WTI $113.90 +$1.56, Brent $120.65 +$1.62, Diff -$6.75 +6c, NG $5.57 +17c, UKNG 231.2p -19.8
By Malcolm Graham-Wood
After a week in which WTI was up $9.20 and Brent rose by $12.72 today it’s all screaming down again, both are some 8 bucks easier. This is because China is taking the recent Covid outbreak very seriously even if only a handful of cases have been identified. Shanghai is being shut-down in two four day phases for mass testing and with it some semblance of industrial demand.
Also this week sees the Opec+ meeting for what it’s worth, the UAE Minister has already said that people should get used to oil at sky high prices so unless something changes we can expect them to stay with the the production agreement and add 400/- b/d.
The Baker Hughes rig count on Friday might have indicated that US companies were thinking of cranking up production with overall rigs up 7 to 670 and oil also rising by 7 to 531 units.
Union Jack Oil
Union Jack has announced that material landmark net revenues of US$4 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.
· Landmark US$4 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 25 March 2022, the Company`s cash balances and short term receivables stand at in-excess of £6.6 million
· Early settlement of £2,083,000 has been paid made to Calmar LP in respect of deferred consideration on acquisition of 25% interests in PEDL180 and PEDL182 containing the Wressle development
· The Company is covered for all operational and CAPEX costs, including any envisaged drilling, for the foreseeable future
· Wressle operational update to be published during April 2022
· Company solicitors engaged to advance legal work on Capital Reduction exercise to enable the Company to execute share buy-back programme or dividend payment
· Debt free
Executive Chairman of Union Jack, David Bramhill commented:
“The revenues from the Wressle development have created a 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 which is continuously improving as the site upgrades take effect, the future monetisation of the natural gas at the Ashover Grit reservoir and the substantial upside potential offered by the Contingent Resource present in the Penistone Flags reservoir that remains untapped.
Given the future prospects at our core projects at Wressle, West Newton, Keddington and Biscathorpe , the Board of Union Jack believes the Company is now on a material growth trajectory which augers well for the future of the Company and its shareholders.”
Yet more good news from Union Jack where Wressle continues to deliver the goods to the tune of some $4m of revenues since last August. This ‘material landmark’ is good but only the start of the expansion at Wressle with all its upgrades in progress and shareholders should be over the moon.
CEO David Bramhill is rightly highly positive about the future for UJO as in addition to Wressle, itself a significant bonus, it has recently won the planning appeal at West Newton and is optimistic about prospects for both Biscathorpe and Keddington.
It is worth noting that valuation of Union Jack is surely going to become more binary as we now know that solicitors are working on solutions for the enablement of paying dividends or engaging in share buy-backs and that now as a debt free company it has the potential to join the list of those companies who distribute profits to shareholders.
In my view UJO is outstandingly cheap, apart from all of the above I think that markets will start to increase its value targets on companies that provide cheap to produce low carbon hydrocarbons that add to the domestic energy balance. In this case the shares are a lay down certainty to break out of the recent trading range.
Touchstone has reported its operating and financial results for the three months and year ended December 31, 2021.
Fourth Quarter 2021 Highlights
· Achieved quarterly average production volumes of 1,336 barrels per day, representing a 5 percent increase from 1,274 bbls/d produced in the fourth quarter of 2020.
· Realized petroleum sales of $8,212,000 from an average crude oil price of $66.81 per barrel compared to petroleum sales of $7,650,000 from average realized pricing of $62.37 per barrel in the third quarter of 2021.
· Generated an operating netback of $29.96 per barrel, an 8 percent increase from the third quarter of 2021 and a 116 percent increase from the $13.90 per barrel in the fourth quarter of 2020.
· Our funds flow from operations improved to $1,291,000 in the quarter compared to funds flow used in operations of $736,000 in the fourth quarter of 2020.
· Reported net earnings of $6,514,000 ($0.03 per basic and diluted share) compared to net earnings of $1,655,000 ($0.01 per basic and diluted share) in the same period of 2020. Net earnings in the fourth quarter included net impairment reversals of $13,716,000, partially offset by associated deferred income tax expenses of $7,226,000.
· Exploration and evaluation capital investments of $2,946,000 focused on completing and initiating production testing operations on the Royston-1 well drilled in the third quarter of 2021 and submitting the required regulatory application for the Cascadura surface facility.
· Drilled three gross and net commitment wells on our legacy crude oil properties in the quarter, representing our first infill development drilling since 2019.
· Expanded our Trinidad-based term loan facility from $20 million to $30 million to fund our budgeted Ortoire facility projects in 2022. We exited the year with cash of $17,936,000, working capital surplus of $6,925,000 and $30,000,000 drawn on our term credit facility, resulting in a net debt position of $20,075,000.
Annual 2021 Highlights
· Reported average daily crude oil sales of 1,342 bbls/d in 2021, a nominal 4 percent decrease relative to the 1,392 bbls/d produced in 2020 due to natural declines, reflecting strategic capital allocation on our Ortoire exploration program. Production from our three development wells drilled in the fourth quarter of 2021 came online in the first quarter of 2022.
· Generated funds flow from operations of $4,107,000 (2020 – $263,000) and an annual operating netback of $26.55 per barrel (2020 – $14.49 per barrel).
· Recognized net earnings of $5,719,000 ($0.03 per basic and diluted share) compared to a net loss of $11,030,000 ($0.06 per basic share) in 2020, driven by $13,674,000 in net impairment reversals recognized in the year predominantly based on increased forecasted crude oil pricing and partially offset by the deferred income tax expense impact of $7,463,000.
· Despite COVID-19 challenges in Trinidad, we executed an incident-free $20,106,000 exploration program, primarily focused on drilling one gross (0.8 net) well, acquiring 22-line kilometres of 2D seismic and testing two exploration wells drilled in 2020. We fulfilled all required minimum work obligations in the initial exploration period of our Ortoire exploration and production licence.
· Development capital expenditures of $7,757,000 focused on exporting a third-party drilling rig to Trinidad, which was used to drill three development wells in the fourth quarter of 2021.
· Entered into revised ten-year lease operating agreements for our Coora-1, Coora-2, WD-4 and WD-8 blocks through December 31, 2030.
Post Period-end Highlights
· Daily crude oil sales averaged 1,382 bbls/d in January 2022 with a realized price of $71.68 per barrel and averaged 1,384 bbls/d in February 2022 with a realized price of $81.30 per barrel.
· In February 2022, we executed the relevant agreements with our third-party partners to allow for the final tie-in of the Coho gas field, with pipeline tie-in operations proceeding towards anticipated initial production in May 2022.
· In March 2022, we were notified that the Trinidad government approved a five-year extension to the exploration period of our Ortoire licence to July 31, 2026 for an additional three exploration well commitment.
Paul Baay, President and Chief Executive Officer, commented:
“Building on our operational and financial momentum generated in 2021, our near-term priority is to bring our Coho and Cascadura exploration discoveries onto production. With the extension of the operating agreements on our legacy assets and the five year extension of the exploration period of our Ortoire licence, we are able to prioritize and allocate future capital expenditures on projects that provide the best economic return. Our assets, including natural gas development at Cascadura and Coho, along with oil development at Royston and our legacy properties, complemented by internally identified exploration targets, advances Touchstone to a level of portfolio balance. Barring any significant delays, we forecast that our year-end 2021 liquidity position provides the funding required to meet our near-term focus of commencing production at Coho and Cascadura. By the end of the year, we expect to develop into a sustainable cash flow generating production-based company with strong exploration prospects.”
Not much to add as often the case with results statements, but I think it is worth pointing out that in recent years Touchstone has moved from being an exploration company to what is now a genuine E&P outfit that is generating earnings, in this case of $5m US, as well as having an $18m cash balance.
This balance will be used to fund the tie-in projects and production from Coho and Cascadura, thus enabling the building of the company into a substantial energy vehicle and justifying the optimism from recent years. What has not happened is the follow through in the share price from the high in February of 2021 and also from last November since when the price has drifted further. The shares are simply not reflecting the immensely strong position that the company is developing into and should at the very minimum double from here if not much more.
United Oil & Gas
United Oil & Gas has announced an update on the ASD-2 development well in the Abu Sennan licence, onshore Egypt. United holds a 22% working interest in the licence, which is operated by Kuwait Energy Egypt.
· The ASD-2 well has commenced production at an initial rate of c. 2,100 bopd gross (c.462 bopd net), significantly above pre-drill expectations
· An exceptionally short turnaround time of just six days from well completion to production and revenue generation for United
· A rig has been mobilised to drill the second well in the 2022 drilling programme. This is the ASV-1X exploration well which is expected to spud in the coming days
· A fifth firm well has been added to the fully funded 2022 drilling campaign following completion of technical work and a sustained high-oil price
As previously announced, the ASD-2 development well was interpreted to have encountered at least 25.5 metres of net oil pay across the Abu Roash and Bahariya reservoirs. Twenty metres of high quality net pay was interpreted in the Abu Roash-E (AR-E) reservoir, significantly above pre-drill expectations. The AR-E reservoir was tested with flow rates of 4,076 bopd and 3.1 mmscf/d gas (c. 4,703 boepd gross; 1,035 boepd net) achieved on a 48/64″ choke and 2,299 bopd and 1.7 mmscf/d gas (c.2,646 boepd gross; 582 boepd net) achieved on a 32/64″ choke.
The well has now been tied into the existing facilities and brought on stream at an initial rate of c. 2,100 bopd gross (462 bopd net) on a 28/64″ choke. This is just six days from well completion to production, and this short turnaround time means revenue is rapidly generated for the Company. The excellent rates achieved on test have demonstrated the potential of the AR-E reservoir at this location. The well will continue to be monitored, so that the long term production potential of the well can be assessed.
2022 Egypt Drilling Programme
Following the completion of the ASD-2 well, the first well in the in the 2022 Abu Sennan drilling campaign, the ECDC-6 rig has been released. The second well to be drilled will be the ASV-1X exploration well. The Sino Tharwa-1 rig which will be used to drill the ASV-1X well has been mobilised. United estimate that the ASV-1X structure has the potential to hold over 2.5 million barrels gross mean recoverable resources. The well is expected to spud in the coming days.
In response to the sustained high oil-prices and the results of recently completed technical work, the fully funded 2022 drilling programme at Abu Sennan will now include a fifth firm well. The drilling programme had initially included four firm wells and one contingent well, which was dependent on the results of technical studies on the Al Jahraa field. These studies have now been completed, and have led to the Al Jahraa-14 development well (AJ-14) being approved by the Joint Venture partners. AJ-14 will target multiple Abu Roash reservoirs with the aim of accessing additional reserves and accelerating production. It replaces the AJSE-3 water injector that was initially proposed as a contingent well. The AJ-14 well is likely to be the third well of the 2022 campaign, followed by the ASH-5 development well at the ASH field.
United will be releasing its results for the full year ending 31 December 2021 on the 26 April 2022. In advance of this, the Company will provide its usual quarterly production update for Q1 2022.
United’s Chief Executive Officer, Brian Larkin commented:
“This is another fantastic drilling result, significantly above our pre-drill expectations. The ASD-2 well is the eighth consecutive successful well at Abu Sennan since we acquired the licence in 2020. The wells within Abu Sennan have an exceptionally short turnaround time between well completion and commencement of production – typically a matter of days for development wells. With our production being leveraged to the current higher oil prices, this additional production rapidly generates revenue and cashflow for United. We have had a great start to the year with the agreement on the Crown milestone payment followed by this impressive drilling result and we look forward to continuing our 2022 drilling programme with the ASV-1X exploration well, due to spud in the coming days. We are also pleased to have added a firm development well to the drilling programme. There remains vast potential in the Abu Sennan licence and against the backdrop of higher commodity prices it is great that the JV partners have the flexibility to optimise the drilling programme to generate the best returns”.
A good result here from UOG who have brought on more than they had expected at ASD-2, and at some speed has meant that a fifth well has been added to this year’s campaign. The shares are also dismal performers given what they have done and the current oil price and I am looking forward to a meeting with CEO Brian Larkin shortly to try and find out what the company are planning to do about it.
Empyrean advises that it has received a conversion notice to issue 18,750,000 Ordinary Shares at a conversion price of 8p per Share under the existing Convertible Loan Note Agreement as announced on 16 December 2021 (‘Partial Conversion”). The Partial Conversion reduces the amount owing on the Convertible Note by £1,500,000.
Further good news from Empyrean but of course the eyes at the moment are well and truly on the prize that is Jade. If it works the shares which have started to motor already will take off…
The Saudi GP went with form, Max winning from Charlie Clerc and The Saint. Mercedes still have major league problems and the amateur drivers crash every week.
England cricket remains a disgrace, absolutely no concentration from the batsmen and the bowlers are mainly chucking pies. Think what these numbers might be: 7,0,8,2,0,7 and 8,5,0,4,22,2. Yup those are the scores of the English batsmen from 2-7 in this test match. With no full time coaches who will be replaced I suspect the new one will even dispense with Root who must have the responsibility taken away from him to let him do what he normally does best, score runs. And as for the bowling Mahmood was good but apart from that not much, Robinson toured but was not fit like in Australia so most can be canned. There are also 2 half decent bowlers who are at present deemed to be surplus to requirements…
England v Switzerland was a bit of a joke as is the norm for ‘friendlies’ can’t wait for tomorrow v Ivory Coast….PTSB.
The opinions expressed here are those of the author
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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