Malcy’s Blog – Oil price, Union Jack Oil, Deltic Energy & finally

WTI $102.07 -$1.72, Brent $106.65 -$1.68, Diff -$4.58 -4c, NG $6.53 -43c, UKNG 171.41p -28.59p

By Malcolm Graham-Wood

Oil price

Oil remains under pressure as do world markets with last week WTI falling $4.88 and Brent $5.05 and this morning another 5 bucks has been taken off oil. There are a number of things doing this but China is the main problem, it is clear to everybody that their home grown vaccine is inefficient and accordingly the lock downs are a very blunt and inefficient tool to try and deal with it. Over the weekend it appears that substantial orders for testing equipment in the Beijing area means that there is much more to come.

At the moment whilst the French election result has brought back Macron it may be time for the EU to make the decision about Russian oil but maybe even more atrocities or pressure from the US is needed. Also with India, Pakistan and Turkey still taking oil with a $30 discount from Russia as well as China being down on demand then the noose is not yet tightening. Still, if Brent is $100 under these circumstances then what might it be if the EIA are right and 3m b/d comes off the table?

Union Jack Oil

Union Jack has announced that material landmark net revenues of US$5 million 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 producing hydrocarbon development.

Highlights

·    Landmark US$5 million revenues generated to Union Jack since re-commencement of production during August 2021

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

·    Site upgrades ongoing

·    As at 22 April 2022, the Company’s cash balances and short term receivables stand at in-excess of £7.05 million

·    Net revenues of £2.4 million registered to date during 2022, already comfortably exceed 2021 year-end unaudited revenues of in-excess of £1.8 million

·    The Company is covered for all operational and all contracted or planned CAPEX costs, including any budgeted drilling activities

·    Debt free

·    Company solicitors progressing legal work on Capital Reduction exercise to enable the Company to execute share buy-back programme or dividend payment

Executive Chairman of Union Jack, David Bramhill commented: 

“The revenues from the Wressle development continue to highlight the sea change in the financial robustness of Union Jack, as the figures above illustrate.

“We are still in the early stages of the process of unlocking the significant upside potential at Wressle with the future monetisation of the natural gas at the Ashover Grit reservoir plus the substantial future revenue opportunity offered by the Contingent Resource present in the Penistone Flags reservoir that remains untapped.

“We also look forward to the publication in the near future by the Operator of its report on the various projects in which Union Jack is involved.

“Given the future prospects at our core projects at Wressle, West Newton, Keddington and Biscathorpe, the Board of Union Jack believes the Company remains on a material growth trajectory which augers well for the future of the Company and its shareholders.”

The news from Wressle continues to get better and better with now $5m of revenues net to UJO since August with the well producing under natural flow with zero water cut. This means that the company is in a very strong cash position, as iterated in the statement it has cash of some £7.05m with £revenues of £2.4m to date this year making a substantial contribution. 

 With the company debt free and having every potential upcoming expense covered, the company have reiterated its promise to do the necessary work to pave the way for shareholder returns via dividend or buy-backs in due course. This will be made easier with more growth from Wressle as well as the other projects that Chairman David Bramhill mentions in his  statement. 

In my view by any valuation metric UJO is extraordinarily cheap and with the tide having well and truly turned in favour of domestic, low carbon producers, where onshore piles on that value, the shares are a smidgeon of their potential value. 

Deltic Energy

Deltic has announced its audited results for the year ended 31 December 2021. 

Highlights

·   Confirmation of Deltic’s first exploration well on the Pensacola Prospect (Licence P2252)

·    Well planning rapidly progressing with site survey completed October 2021.

·    Rig selection and contract process is well advanced with Deltic-Shell JV scheduling drilling the Pensacola well in late Q3 2022.

·    Transformational farm-out deal completed with Capricorn Energy (previously Cairn Energy PLC) to form an exploration partnership over five licences in the Southern North Sea gas basin.

·    Introduction of Capricorn has further enhanced Deltic’s strong partner base.

·    Capricorn partnership is an endorsement of Deltic’s business model which identifies high quality exploration opportunities and then attracts high quality exploration partners.

·    The deal will accelerate Deltic’s Southern North Sea exploration programme and see significant investment towards drilling decisions.

·    Capricorn will fund 100% of the agreed work programme for each of the five licences up to the point of making a drill or drop decision on each licence. Capricorn will fund 70% of the costs of the first well.

·    Deltic received a USD$1m contribution towards historic costs.  Deltic retains a 40% interest in Licences P2428 (Cupertino Area) and P2567 (Cadence) and a 30% interest in each of Licences P2560, P2561 and P2562.

·    Strong progress made since farm-out, with the JV aiming to make a well investment decision in Q3 2022.

·    Acquired approximately 680 km2 of new 3D seismic data over the P2428 Licence, which includes the Plymouth prospect.

·    Net cash outflow from operations and investing activity for the year of £1.8 million (2020: £1.8 million).

·    Cash position of £10.1 million at 31 December 2021 (2020: £12.0 million) with no debt. As at 31 March 2022, the Company had cash on hand (unaudited) of £8.6 million, with £0.9m of the post-year end spending related to progressing Pensacola well planning.

Graham Swindells, Chief Executive of Deltic Energy, commented:

“The last year has been a period of considerable achievement and progress for our company. The completion of a ground-breaking farm out transaction with Capricorn Energy (formerly Cairn Energy), covering five gas licences in the Southern North Sea was a major highlight.  As well as broadening our partner base, it serves as a further endorsement of the quality of our licences, of our expertise in the gas basin, and of our strategy of identifying opportunities and attracting high quality partners to support drilling. We are particularly looking forward to drilling the Pensacola Prospect in the coming months, as well as continuing our work with Shell and Capricorn and advancing our other licences in what should be a very active and exciting period for our company.”

Deltic was always going to be a long haul so investors should not be surprised that the Pensacola well has been delayed from Q2 2022 to ‘late Q3 2022’ and given its history it might be later. The good thing is what had once been considered to be highly dependent on the small exposure with Shell at Pensacola has now been broadened by the farm-out to Capricorn and the focus on gas.

This will be helped considerably as Chairman Mark Lappin brings significant industry experience to the board and of course does the team at Capricorn. I see the good news for Deltic being the focus on gas and if their acreage can be proved to be worth drilling then maybe it will add to the dash that is being proved highly profitable for the domestic low carbon gas players. 

And finally…

In the Prem the Toffees battled valiantly and had a harsh call which might have changed things but it didn’t and they lost 2-0 to Liverpool and after Burnley’s win are now in the drop zone. Wins for the Noisy Neighbours who stay top and for Chelsea and the Gooners whilst Spurs drew at the Bees.

At the Emilia Romagna GP it was a Red Bull 1,2 and with Saintz off early doors Charlie Clarc struggled and nearly got back to the leaders before sacrificing the position. Off to Miami for the inaugural GP there in a fortnight…

And Tyson Fury easily beat Dillian Whyte but will he retire now as he said he would? One more giant pay day may be hard to avoid…

 

The opinions expressed here are those of the author

Malcolm Graham-Wood

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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