Malcy’s Blog – Oil price, Union Jack Oil, Petro-Victory Energy Corp, Far Ltd, Arrow Exploration & finally

WTI $91.91 +$1.70, Brent $96.84 +$1.45, Diff -$4.93 +61c, NG $4.50 -5c, UKNG 192.84p +5.09p

By Malcolm Graham-Wood

Oil price

Brent was a few cents off the magic $100 yesterday but ended somewhat short after mixed reports from Ukraine and the fact that Germany effectively stopped the Nordstream 2 pipeline in its tracks. Also apparently Iran offered a prisoner swap with the Sherman’s prior to the agreement on the nuclear deal.

It’s US retail gasoline week and showing why Sleepy Joe is keen on that deal above as a gallon of Exxon’s finest will rush you $3.53 which is up 4.3c w/w, 20.7c m/m and 89.7c y/y.

Union Jack Oil

Union Jack has advised shareholders that the Board has reviewed its operational and financial plans for 2022 and in light of its excellent current performance, principally as a result of the Wressle development, where revenues have been transformational for the Company, the Board intends to adopt a capital allocation and distribution policy to allow the payment of a dividend or implement a share repurchase programme.

The Board considers the ability to make future distributions to shareholders being both timely and appropriate and an important means of returning value, subject to continuation of the Company’s business operations and consideration of its future prospects.

In implementing this proposal, the Board intends to apply a consistent and disciplined approach to capital allocation in order to:

·   Manage the Company’s overall funding requirements including maintaining and developing operations at projects in which Union Jack has an interest;

·   Maintain a strong balance sheet which is debt free throughout the oil price cycle;

·  Continue to invest in growth projects held, which include Wressle, West Newton, Keddington and Biscathorpe, all of which the Board believes will deliver significant future returns for shareholders; and

·   Consistent with Union Jack’s progression into a meaningful producing company, make appropriate distributions in order to reward its shareholders.

Under the Companies Act 2006, the Company is currently prohibited from paying a dividend or completing a share repurchase programme as companies are only permitted to make distributions to shareholders from distributable reserves. The Board, therefore, intends to seek shareholders’ approval to undertake a reduction of capital (“Capital Reduction”) to create these distributable reserves at the forthcoming Annual General Meeting of the Company, for the year ended 31 December 2021.

The proposed Capital Reduction will not affect the voting or dividend rights of any shareholder, or the rights of any shareholder on a return of capital whilst the distributable reserves may be used in the future for the purpose of either paying dividends or making market purchases of the Company’s shares under a separate authority to repurchase shares.

The Capital Reduction is conditional upon both shareholder and court approval being obtained.  

This again needs very little in the way of comment from me, after a series of positive announcements with regards to revenue at Wressle UJO is building a very strong financial position. Assuming everything goes through I would expect something in the way of a distribution via a dividend or share buy-back programme, that in itself would make UJO significantly more desirable to those who require income. These shares were substantially undervalued before this, now that status is imminent the upside is, potentially huge. 

Petro – Victory Energy Corp – One to watch…

I met recently with Richard Gonzales, CEO of Petro-Victory Energy Corp (VRY)  which is an onshore, upstream asset acquirer and developer in Brazil. VRY has working interests in 19 licences in 2 basins in Brazil and has just completed a oversubscribed landmark funding raising just shy of CAD $11m via a private placing at CAD$2.00 per share. Whilst quoted on the TSX Venture Exchange it has just attracted UK (Jersey) ACAM LP to cornerstone the raise and the new investor seems keen enough to make it their first investment of over 10% on the TSX or TSXV.

The onshore situation in Brazil has been of interest ever since the opening up of the market post the PetroBras departure driven by capital re-deployment to its major discoveries offshore and the ANP divestment programs in country. The opening up of significant onshore acreage has left an opportunity for the likes of Petro-Victory and the attractive fiscal environment with royalty rates of between 5% and 10% combined with low operating costs of US$12/bbl make it a highly attractive region to invest.

VRY has emerged with a sizable portfolio in the Potiguar basin – the hottest deal basin onshore Brazil – with 100% WI’s and operatorship across its portfolio. Already having proven themselves to be dealmakers they have been able to trade out adjacent acreage to focus on their operated assets. The stock is trading at an estimated 80% discount to current assets and with this placing are in a very strong financial position with plans to grow

The game plan is to expand substantially by exploiting their existing reserves through an initial four well drilling program supported by additional workover to target their PUD’s. These wells pay back in <60 days and with such a well stock bought very cheaply (in the <$50/bbl environment) will put EBITDA at some $18-20m by the end of this year on the back of production of at least 1kbo/d of oil.

The money raised pays for the programme for this year as well as giving the company the ability to participate in upcoming Brazilian oil and gas licensing rounds. I was most impressed by the CEO Richard Gonzales and he must have impressed the investors and be looking forward to the next couple of years. Obviously I don’t often cover TSX or TSXV listings but I get the impression that in due course the company’s advisors must persuade management to come too London so as it says, one to watch.  

Far Limited

A couple of announcements this week from Far, the first was a well report from the drilling and logging data obtained on the main well (Bambo-1) and the side-track well (Bambo-ST1) which confirmed both the presence of a prolific oil source in the area and that oil shows encountered whilst drilling were persistent over several hundred metres, confirming key reservoirs had access to this oil generative kitchen. 

Secondly the company put out a strong rejection of the recent bid which is standing well below the current share price. This is a tricky situation by any means, the well itself wasn’t conclusive as you can see but it looks like a find under any other name. With 3 out of the 4 mapped prospects being high graded for drilling, shareholders should sit tight, and my spies tell me that how this well wasnt a discovery is a mystery so waiting for the next one makes sense.

Arrow Exploration

Arrow Exploration has shared an operational update in connection with the drilling of the next well, the RCE-2 well, at the Rio Cravo Este Field (Tapir Block) in Colombia. The Company continues to quickly advance towards drilling the RCE-2 well.

The partners on the Tapir Block (Arrow 50% : PetrolCo 50%) have largely completed the
community socialization process, which includes informational meetings with the communities,
sourcing local labour and trades, and meeting local public officials.
Following a competitive tender process to achieve the best possible terms, the partners have
executed the contract for the drilling of the RCE-2 well with Top Drilling Company, an experienced
rig contractor headquartered in Bogota, Colombia. The rig is a Lee C. Moore 1,500 HP unit with a
500 ton top drive.
The procurement of supplies continues to progress on schedule, with major capital items such as
downhole tubulars having been acquired.
Contracts for site services, including the requisite field staffing in advance of and during the drilling
operation are being executed. Site preparations, including civil works, have commenced.
The partners expect the RCE-2 well to spud on or about March 15th, 2022, with drilling expected
to take approximately three weeks, followed by the testing of the well. Depending on the number
of zones encountered in the well bore, the testing is expected to take approximately two weeks.

While preparations for drilling the follow-on RCS-1 well (formerly named RCE-3) are at an earlier stage, Arrow expects the RCS-1 well to spud during April 2022. The Company expects to provide additional updates on the RCE-2 and RCS-1 wells in the coming weeks.

This was from yesterday and whilst I don’t follow Arrow yet nor met management face to face, I have had a call and was very impressed. I shall watch these wells closely and hope to bring more on the company after introduction.

And finally…

Last night in the Champions League Chelski beat Lille 2-0 and tonight the Red Devils are at Athletico Madrid.

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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