Malcy’s Blog – Oil price, Zephyr, Angus, Challenger, Jadestone, United Oil & Gas, Prospex & finally

WTI $87.35 +$1.75, Brent $89.96 +$1.76, Diff -$2.61 +1c, NG $4.28 +22c, UKNG 226.0p +16p

By Malcolm Graham-Wood

Oil price

Onwards and upwards for all the usual reasons, in particular the worry about what J at the Fed is going to do with interest rates.

Zephyr Energy

Zephyr has announced an equity fundraise of £12 million and US$28 million senior debt facility to complete the acquisition of non-operated production assets and associated CAPEX in the Williston Basin; £1.2 million broker option to enable existing Shareholders to participate in the equity fundraise; 2022 Paradox Basin high impact drilling programme planned;

Zephyr Energy yesterday announced a placing and subscription of, in aggregate, 240,000,000 new ordinary shares of 0.1 pence each in the Company, at a price of 5p per Placing Share, to raise £12 million before expenses. A Broker Option to raise up to an additional £1.2 million for the Company has been put in place to allow existing shareholders who are qualifying investors to participate on the same terms as the Placing. Further details of the Broker Option are set out below. Of the funds raised in the Placing, approximately £8.675 million is conditional, inter alia, on approval by the Company’s Shareholders, further details of which are set out below.

The net proceeds of the Placing, along with a senior debt facility for US$28 million, will be used to complete the US$36 million acquisition of non-operated working interests in currently producing wells in the Williston Basin, North Dakota, U.S, as well as to fund further near-term production growth in the Williston. Expected cash flow from the Acquisition, in addition to cash flow from Zephyr’s current non-operated portfolio, will be used to accelerate 2022 development in the Company’s flagship Paradox Basin project in Utah, U.S.

Highlights
• The Company is undertaking a conditional fundraise which consists of a £12 million equity Placing, and has received an approved commitment for a US$28 million senior debt facility from a long-established North Dakota-based commercial bank.
• The Board believes that the combined debt and equity proceeds have the potential to deliver substantial near-term value and growth for Shareholders.
• Proceeds will be used for the following operational purposes:
o To fully fund the US$36 million Acquisition:
▪ The Acquisition will add a net 2.764 million barrels of oil equivalent (“mmboe”) of Proven Reserves, and includes a growing production stream of approximately 1,105 barrels of oil equivalent per day (“boepd”) net to the Assets in December 2021.
o To fund an estimated US$6 million in near-term drilling capital expenditure (“CAPEX”) which, along with anticipated additional cash flow generated in the coming months, will accelerate drilling and production growth across Zephyr’s asset portfolio.
o To equip the Company’s State 16-2 well for production, and to fund development of the surface infrastructure required to enable the sale of gas via the nearby pipeline and/or to a potential 2-megawatt (“MW”) cryptocurrency mining facility development to be co-located on the well site.
• Once the Acquisition has been completed, the Company plans to hedge a significant portion of its non-operated production to take advantage of the increased commodity prices since the date of the original Acquisition announcement on 22 November 2021, in order to ensure substantial internal funding capacity for its ambitious growth plans.
• The cashflows from the Company’s post-Acquisition non-operated portfolio have the potential to support significant growth in the Company’s existing portfolio and will enable an accelerated drilling programme to be undertaken on the Company’s flagship Paradox Basin asset.
o Zephyr plans to drill three Paradox Basin wells in the second half of 2022. In addition, in the event the 2022 Paradox drilling programme meets expectations, the Company anticipates a significantly larger Paradox drilling programme in 2023.
• The Company has implemented a £1.2 million broker option scheme to enable existing Shareholders to participate in the equity fundraise on the same terms as the Placing.

Colin Harrington, Chief Executive of Zephyr, said:

“The fundraise announced today and the associated Acquisition are further huge steps forward for the Company. After closing this highly accretive acquisition, Zephyr will have nearly tripled its existing non-operated production – and pro forma forecast cash flow per fully-diluted share will have more than doubled through the addition of this high-quality, high-margin production base with significant near-term growth potential.

“Most importantly, the Acquisition’s resultant cashflows have the potential to power growth across our broader portfolio. Zephyr plans to financially hedge a substantial portion of the combined non-operated production in order to secure the funding required to accelerate a high impact three-well drilling programme on our operated flagship Paradox project in the second half of 2022 – which in turn, with success, may lead to a significantly larger Paradox drilling programme in 2023. The cash flows from the non-operated portfolio will also allow for Zephyr to complete the infrastructure investment needed to bring the successfully tested State 16-2 well into full production in the coming months, and will also fund further near-term drilling in the enlarged non-operated Williston Basin portfolio.

“The fundraise and the completion of the Acquisition represent a fantastic start for 2022, and we look forward to maintaining our momentum and delivering on our key objective by unlocking significant further upside value from the Paradox project. I would like to thank Turner Pope Investments and the rest of our adviser team for the successful execution of the Placing in very challenging market conditions, and I would like to take this opportunity to welcome our new Shareholders and institutional investors on board. I am also delighted that we are able to attach a broker option scheme to the Placing which will enable existing Shareholders to participate on the same terms as the Placing.
“The Board looked a number of potential funding options for the Acquisition and concluded that the debt and equity package announced today was by far the optimal way forward, as it maximises the Company’s ability to fast-track the development of the Paradox project. While the Board considered a number of proposals to fully fund the Acquisition by debt, those proposals ultimately came at a significantly higher cost and limited the amount of free cash that would be available over the next twelve months to invest into the Paradox project – and were therefore deemed less attractive alternatives to today’s announced funding.
“Over the coming months, we will be providing regular updates for Shareholders as we progress through this transformational period – and in the coming weeks, we expect to be able to announce details of the independent Competent Persons Report being prepared on the Paradox project.
“Finally, in line with our core beliefs and public commitment, we intend to ensure that all net hydrocarbons produced from the Acquisition will have a “net-zero” Scope 1 operational carbon impact while under our ownership. This will be achieved largely through our programme of purchasing Verified Emission Reduction credits to mitigate all Scope 1 carbon emissions. As always, we will strive to operate as responsible stewards of our investors’ capital and of the environment in which we work.”

This is a case of the early bird catches the worm as in the last few days the market has not yet worked out quite how much value that Zephyr have added in this deal. Through use of very advantageously priced debt and the equity element announced yesterday, Zephyr now has a significant and not to mention stable cash flow with which to unlock the Paradox Basin. Indeed the drilling programme of three wells including the upper zones are now financed.

Whichever way you look at it this deal is game changing, non-operated production of 2,000 b/d hedged at $70+ and with $14/b opex costs contributing, well you do the math as they say over the pond. Now what do you do with it, well get to grips with all those zones back at the Paradox.

I spoke to CEO Colin Harrington a few minutes ago, he is, apart from being tired is delighted that this deal gets the company into the space that he wanted it to be. It is worth noting that he is very unhappy with regard to the fact that a number of private investors were unable to participate despite the fact that the company had set up a broker option scheme so that they could buy into the deal. Some brokers refused to help out and that included some of the major names in the field, anyone who actually went direct to the company in such cases were helped out but it shouldn’t have been necessary. 

This is a transformational deal, remember the share price of 5.2p, think of the math, lock away and come back every so often and smile decadently…

Angus Energy

The Company is pleased to announce that all potential participants in the Formal Sales Process, presently numbering five have, along with Sound Energy plc, been invited into the Company’s data room and the Company has already begun constructive engagement with these parties.

The Company has today issued a brief infographic in the Presentations’ section of the Angus website https://www.angusenergy.co.uk/media/presentations/ detailing the progress made at its 51% owned Saltfleetby Gas Field on fabrication, testing, assembly and certification on each of the skids together with, where fully advised, estimated delivery dates to site.  This infographic is summarised in the table below.

Uncertainty remains around the delivery of three final skids on the above table – two of these due to a common sub-component.  The Company continues to hold and encourage suppliers and contractors to work to a First Gas date in Q1, but will advise further on this date when able so to do, and does not presently anticipate any delay to shift more than 20-30 days into April.

It is the Company’s intention to revise our infographic weekly during the build process through social media by graphically identifying completed elements of pipework, cabling and the emplacement of key processing skids, advising by RNS only in the event that material changes occur to the overall timeline.

The proposed side-track has been well planned and permitted but cannot be allowed to interfere with construction and commissioning.  On this basis, we would presently anticipate a side-track spud date during Q2 2022.”

George Lucan, CEO, commented:

“It is with particular pleasure that we note that the Company has found so much excellent engineering in the United Kingdom with some of it and, at least as regards construction on site, the majority inside the County of Lincolnshire.

Each of these suppliers and contractors remain focused on the discipline of our timeline and both their and our own teams are working around the clock to improve it.”

Things are going pretty well across the board at the moment for Angus and no wonder as there are six potential buyers yapping around its ankles, the data room will be heaving with investors. In the meantime George Lucan and his team are getting on with business as usual, quite right too. When we spoke recently he was concerned about supply hold-ups especially coming from overseas markets, it looks like he has that one under control as well. 

Challenger Energy Group

Challenger has announced that, further to the Company’s announcement released at 4:54 p.m. on 26 January 2022, the Bookbuild has closed and the Company has raised gross proceeds of approximately £5.0 million through the successful firm and conditional placing, including a firm and conditional direct subscription, of 5,019,100,000 new Ordinary Shares at a price of 0.10 pence per Ordinary Share.

Approximately £0.7 million has been raised as part of the Firm Placing pursuant to the Company’s existing share issuance authorities in place, and approximately £4.3 million has been conditionally raised as part of the Placing (“Conditional Placing”). The Conditional Placing is subject to shareholder approval, which will be sought at an Extraordinary General Meeting of shareholders to be convened on or about 28 February 2022.

In addition to the Placing, and as set out in the Launch Announcement, the Company will also undertake an Open Offer to raise up to a further £2.0 million. Under the Open Offer, all Qualifying Shareholders will have the ability to subscribe for new Ordinary Shares in the capital of the Company (the “Open Offer Shares”) at the Placing Price on the basis of 2.51 Open Offer Shares for every 1 existing Ordinary Share held at the Record Date. Qualifying Shareholders subscribing for their full entitlement under the Open Offer may also request additional Open Offer Shares through the Excess Application Facility. Details of the Open Offer and the action to be taken by Qualifying Shareholders to subscribe for Ordinary Shares under the Open Offer will be set out in the Notice of Extraordinary General Meeting and Open Offer Circular, which is expected to be sent to shareholders by or on 4 February 2022.

Key executives of the Company, namely Eytan Uliel (Chief Executive Officer), Iain McKendrick (Chairman designate), Tim Eastmond (Chief Financial Officer designate), and Gagan Khurana (Chief Commercial Officer designate) have participated in the Placing via directly applying for Ordinary Shares for an aggregate value of £275,000 at the Placing Price. This participation is equivalent to 5.5% of the Placing and 3.9% of the total Fundraising (assuming the Open Offer were to be taken up in full).

The net proceeds of the Fundraising will allow completion of the Company’s Financial Restructuring as well as providing funds for a low-risk development work programme in Trinidad and Tobago and Suriname in 2022 and into 2023. The proposed development programme is focused on increasing production and cash flow. In particular, the intended use of the net proceeds of the Fundraising includes:

·    making remaining agreed payments that are due during 2022 in order to complete the final elements of the Financial Restructuring, thereby reducing the total balance sheet creditor / liability / exposure position of the Company from approximately US$23 million to approximately US$2.5 million;

·    funding a production growth focused work programme in Trinidad and Tobago over the course of 2022 and 2023 that will include low-risk well recompletions and workovers, drilling of new infill production wells and the implementation of enhanced oil recovery (waterflood and CO2 injection) techniques, with the objective of increasing production from the current level of approximately 400 bopd to more than 1,000 bopd by 2024, and thus driving cash flow growth;

·    undertaking an extended well test on the Company’s Weg Naar Zee asset in Suriname, with the objective of demonstrating commerciality and subsequently moving that project into the development stage and onto production to deliver additional near-term cash flow generation; and

·    providing general working capital, additional capital for incremental work programmes, and, should appropriate opportunities arise, pursuing business development or other inorganic production growth opportunities;

In support of the Financial Restructuring and recapitalisation of the Company, a number of changes to the Board and management team will take effect, conditional on completion of the Fundraising, including:

·    Iain McKendrick will join the Board as Non-Executive Chairman, and William Schrader (current Non-Executive Chairman) and James Smith (current non-executive Deputy Chairman) will step down from the Board. Further, Simon Potter has indicated that he will step down from the Board within three months of completion of the Fundraising, thus allowing sufficient time for a suitable replacement non-executive Director to be identified and brought on board; and

·    Tim Eastmond will be appointed as Chief Financial Officer of the Company and will join the Board as an Executive Director, and Gagan Khurana, the Company’s current Commercial Manager, will assume the role of Chief Commercial Officer, while certain members of the Company’s current executive team (including the COO and Finance Director) have already or will shortly cease employment with the Company.

Related Party Opinion 

The subscription for new Ordinary Shares by Eytan Uliel, the Company’s CEO, for a value of £150,000 is considered a related party transaction for the purposes of the AIM Rules for Companies. The directors of the Company who are considered independent (being William Schrader, James Smith and Simon Potter) having consulted with Strand Hanson Limited, the Company’s Nominated Adviser, consider the terms of the subscription to be fair and reasonable insofar as the Company’s shareholders are concerned.

Commenting on the Fundraising, Eytan Uliel, CEO of Challenger Energy, said:

As announced yesterday, 26 January 2022, Challenger Energy is undertaking a capital raising necessary to secure the funds needed to build for the future. This includes facilitating the Company completing its creditor settlement agreements, enabling the Company to pursue a production accretive work programme in 2022 / 2023, and putting the Company in a position where it can prioritise further production growth opportunities, whether organically generated or via acquisitions.

Through the first part of the exercise – a placing with institutional and other investors – we have been able to raise £5.0 million, 25% more than the £4 million we had targeted as the minimum needed to secure a future for the Company. We are, however, raising funds at a difficult time, both for the Company and the market more generally. As a result, the pricing offered to us will see existing shareholders – myself and directors included – substantially diluted. Nonetheless, in the absence of realistic alternatives, proceeding with this funding is necessary so as to allow the Company to meet its financial commitments, and continue operations.

I would also emphasise that the Company has decided to undertake an open offer to all existing shareholders, at the same price as the institutional placing. What this means is that if existing shareholders consider the price at which new shares are being issued under the placing to be compelling, they can choose to participate in the future of their Company, and subscribe for new shares, at that same price. Certainly, I intend to do so in respect of my current shareholding.

I very much hope that this fundraising, once completed, will draw a definitive line under the impact of operations from the past, and we can all begin to look to a new future. The entire Challenger Energy team is committed to delivering on the simple strategic objective we have set for the Company going forward: to grow production, to increase cash flow, to become profitable, and to restore shareholder value. We thank all shareholders, past and present, for their support through what has been a turbulent last 18 months, and I look forward to providing updates on our future progress.”

I mentioned the last time CEO Uliel spoke to the market and that he was taking a serious stick to the costs which was a very good thing indeed. This is most definitely part 2 in which the money raise is offered to all shareholders including directors and after that we are on our own kids. 

This is the new era for Challenger and I for one like it, as they say, no one said it was going to be easy but Eytan has his own, high quality team of board and sub-board members following the clear out of the augean stables. They have the basics of a portfolio of assets capable of moving ‘New Challenger’ forward to work with, it is truly the beginning of an new era as someone once said. 

Jadestone Energy

Jadestone has provided a trading update for the year ended 31 December 2021.  The financial information in this update has not been audited and may be subject to further review.

2021 production averaged 12,545 boe/d, in line with expectations and the guidance range, with Montara averaging 7,647 bbls/d, Stag averaging 2,359 bbls/d and an annualised contribution of 2,539 boe/d from the Peninsular Malaysia assets.

l  2021 revenues estimated at US$340.3 million, an annual record, in particular benefitting from strong benchmark pricing for liftings in October (Montara) and December (Montara and Stag).  

l  Crude premiums also remained strong through 2021, averaging US$3.39/bbl.  The Company realised an average oil price of US$74.34/bbl during the year, compared to an average Brent price of US$70.94/bbl.  More recently, premiums have risen sharply with the December 2021 liftings achieving US$12.70 /bbl at Stag, US$2.94/bbl at Montara and US$3.46/bbl at PM323 and PM329 in Malaysia.

l  Unaudited operating expenses for the full year were approximately US$27.60/boe1, after the customary adjustment for workover activities and were within the guidance range.

l  2021 major spending comprised approximately US$113.2 million, with capital expenditure accounting for US$57.0 million of the figure (primarily the drilling of the Montara H6 well),  and the remainder spent on the Skua workover programme.  As previously advised, this was towards the top end of the guidance range due to a side-track on the H6 well and delays experienced during the Skua programme.

l  Cash balances at the end of the year are estimated at US$117.4 million, representing an increase of 30% year-on-year, even after the largest spending programme in the Company’s history.  Cash generation was particularly strong in the final quarter due to the liftings from Montara and Stag highlighted above.  

l  The Company remains debt free following the final scheduled repayment of its reserves-based loan in March 2021.

l  During 2021, the Company continued to develop its ESG reporting, in particular commissioning a climate scenario analysis and net zero pathway strategy, building on the initial TCFD disclosures contained in the 2020 Sustainability Report.  Jadestone anticipates that the results of these workstreams will be included in the 2021 Sustainability Report.  The Company also continued to enhance the monitoring and reporting of GHG emissions across its business.  Disclosures on 2021 GHG emissions will be included in the 2021 Sustainability Report.      

Jadestone will issue its 2022 operational and financial guidance on 10 February 2022.  The Company’s audited 2021 financial results will be published in April

Paul Blakeley, President and CEO commented:

“Jadestone ended 2021 with considerable momentum, delivering on our commitment to increase production to around 20,000 boe/d by year-end.  Increasing production, robust realisations at Montara and Stag and no hedging has resulted in strong cash generation in the final quarter, with a Group cash balance of US$117 million at year-end and no debt.  We were also very pleased to announce a gas sales agreement for the Akatara gas development in Indonesia – a key milestone for this project ahead of a planned final investment decision in the first half of 2022.

We are seeing an active asset market in our core Asia-Pacific region.  We are working hard to take advantage of this, but will only do deals where we are sure of delivering accretive value to shareholders.  We are hopeful that 2022 will finally see accelerated progress on the Maari acquisition following recent changes to New Zealand’s hydrocarbon legislation, specifically around decommissioning.  Similarly, we anticipate that the positive fundamentals of the Vietnam gas project will lead to renewed momentum this year.  I thank all our shareholders for their patience as we work to deliver further profitable growth for the business, and I am confident we will continue to do so.

I am also pleased to report that we have been making progress on our ESG commitments with a key goal of converting our 2021 net zero ambition into a clear net zero commitment during the first half of 2022.”

Not far from the year’s peak Jadestone continues to deliver the goods time after time, the one thing that will be good will be when CEO Paul Blakeley manages to escape the clutches of the lockdown circus and get himself over here to impress the UL shareholders just like the old days. Operating performance was as is the custom, spot on and the portfolio is in good nick but could probably handle another acquisition. 

United Oil & Gas

United has issued the following trading and operations update to summarise recent operational activities, to provide trading guidance in respect of the financial year to 31 December 2021 and to provide initial guidance for 2022. This is in advance of the Company’s Audited results which will be released in April 2022. 

2021 OPERATIONAL SUMMARY

·     United has continued to manage its operations carefully, adhering to the COVID-19  procedures and restrictions put in place by its host countries and operators, with negligible disruption to operations in the period

·     Group full-year 2021 production averaged 2,327 boepd net (1,869 bopd oil and 458 boepd gas), slightly above production guidance of 2,100-2,300 boepd issued on 6 September 2021

·      Stabilisation of the decline in production from the ASH wells from September 2021

·   100% exploration and development success rate from the Egypt five well development and exploration  drilling programme, replacing reserves and accelerating production of existing reserves:

–       Commercial oil discoveries at the exploration wells, ASD-1X and ASX-1X:

o  Exploration success added 2.2mmboe 2P gross reserves (0.5mmboe net)(1)

o  Approvals granted from the Minister of Petroleum of the award of two new 20 year development leases covering the new discoveries

o  Further de-risks future exploration on the licence

·      All five wells brought into production quickly, adding revenue to the company:

–       Development wells onstream less than two weeks after completion

–       ASX-1X exploration well onstream just three weeks after initial drilling results

–       All wells have a short payback period of 3-12 months

·      In Jamaica the amendment to the Production Sharing Agreement has received final signature from the Ministry of Science, Energy and Technology; the Initial Exploration Period of the Walton Morant licence, will now run to 31 January 2024

·      Divestments of non-core assets in UK CNS and Italy consistent with the Company’s strategy to reinvest the proceeds to support growth

–       Signed conditional SPA for sale of Italian interests for €2.165m (c. $2.54m)

–       Signed binding SPA for the sale of UK Central North Sea Licences for a consideration of up to £3.2m (c $4.4m)

·      Zero – Lost time incident frequency rate and Fatal accident frequency rate. No environmental spills, Restricted Work Incidents or Medical Treatment Incidents

(1)Operator estimates subject to independent certification with publication expected H1 2022

2021 FINANCIAL SUMMARY

·      Total revenues for the year were approx. $19m

·      The average realised oil price per barrel from Egypt achieved was approx. $68.90/bbl, representing a discount to Brent of circa $1.85/bbl

·      Cash balances as at 3 January 2022 were approx. $1.2m

·      Total Cash Collections of approx.$17.3m

·      Cash Capital Expenditure approx.$ 5.5m

2022 OUTLOOK; PRODUCTION AND CAPITAL EXPENDITURE GUIDANCE

·      H1 production guidance is 1,500-1,650 boepd. At this stage this guidance only includes forecast production from existing wells and one development well, ASD-2, which has spud

·      Full-year guidance will be provided once initial results of 2022 drilling programme have been assessed

·      Approved fully funded 2022 Egypt drilling and work programme consisting of four firm wells, and eight workovers

–      Two firm development wells: ASD-2, which commenced drilling on the 25 January, and ASH-5, targeting the prolific Alam El Bueib (AEB) reservoir

–      Two firm exploration wells, ASF-1X and ASV-1X, will target combined mean recoverable resources estimated by United at c.10 mmbbls (2.2 mmbbls net)

–      Additional fifth well (an injector in the Al Jahraa SE field) is contingent on the results of technical work currently underway; decision anticipated in Q1 2022

–      Flexible programme allowing drilling of exploration well to be brought forward if injector well is deferred

–      Seismic reprocessing of a 452km2 area of the Abu Sennan 3D seismic volume is currently underway and will help optimise well locations for the ASH-5 development well and exploration wells ASF-1X1

–      Electrical Submersible Pumps will be installed into the current ASH wells, aiming to maintain the flow rates, optimise production and extend the life of field

·      Renewed farm-out campaign for the Walton Morant licence, Jamaica, post licence extension

·      Group cash capital expenditure for the full year is forecasted to be approx.$6m, fully funded from existing operations, with circa $5.5m to be invested in Egypt and up to $0.5m across the other assets in the portfolio

·      Clear ESG focus and actions including evaluation of emissions baseline in Egypt with operator and contributions to social investment programmes

·      Continued evaluation of new opportunities to grow the business in line with the strategy

United’s Chief Executive Officer, Brian Larkin commented:

“United and its JV partners had a 100% success rate for the five exploration and development wells in the 2021 drilling campaign in Egypt. All of the wells encountered oil and were quickly brought into production generating revenue for the company, with the exploration successes de-risking further upside on the license.

“Our fully funded 2022 Egypt drilling programme has commenced with the ASD-2 development well which has spud. The two exploration wells in the 2022 programme will be targeting a potential of more than 10mmbbls of gross mean recoverable resources, with the potential to provide a step up in production levels during a time of significantly increased commodity prices.

“In Jamaica, we continue to receive strong support from the government, having been granted an extension on the Walton Morant licence at the end of 2021.  We now look forward to continuing the farm out process with this licence extension in place.

“We have a low-cost producing asset base significantly leveraged to the rising oil price and continue to evaluate new opportunities to grow the business in line with our strategy.  We look forward to the coming year and growing the business via our existing portfolio and potential new acquisitions.”  

UOG is stripped down and ready to go, Egypt has a very decent drilling programme and Jamaica is still in there. To move the dial enough to upsize the company the former has to do very well but the latter is still down the line somewhat. I look forward to seeing the colour of the new businesses that CEO Brian Larkin talks about. 

Prospex Energy

Prospex has provided an update on the Selva field development project in Italy, in which the Company currently holds a 17% working interest in the Podere Gallina licence through its wholly-owned subsidiary PXOG Marshall Limited (‘PXOG’) with the Selva Malvezzi concession contained in this licence.

On 10 August 2021 the Company announced the conditional acquisition of a further 20% of the Podere Gallina licence from AIM quoted United Oil and Gas plc (AIM:UOG) (“UOG”) and UOG Holdings plc (a wholly-owned subsidiary of UOG) by way of a corporate transaction of 100% of UOG Italia S.r.l. (“UOG Italia”) which has a 20% working interest in the Podere Gallina licence.  UOG Italia is a wholly-owned subsidiary of UOG Holdings plc.  Under the terms of the Sale and Purchase Agreement with UOG, the long-stop date by which the transaction should complete has been extended by mutual consent from 7 March 2022 to 6 April 2022.

Production Concession Progress

On 21 January 2022, the operator, Po Valley Energy advised the Joint Venture partners that the INTESA (the agreement) for the Selva Malvezzi concession has been sent by the Ministry for Ecological Transition (‘MITE’) to the Emilia Romagna Region.  This is the pre-award for the intergovernmental agreement and is the penultimate step for the approval of the Production Concession which Po Valley is expecting at the end of March 2022.  Once the Production Concession is awarded the field development project activity can commence.  The target for first gas is Q1-2023.

Environmental Monitoring and Funding by Po Valley

After the production concession is granted, before any gas may be extracted from the Selva field, there is a regulatory requirement to establish a 12-month baseline of local seismicity to ensure that any gas extraction from the area does not lead to increased local seismic activity.

The operator, Po Valley, has this week completed the drilling of three shallow monitoring boreholes, one at 141 metres and two shallower boreholes at 10 metres.  By the end of this week the second 140 metre borehole will be completed and equipped with piezometers.  The water level transducers and settlement gauges will be installed on 28 January 2022.  The supply and installation of transducers and datalogger are planned for 14 February 2022.  On 26 January civil works for the seismic stations commenced and the seismic monitoring network is expected to operational by 15 February 2022.

This work has been started and funded 100% by Po Valley earlier than the required 12 months and in advance of the award of the Production Concession at which time it becomes a firm commitment which all Joint Venture Partners have agreed to fund.  The Joint Venture partners, PXOG and UOG have agreed to fund their share of this work and all development costs when the Production Concession is awarded.  Po Valley has advised PXOG and UOG that failure to fund any commitments under the Joint Operating Agreement when they become due could be construed as notification to relinquish the licence.  Po Valley has indicated it wishes to take over the partners’ participating interests, however, the Joint Venture partners refute that Po Valley has the right to do so and do not intend to relinquish their interest in the Licence and have informed Po Valley accordingly.  Further updates will be made in due course.

SNAM tie-in Contract

On 10 December 2021, the operator, Po Valley advanced a refundable bond payment to Snam Rete Gas S.p.A.  of €757,000 on behalf of the Podere Gallina Licence Joint Venture group, in order to confirm a contract with SNAM for the construction of a delivery point from the suspended gas well Podere Maiar (“PM-1”) of the Selva field to the SNAM gas grid network.  Prospex, on behalf of PXOG has undertaken to pay PXOG’s 17% share of the SNAM €757,000 refundable bond payment to PVO (€128,690) within 21 days of written confirmation by MITE of the award of the Selva Malvezzi Production Concession.

Mark Routh Prospex’s CEO commented:

“We are working with Po Valley to achieve first gas from Selva as soon as possible, but with no guarantee on the timing of the Production Concession award, any funding of development activity prior to award is premature.  However recent events are positive, and we are now seeing the final steps towards the granting of the Production Concession.

“We are very excited that we are making encouraging progress towards gas production at Selva which will be a transformational asset for Prospex.  We fully intend to complete acquisition from UOG and look forward to further activity on the wider Podere Gallina licence in the future.”

As is always the case doing work in Italy leads to delays and prevarications and this looks like every other one I have seen, situation normal.

And finally…

England lost the 3rd T20 against the West Indies after missing a large total by 20 runs, they are now 2-1 down in the series and in danger of catching the red ball disease.

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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