Malcy’s Blog – Oil price, Union Jack, President, Touchstone, GMS & finally

WTI $40.20 +77c, Brent $42.45 +73c, Diff -$2.25 -4c, NG $2.86 -3c

By Malcolm Graham-Wood

Oil price

Oil rallied yesterday, economic data from China was better than expected, imports of 11.8m b/d in September were up 5.5%m/m and 17.5% y/y which rather flies in the face of those who suggest that China demand is over. US retail gasoline was $2.167 per gallon last week, a fall of 0.5c w/w, down 1.6c m/m and off 65.6c y/y.

Union Jack Oil

UJO has announced that it is to increase its stake in the North Kelsey conventional oil prospect by buying an additional 30% stake from operator Egdon and that  further financial obligations will be equally carried on a 50/50 basis by Union Jack and the EDR.

The prospect is near to and analogous with Wressle and has the potential for oil in up to four stacked conventional Carboniferous reservoir targets.  The Operator estimates that the Prospective Resources range from 4.66 million barrels up to 8.47 million barrels of oil, with a Mean Resource volume of 6.47 million barrels.

David Bramhill, Executive Chairman of Union Jack Oil plc commented:

“North Kelsey is a low cost, drill-ready onshore acquisition for Union Jack in our focus area, consistent with our strategy. The increase in our interest to 50% increases our exposure to this potentially value adding project and expands our balanced drilling and development portfolio.

North Kelsey sits within our focus areas of the East Midlands, Humber Basin and East Yorkshire and is on trend with our Wressle oil development project which is on-track to produce first oil later this quarter. The acquisition of this additional 30% interest has been executed on attractive terms without any promote and will also deliver additional savings by removing our previous farm-in carry obligations. Subject to a successful farm-out process, North Kelsey-1 is expected to be drilled during 2021.”

Union Jack recently raised some £7m in a substantially oversubscribed placing and subscription and this shows that that the company is already putting the money to good use. The current share price is not dissimilar to what it was then and accordingly I feel that at these levels, with so much going on here and at West Newton to mention just two, that  there must be substantial upside to the price.

President Energy

A drilling update from President who are certainly not letting the pampas grow under its feet as it announces the spud of the EVN-1 well at the Estancia Vieja field in the Rio Negra province. Targeting an undrilled and undrained structure within the larger Estancia Vieja field where the P50 success case for this well is oil of 40m3/d (250 bopd) and gas of 60,000m3/d (350 boepd) and where the structure as a whole could contain between 5-14 Mmbbls of oil in place and between 11-26 Bcf of gas.

In the event of success, it would open the possibility of some 6 follow on wells of which 5 would likely target gas and the other oil. There are no current reserves booked for any part of this structure which indicates significant upside should this come in and with the cost of the well estimated at $2.5 million for the 28 day well to 2,000 metres TD returns are potentially well worth the while.

Finally, a workover rig is now on LB-1001 at the Las Bases field to complete the well ready for testing and then production, news from here is expected to be within the next couple of weeks.

Touchstone Exploration

Success breeds success and today TXP announces that the Chinook well has come in with ‘a significant discovery’ encountering significant hydrocarbon accumulations making 3 from 3 on the Ortoire Block. Wireline logs indicate total  natural gas pay totalling approximately 589 net feet in three unique thrust sheets in the Herrera sands and additional natural gas pay of approximately 20 net feet was encountered in the shallower Cruse formation.

Completion and testing of the well is expected to be undertaken during the first quarter of 2021 and investors can expect the drilling rig to mobilise to the Cascadura Deep location prior to the end of the month.

Paul R. Baay, President and Chief Executive Officer, commented:

“The results from the Chinook well exceeded pre-drill expectations. The successful exploration well further confirms the geological model developed by our team and is expected to provide significant development opportunities in the Chinook area. With both the shallow and deepest zones being new to the area, it also identified future exploration opportunities. The Company’s focus is now on the drilling of the Cascadura Deep exploration well, which will impact the timing of Chinook-1 production testing operations to ensure the safety of operations. 

I remain adamant that TXP remains a must have stock, my time spent with Paul Baay looking at the Ortoire maps some time ago, including the wells drilled a long time back led me to believe the story and the drill bit has done the rest. My last chat with Paul was also realistic, he knows that it can’t be win well after win well but we already know that there is enough in the area to make proper money for shareholders.

Gulf Marine Solutions

Seafox has in recent months appeared to have attempted to disrupt the normal and currently highly efficient running of the business. This has primarily revolved around attempting to upset the funding of GMS by its lending banks in the debt agreement as well as the potential equity raise despite it having been flagged for a long time.

We now have a situation that has involved tit for tat GM’s at which directors have been hired, fired and resigned and by which actions are now seriously disrupting the business of GMS. Indeed it has come to a point that GMS Executive Chairman Tim Summers has been forced to announce that he would have to resign as the company would be on the brink of bankruptcy. This is because the company would, under the Seafox leadership, probably have to renegotiate some $400m of debt.

If it is Seafox’ intention to enforce bankruptcy and then buy the GMS assets out of that process on the cheap it may find that this reckless plan is not only likely to fail but come with significant opprobrium. Those shareholders who are considering supporting Seafox in this plan should consider that although the Panel hasn’t ruled any common sense here that they should.

Come the 10th of November it would be not only morally but economically right for all concerned to rally behind what is a high quality GMS board who have taken the company from a deeply distressed situation to one of strength. I have no axe to grind here but I can’t for one minute see why such a destructive path of action by Seafox should be given any houseroom.

And finally…

Tonight we are back to the Nations League, again…. England host Denmark, Northern Ireland are in Norway, Scotland are entertaining the Czech Republic and Wales are in Bulgaria.

(The opinions expressed here are those of the author, a columnist for Share Talk.)

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 publication.

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