Malcy’s Blog – Oil price, Union Jack Oil, Egdon Resources, Europa Oil & Gas, United Oil & Gas, Longboat Energy

WTI $70.29 -$1.68, Brent $73.92 -$1.42, Diff -$3.63 +26c, NG $4.99 -12c, UKNG 187.13p +21.63p

By Malcolm Graham-Wood

Oil price

As I reported yesterday the massed fall in world markets on the back of the Evergrande situation inevitably led to falls in commodities and a flight to the greenback. Today markets are a touch more sanguine as punters take the view that the Chinese concerns are a bit overdone and also that there is likely to be a bale-out unless contagion takes place.

This morning oil has rallied over a dollar and markets are quieter, US retail gasoline has inevitably risen post Ida which will carry on for a while. A gallon of gas will rush you $3.184 on average in the States being up 1.9c w/w, a rise of 3.9c m/m and $1.016 to the good y/y.

One market that is not quieter is that of natural gas, in the UK today it is up nearly 22p/Therm at 187.13p and the rise of the NG price has been reported in the blog now for many months. If the authorities and the politicians had been as smart as the retail investors then we might have worked something out by now.

Also if the Government had realised a long time ago that the UK is sitting on bountiful sources of hydrocarbons that can be easily accessed, relatively easily and with a very low carbon footprint then we may not be in this mess right now. Indeed what politician would not want a thriving UK hydrocarbon industry and as shown by IGas yesterday one that can make meaningful steps in hydrogen and geothermal technology for many years to come?

Rant over.

Union Jack Oil

Union Jack has offered ‘a highly encouraging update in respect of ongoing operations at 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, with Egdon 30% and operator who have an announcement today as well as does Europa with 30%.

This is by any means an exceptionally positive operational report from Wressle, indeed where I had been very positive in recent weeks it beats my numbers into the proverbial cocked hat. Instantaneous flow rates from the Ashover Grit reservoir of 884 barrels of oil per day achieved on a significantly restricted choke setting (30.5/64ths of an inch) with high wellhead flowing pressure.

480,000 cubic feet of gas produced per day (circa 80 barrels of oil equivalent per day) as well as in excess of 950 barrels of oil equivalent per day achieved and this is before the full flow potential of Wressle ‘remains to be fully tested’ and with zero water cut.

This increase in expectations has led to a revision to the Environmental Permit, enabling the installation of a combustion plant to facilitate gas to electric generation. In addition, leading energy consultancy, Gaffney Cline & Associates has been commissioned by Union Jack to prepare an updated Competent Persons Report. This should make fascinating reading…

Numbers wise, since being returned to production on 19 August 2021, Wressle has generated in excess of US$480,000 net in revenues to Union Jack and getting bigger daily. Wressle has continued to exceed production expectations since the successful completion of the coiled tubing operations on the 19 August 2021, instantaneous flow rates in excess of 884 barrels of oil per day along with 480,000 cubic feet of gas (c. 80 barrels of oil equivalent per day) have been achieved from the Ashover Grit reservoir on a significantly restricted choke setting (30.5/64ths) with high wellhead flowing pressure.  Zero formation water has been seen as the well continues to clean up.

What is more, excellent flow rates are currently being recorded, however, the full flow potential of the well remains to be fully tested due to constraints being experienced due to the scope of the gas handling equipment currently being used on site.

The forward plan is to upgrade the gas handling equipment to enable increased production volume and complete the testing of the well’s full potential before defining a plateau production rate, matching the well behaviour to the permanent facilities, long term operational objectives and prudent reservoir management.

Executive Chairman of Union Jack, David Bramhill, commented:

“The Wressle well test operations continue to comfortably exceed our expectations, with instantaneous rates of over 950 barrels of oil equivalent per day achieved to date.

“Wressle is rapidly demonstrating its deliverability and the results achieved so far augur well for the future and this development is set to become a major contributor in the Company’s quest to achieve mid-tier status in due course.

“Current production rates indicate that Wressle is currently the second largest producing oilfield, in terms of daily production, in onshore UK after Wytch Farm, and we are confident that the well has materially more to offer during 2021 and beyond.

“The revision of the Environmental permit now facilitates the potential of an additional revenue stream from electricity generation in due course.

“In light of the excellent well delivery performance we have seen, we await with keen interest the results of the updated GaffneyCline Competent Persons Report.”

Union Jack is a very busy, highly successful company right now, with work continuing at West Newton and other projects also on track to create a well-funded oil and gas company. One of those projects is the investment that the company disclosed with the interims on 13th September with regard to a possible acquisition of an interest in the Claymore Piper Complex Royalty units.

The company are successfully operating at a number of sites and with further investment required at Wressle which will repay investment virtually instantaneously after hooking up and ongoing testing at West Newton is continuing to invest to reap significant rewards the outlook is bright.

Indeed, as the figures above show, Wressle is throwing off cash and growing rapidly, apart from WN is investing in Biscathorpe which has the potential to be a highly profitable yet green development and will make another part of what is fast becoming a fantastic and valuable portfolio. After all, drilling, production and investment, what’s not to like?

With the shares trading at change from 25p they offer outstanding value and as the management get to pull together the pieces of all the current opportunities I see at the moment this is a good time to add to holdings at what will be the wrong price..

Egdon Resources

Egdon has announced the Wressle news as above but along with it an operational update across its portfolio. In addition to Wressle it expects the planning application for the side-track drilling, testing and production at Biscathorpe to be heard in November.

Elsewhere, Shell U.K. Limited advises that the 3D seismic survey over the Resolution and Endeavour gas discoveries has been delayed beyond February 2022.

Detailed well design, facilities specification, and commercial modelling nearing completion for the phased redevelopment of the shut-in Waddock Cross oil field with a Final Investment Decision expected to be made by the end of 2021, which could lead to further drilling activity during 2022.

Detailed reservoir engineering work underway at Keddington to support target selection for a side-track development well, which could be drilled in 2022 and access gross Mean Contingent Resources of 567,000 barrels of oil which remain to be produced.

And in another company showing prospects for energy transition, a programme to plug and abandon the existing Dukes Wood-1 oil well and recomplete this for geothermal heat production has been developed and will shortly be submitted to the HSE.

Mark Abbott, Managing Director of Egdon, commented:

“The Wressle well test operations continue to exceed our expectations with instantaneous rates of over 950 barrels of oil equivalent per day achieved so far.  The well has already begun to yield a material revenue stream which will transform the financial position of Egdon in the coming period.  This production rate means that Wressle is currently the second biggest field in terms of daily production in the onshore UK after Wytch Farm, and we are confident that the well has more to give in the coming period.

We await confirmation from Shell regarding next steps for the Resolution 3D seismic, and we remain optimistic about the long-term potential of this long-burner project for Egdon.  Elsewhere in our portfolio, we are making good progress with several nearer-term projects capable of adding further production, revenues and value to the business.  We are pleased to see activity gaining momentum across the portfolio and look forward to an active year ahead.

I am also pleased with progress in our nascent geothermal business with plans being advanced for repurposing of the Dukes Wood-1 well and wider opportunities being considered.”

MD Mark Abbott has interesting news from his substantial portfolio and like the other partners is confident of significant good news at Wressle which as you know I feel very good about.

Europa Oil & Gas 

It is worth noting that EOG has that 30% exposure to Wressle and whilst others have made comments on the rest of the portfolio this is very clean good news for the company.

Simon Oddie, CEO of Europa said:

“We are delighted to report this instantaneous rate of over 950 barrels of oil equivalent per day (“boepd”) at the Wressle-1 well, a substantial increase to our previous expectations. Combined with high current oil prices in excess of $70 per barrel, Wressle is providing Europa with a major revenue stream. In the UK onshore Wressle is now second only to Wytch Farm, Dorset in terms of daily production”.

United Oil & Gas

UOG has announced an update on the ASX-1X well on the Abu Sennan licence onshore Egypt which encountered ‘at least 10m of net pay in a number of oil bearing reservoirs’. Next stop is completion of the well, testing and hopefully application for a development lease.

With regard to the rest of the programme, as part of the long-term planning to realise the full potential of the Abu Sennan licence, the Company met the operator recently to discuss an indicative drilling programme for 2022 and beyond.

This programme will include development wells to maintain production and exploration wells that have the potential to deliver large reserve and production upside, starting with an initial programme of four wells in 2022. The planned investment demonstrates the exciting future potential that is recognised within Abu Sennan. 

United’s Chief Executive Officer, Brian Larkin commented:

“Today’s announcement is the fourth positive well result from Abu Sennan in 2021. With the well testing set to begin shortly, we look forward to understanding the full potential of the ASX-1X well.

 This is the second exploration well drilled in 2021 on Abu Sennan and gives us further confidence in the value of the remaining exploration potential of the licence. We are also pleased to be planning the drilling campaign for next year and beyond.

 Plans are continuing to progress on finalising the additional development well that has been added to the 2021 drilling programme. The continued investment in Abu Sennan by the JV partners is testament to the potential which exists within the licence, and we look forward to updating shareholders as we receive further results from the continuing 2021 campaign.”

 Longboat Energy 

Longboat has announced the commencement of drilling operations on the Egyptian Vulture exploration well (Company 15%). The drilling of the Egyptian Vulture prospect is being undertaken by the West Hercules semi-submersible drilling rig. The Egyptian Vulture well is targeting gross mean prospective resources of 103 mmboe with further potential upside to bring the total to 208 mmboe on a gross basis. The chance of success associated with this prospect is 25% with the key risk being related to reservoir quality and thickness.

The well, operated by Equinor, is expected to take up to seven weeks to drill with an estimated pre-carry net cost to Longboat of c.$5 million (c.$1.1 million post tax).

Helge Hammer, Chief Executive of Longboat, commented:

“I am pleased that we have now commenced drilling operations on our second exploration well in our short term three well programme following the commencement of the Rødhette well last week. It is no overstatement to say that the next few weeks will be an extremely busy and exciting time for Longboat with each of these wells having the potential to create significant shareholder value.

 “The exploration programme over the next 18 months offers shareholders a unique opportunity to gain exposure to a drilling portfolio of seven wells targeting net mean prospective resource potential of 104MMboe1 with an additional 220 MMboe(1) of upside which provides the potential to create a Net Asset Value of over $1 billion based on precedent transactions in the Norwegian North Sea for development assets.”

Investors will be delighted to see this exciting well to be underway and with one more to come imminently at last there is some action with the drill bit for LBE and I’m sure that with plenty more in the pipeline there will be more to come.

The opinions expressed here are those of the author

Malcolm Graham-Wood

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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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