Malcy’s Blog – Oil price, Union Jack Oil, Savannah Energy, IOG, Far Limited & finally

WTI $105.96 -$7.94, Brent $112.48 -$8.17, Diff -$6.52 -23c, NG $5.51 -6c, UKNG 259.41p +28.21p

By Malcolm Graham-Wood

Oil price

The oil price fell sharply yesterday after the Covid scare in China with Shanghai being closed down bit by bit. The UAE Oil Minister in an interview with CNBC said he had not ‘not taken a call from the US’ but there had been no call from the Energy Secretary. He went on to say that energy security is most important, without it there is no chance of successful climate change. Making a big point about security the market is down again today after the Houthi rebels offering a  cease fire.

More importantly, in Turkey the peace talks between Russia and according to early vibes there is a faint chance of at least some progress, accordingly oil falls again.

Retail gasoline is $4.231 this week, actually 0.8c down w/w but up 62.3c m/m and rising $1.379 on the year.

Union Jack Oil

Union Jack has provided an update on the Gaffney Cline report in respect of 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 the Wressle development.

The Gaffney Cline report has been commissioned and paid for by Union Jack, Gaffney Cline were originally commissioned to prepare a Competent Persons Report (“CPR”).

Over the course of the initial preparation of the CPR, particularly given the receipt of further positive information in respect of downhole pressures and the continued elevated production figures from Wressle-1, the decision was made to expand the scope of work from a CPR to a wider Reserves and Resources Report prepared in accordance with the Petroleum Resources Management System (“PRMS”), a standard developed by the Society of Petroleum Engineers.

The additional reporting in the expanded scope of work for the Gaffney Cline report will incorporate:

·    1P/2P/3P reserve values for the Ashover Grit and Wingfield Flags reservoirs

·    Highlight and discuss any additional potential reservoirs

·    Generation of an indicative 2C profile for the Penistone Flags reservoir

·    Preparation of a 2P+2C profile illustrating future field potential

Executive Chairman of Union Jack, David Bramhill commented: 

“Wressle continues to outperform over and above original prognosis and expectations.

“We are confident that the expanded Gaffney Cline report will assist in highlighting the true upside potential of this economically attractive conventional hydrocarbon development.

“Union Jack looks forward to sharing the results of this report once received.”

The news that the original CPR work is being expanded will be exciting for Union Jack shareholders who have seen the recent regular updates that have seen such significant revenue growth at Wressle. A fuller reserves and resources report will, I’m sure especially given the wider scope afforded to it, be able to fully open up the significant value which I’m sure exists in these assets. 

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter in Africa, is pleased to announce its inaugural renewable energy project, having signed an agreement yesterday with the Ministry of Petroleum, Energy and Renewable Energies of the Republic of Niger for the construction and operation of the country’s first wind farm, with a proposed installed power generation capacity of up to 250 megawatts on an independent power producer basis in the Tahoua Region of Southern Niger.

The proposed wind farm project, Parc Eolien de la Tarka, is expected to be owned by a subsidiary of Savannah, Savannah Parc Eolien de la Tarka (“SPET”), and to consist of up to 60 wind turbines with a total power generation capacity of up to 250 MW. The initial phase of the Project will see SPET carry out a24-month feasibility study which will include an assessment to confirm the wind conditions and an assessment as to how the generated power would be incorporated into the national and regional electricity grids.  The project is expected to take advantage of the development of the West African Power Pool (“WAPP”), a high voltage interconnection network allowing power exchanges between countries in the region and increased grid stability.  Niger is scheduled to be connected to the WAPP in 2023 via a 330 kV line financed by the World Bank, the African Development Bank, the European Union and the Agence Française de Développement. 

Subject to the planned feasibility study confirming the ultimate scale of the Project, Parc Eolien de la Tarka is expected to produce up to 600 gigawatt hours per year of electricity. The construction phase of the Project is expected to create over 500 jobs, while the Project has the potential to reduce the cost of electricity for Nigeriens and avoid over an estimated 400,000 tonnes of CO2 emissions annually[1].  Parc Eolien de la Tarka is also intended to be capable of exporting power to neighbouring countries at competitive tariffs and would significantly diversify Niger’s energy mix. The Project is expected to be sanctioned in in 2023, with first power generation in 2025.

Savannah expects to fund the Project from a combination of its own internally generated cashflows and project specific debt.

Sani Mahamadou, Minister of Petroleum, Energy and Renewable Energies, of the Republic of Niger, said:

“I am delighted to announce our plans today for the development of Parc Eolien de la Tarka. This is a truly transformational project for Niger, potentially increasing the country’s on-grid power generation capacity significantly. Such a project is expected to stimulate a significant increase in economic activity across our country, directly and indirectly creating thousands of jobs over the course of the next decade.

Today’s announcement follows His Excellency President Mohamed Bazoum’s undertaking at COP 26 last year to develop significant new green sources of energy for Niger. It once again demonstrates the seriousness to which the Government of Niger takes the commitments we make to the international community. I would also like to thank Savannah – a long-term investment and operating partner for Niger – for proposing and creating this project and state that our Government will provide Savannah and their financing partners our full support to enable this project to deliver first wind power for Niger by 2025.”

Andrew Knott, CEO of Savannah Energy, said:

“Savannah is passionately focused around delivering Projects that Matter in Africa. Parc Eolien de la Tarka is a prime example of our vision in action. The independent studies conducted to date indicate the Tahoua region of Niger to have a world class wind resource. The Project is expected to harness this resource and generate highly competitive, clean, indigenous power for Niger. Parc Eolien de la Tarka will see the country’s on-grid power generation capacity potentially increase by over 40%. Academic study after academic study has shown the relationship between power consumption, income levels and life expectancy to be well understood: the higher a country’s per capita power consumption, the higher both GDP per capita and human life expectancy are expected to be. Parc Eolien de la Tarka is therefore a critical project for the development of Niger, which we expect to make a significant contribution to improving the lives of its people.

I would like to thank the Government of Niger, and Minister Sani Mahamadou in particular, and the Niger National Utility Company, NIGELEC, for the strong support we have received in bringing our vision of the Parc Eolien de la Tarka to life. We look forward to working with the Government and our developmental finance partners over the course of the coming years as we move through the feasibility and construction phases of the project to our intended first wind date in 2025.

Parc Eolien de la Tarka represents the first of several large scale greenfield renewable energy projects that Savannah expects to announce over the course of the next 12 months.”

Another interesting move for Savannah as they continue to develop their business in Niger as well as in other neighbouring countries. The move is serious for Savannah, they are constructing and operating Niger’s first wind farm thereby harnessing this excellent resource in-country. They are also creating jobs, cutting energy costs for Nigeriens and avoiding over an estimated 400,000 tonnes of CO2 emissions annually.

Plans for a proposed installed power generation capacity of some 250 megawatts are expected to be sanctioned next year with first power generation in 2025. The Niger Minister for Energy calls this deal ‘transformational’ which can be an overused word but on this occasion very much suits the fact that the wind farm is set to increase Niger’s power generation capacity by 40%, not only diversifying Niger’s energy mix but also opening up the potential for Niger to export power to neighbouring countries. The project is also taking advantage of Niger’s expected connection to the WAPP in 2023, the high voltage interconnection network, which will improve grid stability important for renewable projects and facilitate power exchanges between Niger and other countries in the region.

With the investment provided by SAVE the country will be able to embrace clean power which will improve and diversify the economy in Niger and hugely benefit the population. 

IOG

IOG has provided a preliminary update on Phase 1 production and progress with the resumption of Southwark drilling.

Blythe & Elgood Fields

The Blythe and Elgood fields are produced via the normally unmanned Blythe platform which is connected via a 12″ line to the main 24″ Saturn Banks Pipeline System that feeds into the associated Saturn Banks Reception Facilities at Bacton terminal.

Since Blythe and Elgood were brought onstream on 13 and 15 March respectively, reservoir performance has been within range of the Company’s expectations based on the data from the initial clean-up flow tests from 2021. Over the past week, the Elgood well has flowed continuously at a stable rate in excess of 50 mmscf/d. Blythe has also flowed at rates in excess of 40 mmscf/d. These initial indications are not intended as production guidance. As previously indicated, the Company intends to analyse reservoir and facilities performance data over the initial months of production to inform an annual production guidance range.

As is normal in the start-up phase of an offshore project, some initial mechanical issues have caused interruptions to early production. The Company has made allowances for facilities downtime periods in its internal planning and financial forecasts.

Currently, a chemical injection fault has necessitated the Blythe well to be temporarily shut in. The solution is planned to be implemented this week, enabling Blythe to resume production immediately thereafter. This issue is not affecting Elgood production which has continued in the meantime.

Southwark Field

The rock dumping required to provide a stable seabed for the return of the Noble Hans Deul jack-up drilling rig is expected to be completed today. Consequently, return of the rig to the Southwark field location is targeted for next week with a view to a safe resumption of drilling by mid-April. First Gas from Southwark is now expected to be in Q4 2022. Given the nature of the seabed scour issue, contractually the costs associated with the delay since early January will fall predominantly on the licence holders (IOG and its 50:50 joint venture partner CalEnergy Resources (UK) Limited). Whilst these additional shared costs are not covered under the standard insurance packages in place, they are expected to be covered by available cash resources.

Andrew Hockey, CEO of IOG, commented: 

“Early reservoir performance indicates flow rates at Blythe and Elgood are in a similar range to the clean-up flow tests, which is encouraging. Elgood is producing steadily at over 50 mmscf/d. We have experienced some early mechanical issues on the Blythe platform, as may be expected during the start-up phase. We expect to resolve a chemical injection issue on the platform this week so that we can establish stable flow from both wells. In parallel, we are pleased to continue our progress towards a safe resumption of drilling at Southwark by mid-April.”

With IOG only having recently started up production at Blythe and Elgood it strikes me as having a minor if irritating teething problem at Blythe is pretty much inevitable. Over the next few weeks once minor faults are ironed out then some idea of guidance will be given, by then we won’t be far from production at Southwark and during which time IOG will remain a seriously good value play in the market. 

Far

Highlights
The Board has determined that retaining the Woodside Contingent Payment within FAR is more effective than demerging the payment into a new entity
FAR is now focused on strategies to maximise the value of its exploration portfolio in The
Gambia, including farm-out options or outright sale

FAR Limited (ASX: FAR) an independent, Africa focused, oil and gas exploration company, provides the
following update having completed its investigations of options relating to the Woodside Contingent
Payment and the advancement of strategies associated with the Company’s exploration portfolio in The
Gambia.
Woodside Contingent Payment
The Woodside Contingent Payment entitlements are associated with the sale of FAR’s entire interest in
the Senegal RSSD Project to Woodside. FAR received US$126 million in cash from Woodside as well as
rights to the Contingent Payment as consideration for the sale. Following shareholder approval, FAR
made a capital return to shareholders of 80 cents per share in September 2021.
The Woodside RSSD Sale Agreement contemplates a potential future Contingent Payment by Woodside
to FAR of up to US$55 million payable dependent on oil price and production. Based on current
statements by the operator and current oil prices, your Board believes it is likely that the full US$55
million will be received by FAR over time. As announced on 23 February 2022, the Woodside Contingent
Payment was assessed by an independent valuation expert engaged by FAR at a mid-point valuation of
US$39 million using a discount rate of between 9% and 10%.
After careful consideration the Board has determined that retaining the Contingent Payment within the
existing corporate structure of FAR is preferable to demerging it into a new entity.
The tax losses and capital structure of FAR may allow, when the proceeds of the Contingent Payment
are received, for the consideration of a capital return to shareholders in a similar way as was done in
September 2021, subject to the customary tax considerations at that time and obtaining of an ATO class
ruling.
The Gambia exploration assets and an alternative oil and gas demerger strategy
FAR’s remaining active oil and gas exploration assets are its two licenses in The Gambia, blocks A2 and
A5, in which it holds a 50% working interest and is operator.

FAR provided an update on the exploration potential of these assets in its Gambia Project Update
release of 23 February 2022. Shareholders are referred to that ASX release and the soon to be released
Annual Report and the Operations Review for more detail.
With the decision made on the Woodside Contingent Payment, the Board’s strategy for 2022 is to focus
on value creating strategies for the Company’s oil and gas exploration assets in The Gambia. The
Company is now progressing a farm down of its working interest and in doing so, seeks a carry of a well
for drilling in late 2023 or an outright sale.
In the absence of The Gambia exploration assets being sold in their entirety, the Board intends to seek
the separation of them by way of a demerger into a separate stand-alone listed entity. The Board
considers that this should occur following achievement of a farm-out, which would have the effect of
reducing FAR’s exposure to the cost of a 2023 exploration well. Any such separate stand-alone entity
would need to be sufficient in size and operations to justify such a listing.

Corporate Matters
Notwithstanding the closing of the recent takeover offer and the rerating of the FAR share price to its
current level, the Board is conscious that the current FAR share price represents a discount to the
Directors’ assessed value of a FAR share.
The Board is considering a broad range of strategies consistent with seeking to reflect the underlying
value of FAR’s assets in its share price, whilst retaining the Woodside Contingent Payment within FAR.
The intention of the Board is to actively implement its strategy as outlined herein and will make
appropriate ASX announcements as matters are progressed.
FAR’s 31 December 2021 Financial Statements and Annual Report will be released shortly.

Commenting on the update, Independent Chairman Patrick O’Connor said:

“While we continue to focus on our core expertise as an oil and gas exploration company, we are seeking
to extract maximum value for our exploration assets in The Gambia by way of farm-out with a financial
carry, an outright sale or ultimately a demerger. The Board is focused on the careful management of the
balance sheet and the unlocking of shareholder value.”

Something for everyone there then as it looks like post Cath things are going to change a bit around Far. To me it looks like a way of monetising The Gambia assets and maximising shareholder value through a rationalisation of the portfolio…

And finally…

Still in the chronically boring international break and tonight England 7’s take on the Ivory Coast, Northern Ireland host Hungary, Scotland are in Austria and Wales entertain the Czech Republic.

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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