleviated liquids constraints and enabled production to be steadily increased, reaching 54 mmscf/d gross by 17 June.

In June to date, gross production has averaged 44 mmscf/d, with uptime at 84% for Blythe and 94% for Elgood (100% for both over the past week). Factoring in the May shutdown and other previous outages, uptime has been 45% and 65% for Blythe and Elgood respectively since First Gas, giving gross average production to date of 32 mmscf/d. In addition, IOG sold 1,341 tonnes of condensate (its net share) in April and May at an average price of $882/tonne.

Forward Guidance

Significant progress has been made so far in June in improving liquids management and onshore reliability at Bacton and the remaining restriction to gas flow is expected to be fully lifted over the coming weeks. To underpin uptime, work is underway to improve the Blythe platform’s electrical stability and reduce the risk of emergency shutdowns. The Company has also enhanced its helicopter and vessel access to enable faster offshore restarts in the event of any further unplanned outages. Permanent chemical injection modifications are expected to reinstate full remote restart capabilities by early Q4.

The reservoir productivity observed to date at Blythe and Elgood is consistent with the updated management estimated recoverable reserve range in the 2021 Annual Report released on 17 March 2022. These ranges are gross 1P/2P/3P 25.4/42.5/55.8 billion cubic feet (BCF) for Blythe and 9.6/14.1/18.3 BCF for Elgood.

Based on reservoir analysis and ongoing facilities optimisation, gross average 2H22 Saturn Banks gas production is projected to be in the 45-60 mmscf/d range. Average condensate production is projected to be 250-350 bbl/d over 2H22 as condensate rates are expected to decline fairly quickly. These ranges make reasonable allowances for both planned (aggregate of 15 days to complete the above works, including a Bacton terminal shutdown) and unplanned outages over 2H22.

Total unit operating costs in 2022 are projected to be in the 10-15p/therm range (c.$8-12/boe). Expected total capex net to IOG for 2022 remains within the previously guided range of £70-85 million.

Gas Market

Pricing under IOG’s gas sales agreement with BP Gas Marketing Limited is directly linked to the UK NBP Day-ahead price. This has been exceptionally volatile since First Gas in mid-March, with very strong LNG supply into the UK market in conjunction with limited export and storage capacity, alongside unexpected events such as the recent Freeport LNG outage and NordStream 1 capacity issues. The NBP Day-ahead price has traded in a 10-224p/therm range this month. IOG’s volume weighted average monthly realised gas prices so far have been 232p/therm for March, 161p/therm for April, 83p/therm for May and 106p/therm for June to date (135p/therm combined since First Gas).

The UK NBP forward curve priced the Winter 2022 contract at over 300p/therm and Summer 2023 over 190p/therm on 17 June, indicating an expectation of a very supply constrained market over the coming year. These levels fluctuate significantly and are not a forecast of future day-ahead prices. Whilst in principle the Company remains inclined towards commodity hedging, with such exceptionally high volatility, pricing and execution for typical structures are currently prohibitive.

Southwark

Subsea and pipelay work has gone to plan in Q2, ensuring progress continues towards Southwark First Gas in Q4. Notably, the 6km 24″ extension section from the Saturn Banks Pipeline System (SBPS) to the Southwark platform was successfully installed by the Seven Borealis S-lay vessel. The Seven Kestrel diving support vessel (DSV) has also installed the necessary mechanical connectors at both ends of SBPS outer section – another important element of the programme. The Kestrel is currently installing the spools to connect the 6km extension to the Southwark platform. The final closing spools will be installed later in the hook-up and commissioning programme, which is currently underway with risers being welded on the Southwark platform.

Drilling of the Southwark East production well has continued into the reservoir section. The well has reached Total Depth at 14,330ft MD and the production liner is being prepared to be run. The Noble Hans Deul rig will then drill the Southwark West well (at which the top-hole section had already been drilled earlier in the campaign). Both wells are due to be completed by Q4.

Appraisal campaign 

After Southwark, the Noble Hans Deul is contracted to drill both the Goddard and Kelham North/Central appraisal wells in direct continuation at the same attractive day-rate as the Phase 1 wells. Both the geophysical and geotechnical site survey campaigns for the Goddard and Kelham wells are complete, while planning and procurement for both wells is also well underway.

The Goddard appraisal well is intended to define the south-east extent of the main Goddard discovery and de-risk its two flank structures, thereby helping to determine the optimal field development plan, including platform location and number of wells, to maximise investment returns. 3D seismic reprocessing over the structure in 2020-21 has improved subsurface understanding and enabled a choice of well location. At a 45p/therm price deck, the internal rate of return (IRR) from final investment decision (FID) on a Goddard development is provisionally estimated to be 19-40%, depending on whether the appraisal well proves up a larger structure. This rises to 50-80% at a 75p/therm price deck. The current forward curve average out to the end of 2027 is 158p/therm. Subject to further drilling, there are also other potential tie-back opportunities to a Goddard development.

The Kelham North/Central appraisal well is intended to prove up both accumulations as part of a potential three-field “Southern Hub” gas production cluster including the Abbeydale discovery on the same P2442 licence. Again, 3D seismic reprocessing work has opened up extensive, previously unidentified resource potential on this licence, which lies well within tie-back range of the SBPS. If successfully appraised, there would be potential to fast-track into production for a quick-payback high-return investment. Based on pre-drill mid-case resource estimates, this is provisionally estimated at 33% IRR at a 45p/therm price deck, rising to 75% IRR at a 75p/therm price deck. There are also several other potential future additions to such a Southern Hub on the licence, subject to further exploration and appraisal drilling.

Based on the current drilling schedule, the two appraisal wells are expected to be completed by Q1 2023.

Phase 2 and portfolio activities

Active regulatory engagement continues for the planned Nailsworth development, with the concept select report submitted to the North Sea Transition Authority. Meanwhile an expression of interest for Front-End Engineering and Design (FEED) work has been issued. A concept select decision remains expected by the end of Q2 based on a tie-back to the Southwark platform, with FID targeted by year end 2022 leading to first gas in 2H24.

The 3D seismic reprocessing of the Panther-Grafton area (licence P2589) is expected to be completed by around the end of Q3. This will be followed by an evaluation of the newly reprocessed data to inform a new assessment of the area’s potential, expected by year end, seeking a similar uplift in resource potential as with the P2442 (Kelham/Abbeydale) licence. The Panther-Grafton area lies close to the Company’s Southwark, Elland and Nailsworth assets, creating potential development synergies.

IOG also intends to be active in new licensing opportunities, with the NSTA recently confirming the 33rd Offshore Round for this year. The Company has identified a clear set of value-adding priority targets that can contribute to the UK energy resilience goals laid out in the British Energy Security Strategy announced in April. Further potentially synergistic nearby business development opportunities are also being actively evaluated in collaboration with our joint venture partner CalEnergy Resources (UK) Limited.

Andrew Hockey, CEO of IOG, commented:

“I am pleased to say that Saturn Banks production continues to be restored as planned, up to 54 mmscf/d gross currently from 30 mmscf/d at the start of June. We are taking the necessary actions both to improve facilities uptime and minimise restart times after any outages. Allowing for planned and unplanned downtime, we expect to produce 45-60 mmscf/d gross on average over 2H22.

UK Day-ahead gas pricing remains extremely volatile, trading in a 10p to 224p/therm range this month. Our average realised price to date is 135p/therm and forward prices for this winter are increasingly elevated, closing at over 300p/therm last Friday. We expect 2022 opex to be 10-15p/therm.

In parallel, the 24″ extension of the Saturn Banks Pipeline System to Southwark has been successfully laid, while drilling of the Southwark East well is at an advanced stage. With Southwark expected onstream in Q4, we aim to exit 2022 with a higher, more diversified production stream.

This is part of an exciting growth period ahead, with the Goddard and Kelham appraisal wells following straight after Southwark, plus a Nailsworth final investment decision and seismic re-evaluation results for the Panther/Grafton area both targeted by year end.

As the government encourages reinvestment in the North Sea to support energy security, we also have a clear view of value-adding new licence targets, alongside other business development opportunities under active evaluation.”

This is a long and detailed update from across the IOG portfolio but what is most important is that production is picking up well after some early teething troubles. This means that 54 mmscf/d is up and running now and they are aiming to continue higher from here. 

IOG is very busy and it is worth noting that in this update they are showing just how much else that there is in the portfolio, how diversified it is and how low its costs are. This is important as CEO Andrew Hockey says that low-carbon intensity domestic gas producers like IOG can help deliver the UK’s energy security objectives. 

Rockhopper Exploration

Rockhopper has announced that further to the announcements made on 15 June 2022 and 16 June 2022 concerning the proposed Capital Raising, the Circular containing further details of the Open Offer, together with an Open Offer Application Form for Qualifying Non-CREST Shareholders, will be posted to Shareholders later today and will also be made available on the Company’s website at www.rockhopperexploration.co.uk shortly. The full details of the Open Offer timeline are included below. 

The Open Offer

The Company considers it important that Shareholders who were not able to take part in the Placing and/or the Subscription have an opportunity to participate in the Capital Raising. The Company is therefore providing Qualifying Shareholders with the opportunity to subscribe for Units at the Issue Price pursuant to an Open Offer, to raise up to approximately US$5 million (approximately £4.0 million) if fully taken-up.

Subject to fulfilment of the conditions of the Open Offer, the Open Offer will provide Qualifying Shareholders with the opportunity to apply to acquire Open Offer Units at the Issue Price pro rata to their holdings of Existing Ordinary Shares against all Existing Ordinary Shares held by Qualifying Shareholders as at the Open Offer Record Date on the following basis:

1 Open Offer Unit for every 8 Existing Ordinary Shares held by Qualifying Shareholders

Each Open Offer Unit will comprise one Open Offer Share and, for every two Open Offer Shares subscribed for, one Warrant.

Importance of Vote at the 2022 Annual General Meeting

The Resolutions being proposed at the 2022 Annual General Meeting are, (i) in respect of the resolution relating to the granting of authority to Directors to allot shares (or rights to subscribe for or to convert any security into shares), an ordinary resolution which, to be passed, will require the support of a simple majority of the total voting rights of Shareholders who (being entitled to do so) vote on such resolution at the 2022 Annual General Meeting, and (ii) in respect of the resolution relating to the granting of authority to Directors to disapply pre-emption rights, a special resolution which, to be passed, will require the support of a majority of not less than 75 per cent. of the total voting rights of Shareholders who (being entitled to do so) vote on such resolution at the 2022 Annual General Meeting. The Open Offer is conditional, inter alia, on the passing of the Resolutions.

In the event that the Resolutions are not passed at the 2022 Annual General Meeting, the Company will not be able to proceed with the Open Offer and Shareholders will not get the opportunity to participate in the Open Offer, with the result that the anticipated net proceeds of the Open Offer will not become available to the Company.

The Directors consider that the scenario described above would not be in the best interests of the Company or its Shareholders as a whole as the Company considers it important that Shareholders who are not able to take part in the Placing and/or the Subscription have an opportunity to participate in the Capital Raising. Accordingly, the Directors believe that the passing of the Resolutions are in the best interests of Shareholders and recommend that Shareholders vote in favour of the Resolutions at the 2022 Annual General Meeting.

 Nothing to add here, after the raise last week which was significantly oversubscribed and brought in new shareholders, it seems to be an opportunity for retail holders to take their rights. 

Jadestone Energy

Jadestone has provided the following update on operations at the Montara field offshore Australia.

On 17 June 2022 during routine production and crude oil cargo operations, crude oil was being transferred between two crude oil tanks onboard the Montara Venture FPSO.  During the transfer, oil was observed on the surface of the sea adjacent to the FPSO.  Transfer operations were ceased immediately and production from the Montara fields was shut in as a precautionary measure.

The release of oil to sea was quickly halted by pumping water into the tank, indicating a leak somewhere at the tank base.  A subsequent inspection using an ROV confirmed a small 30mm diameter hole in the bottom of the tank.  Having now controlled the release of oil, the next step will be to apply a temporary repair in order to remove the remaining oil from the tank.  Following this, the tank will be accessed and cleaned in order to complete an inspection and permanent repair. This is the same work plan which has already been applied to all the other main crude oil storage tanks, as part of the five yearly inspection and repair programme which has been underway since Jadestone assumed operatorship of the Montara assets, and which is a normal and accepted process approved by regulators and Class inspectors globally.

The volume of released oil is estimated at three to five cubic metres, which was monitored and had fully dispersed by the morning of 19 June 2022.  The National Offshore Petroleum Safety and Environmental Management Authority (“NOPSEMA”) was notified of the incident immediately and will initiate an onsite inspection of the Montara facilities on 21 June 2022.

Jadestone’s preliminary estimate is that it will take approximately four weeks to complete the tank inspection and effect repairs sufficient to re-commence production at Montara, with appropriate isolation of the crude oil tank.  Thereafter, following consultation with key stakeholders, a full remediation programme will be conducted, similar to that which has been completed on all the other main crude oil tanks.  At this early stage, Jadestone estimates the cost of securing the leak site and permanent repair of the crude oil tank at US$2-3 million.  This is consistent with the overall expenditure to date on the tank inspection and repair work, which totals US$11 million over the past three years.

On the basis that full production from the Montara fields can be restarted as estimated, Jadestone expects that full-year 2022 production would be around the lower end of the previously announced guidance range of 15,500 – 18,500 boe/d.

Paul Blakeley, President and CEO commented:

“Whilst we deeply regret this event, immediate and decisive action by the Jadestone team limited the quantity of oil released and made the facility safe, and I commend the work of both the offshore crew and the onshore operational staff for their quick response in managing this incident.

The integrity of our facilities is at the heart of our strategy and this oil tank was due for inspection within the next few weeks as part of our five-yearly maintenance cycle, which would have been the final key step in the significant inspection and repair plan that has been underway on the Montara Venture since we assumed operatorship in 2019.  Over this period, we have worked extensively and spent significant sums to restore the vessel and associated infrastructure to the condition required in order to deliver a long, safe and productive field life.     

Safety and sustainability are core values for Jadestone, and we will now work closely with the Class inspector, NOPSEMA and other stakeholders to develop and execute a plan to safely and permanently repair the hole in the crude oil tank.  There are many precedents for this type of activity, both within the Asia-Pacific region and globally, and we will deploy the necessary expertise to provide confidence in the solution we implement.  It’s particularly frustrating for this event to occur so close to the planned inspection and repair activity, but our investment in the facilities to date is bearing fruit, with facility uptime now over 90% and with further improvements in the planning stage.

This spill, as with any such unexpected events is extremely disappointing and I can imagine that given how tight a ship the management runs they will be furious. However the spill has shut-in production whilst repairs are underway and whilst guidance is not expected to be lowered it must be possible.

If there is no change in guidance then I expect little effect on revenues or profitability and accordingly the 16% fall in the share price may have been a bit overdone. However Jadestone will be extremely upset about this even though it is likely that no damage has been done to the environment, something the company has always had front and centre in its policies. 

Cornerstone Resources Group

Cornerstone has announced that it has completed the acquisition of Block 47/3f (as well as certain other blocks) in offshore Licence P.2433, UK Southern North Sea from Painted Wolf Resources Limited.

Block 47/3f, which lies to the North of blocks already owned by Cornerstone, contains the low risk Baker prospect, a part of the low risk Carnaby prospect that Cornerstone did not already own and a small extension of the Company’s flagship Abbey discovery.

The Abbey discovery, on which the Company is planning to drill three horizontal production wells has audited proven and probable reserves of 111 Bscf of sales gas and 0.6 MMbbl of condensate. A Concept Select Report has been submitted to the NSTA and engineering studies are underway for the development of Abbey, which would utilise existing infrastructure in the area.

The Baker prospect, which will be tested by an exploration well in due course, is intended to be developed with a single horizontal well drilled from the Abbey infrastructure. Baker has been ascribed 57 Bscf of Mean Prospective Resources and is anticipated to flow similarly to wells on surrounding fields such as Apollo, Minerva and York.

Peter Young, Chief Executive Officer of Cornerstone Resources Group commented:

“Block 47/3f forms a key part of our plans for a new gas development around the Abbey discovery and we are delighted to have signed this agreement with Painted Wolf Resources.

“This area of the North Sea is a location in which our team have long seen significant potential. Developments in both technology and nearby infrastructure have positioned our Abbey development as one of the most exciting opportunities in the Southern North Sea both as a potential deliverer of profitable returns as well as low-carbon gas; in line with the UK’s planned energy transition strategy.

“We are extremely excited about the potential for this area and are looking forward to a busy year ahead as we progress our development.”

Cornerstone Resources Group looks to be an unquoted company not to be confused with others of the same name as it appears to be Cornerstone Oil & Gas and the vehicle of serial energy investor Peter Young. Whilst I wouldn’t normally cover unquoted’s it is interesting to see what he is up to right now…

And finally…

The Canadian GP went to Max which was no surprise with Sainz second but it was good to see Lewis on the podium and a shame that Alonso couldn’t make his grid position count.

Better still was the sight of Matt Fitzpatrick from Sheffield winning the US Open.

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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