Malcy’s Blog – Oil price, Zephyr Energy, Aminex & finally

WTI $52.34 -51c, Brent $55.53 -23c, Diff -$3.19 +23c, NG $2.66 -4c, UKNG (March) 56.25p -.045p

By Malcolm Graham-Wood

Oil price

The usual messages for the times, who would have thought that the EU would find that it way behind the UK and other countries in ordering vaccines, nothing to do with the bureaucracy that mean that even the approval stage is way behind the curve. Either way it has panicked those who feel that EU GDP growth will now lag behind the rest of the world.

In the US the Biden administration has signalled a cooling of relationships with Saudi Arabia and the UAE and has ‘paused’ weapons sales to the countries. Whilst this is not unusual in the early days of an administration it has two interesting portents, one is that the Obama reign was noted for its sour relationship with the Saudis in particular and secondly the flip side is that that regime had a more pro Iran stance confirmed by the belief by John Kerry took the country’s nuclear story hook line and sinker.

Staying in the US, the retail vs hedge fund fight is being played out live on TV and for once the hedgies are not getting it all their own way. For most this is a joy not to be missed, for too long the funds have been able to use the highly dodgy technique of shorting stocks, usually borrowed from other funds who are vicariously responsible for the wallet warming of nefarious individuals sitting on their yachts.

When these ‘little guys’ worked out that short positions were published it wasn’t long before GameStop, Pearson, Bed, Bath & Beyond and even, ironically Petrofac and many more were their targets. Seeing hedgies running for cover, not being able to close their positions and raising money elsewhere was somewhat amusing and only when most of the CNBC presenters were made a laughing stock did we realise that they just didnt get it.

More importantly questions have been raised about Robinhood banning traders from buying but not selling and raising $1bn overnight and from whom, people with vested interests anywhere close to home maybe?

This isnt over yet and when Elizabeth Warren says that ‘what this market needs is more regulation’ you know that things are changing, banning people from buying stocks because they are volatile suddenly became OK from the ‘establishment’ of which ironically the hedgies are now fully paid up members howling for protection from the cash carrying mob…

Zephyr Energy

Zephyr update the market today with an initial evaluation of the 16-2 well log data which show ‘positive indications of stacked, continuous oil and gas plays with hydrocarbon saturation across a majority of potential reservoirs’.

The company has given substantial detail on the information gleaned so far and detailed the next steps as follows. The drilling and data acquisition operations of the State 16-2 well provided 113 feet of Cane Creek core, as well as 31 sidewall cores from 11 overlying reservoirs.  These core samples are currently under evaluation at a laboratory in Houston where detailed analysis is being conducted.  The initial results from that analysis will be available in the coming days.

The decision on whether to drill the side track lateral will be made once the Company has full results from all of the data acquired, and the Board currently expects to be able to make that decision by the end of March. In order to assist and expedite activity should the Company decide to proceed with the side track lateral, Zephyr’s team has already commenced the related detailed well design and planning work. 

The Company has also contracted to retain the services of the same experienced drilling operations team which successfully completed the vertical portion of the well in record time.  In addition, the Company has applied for the necessary permits required to drill the horizontal lateral leg of the well. The State 16-2LN-CC Application to Drill (“APD”), once granted, would allow Zephyr to fully test the commerciality of the Cane Creek reservoir with a goal of achieving near term oil and natural gas production.

There is much more from the statement in the RNS but it is clear already that there are some people who think that this news means that Cane Creek is a gas play, certainly not. I got in touch with Colin Harrington who commented ‘ I just wanted to clarify for you that target is still absolutely oil.  Drilling gas, as you well know, is simply evidence of good hydrocarbon charge in zones we crossed during the drill – both gas and oil zones will give off “drill gas” – given the knowledge we have from the surrounding wells and the history of the Cane Creek, it’s oil we are after (although will likely get some gas too)’.

Further to its announcement on 25 January 2021, the Company notes that on 27 January 2021, the Biden Administration released an Executive Order pausing the sale of new oil and natural gas leases on public lands.  This halt on new federal leasing does not impact Zephyr’s current leases, as the Company dedicated significant resources over the last eighteen months to solidify all existing federal leases across the 25,353 acres covered by its 3D seismic data.

As importantly, the Executive Order does not impede the issuance of new federal drilling permits.  The Company believes the actions dictated in the Executive Order are beneficial for Shareholders, in that substantial undeveloped federal leaseholdings such as Zephyr’s may now be even more difficult to replicate.

Colin Harrington, Zephyr’s Chief Executive, said “We continue to make excellent progress in the work to unlock value from our Paradox acreage.  Although Zephyr is in the earliest phase of its data evaluation process, and there is a significant amount of additional data to come, these initial results provide positive evidence of the presence of multiple stacked continuous oil and gas plays on our Paradox acreage, in addition to the previously outlined potential of the Cane Creek reservoir.  Just as importantly, the logs suggest hydrocarbon saturation across a majority of these overlying potential reservoirs.

“These additional zones, if confirmed by further analysis, would generate a much better understanding of the overall scale and value of our prospective resource.  Efforts are now underway to calibrate log to core data, in order to evaluate which additional zones have the most volumetric potential to act as viable reservoir targets.

“We are also evaluating multiple alternatives for the future commercial development of these assets. Any additional intervals identified could be targeted using existing natural fracture networks, similar to previous successful developments in the Cane Creek Field.  Alternatively, the project may also be developed as a resource play using artificial stimulation completion techniques, and the newly acquired data will also assist in the evaluation of that type of development path. This optionality increases the attractiveness of the project and will be helpful as we discuss development plans with strategic and industry partners.

“Finally, we believe the actions taken this week by the Biden Administration should serve to bring even more interest to our leaseholding, given its scale, potential and undeveloped status.

“It’s an exciting time for the Company as we continue our work to unlock the significant potential of our Paradox asset.  Further updates will be coming in the near term as results from the core analysis become available.”

Zephyr has seen some selling as those who have gained from the recent sharp rally take a few profits. Today’s detailed analysis shows that the company are only at the beginning of this process at 16-2, let alone  what I think that they have planned for the future. The situation at Zephyr has only just begun and the opportunities in the short term as well as longer are still plentiful.

Aminex

Aminex has released a statement today that shows that following the Ruvuma farm-out they do not really need to run such an expensive ship and accordingly they are having another cost reduction process which involves getting rid of the CEO amongst other things.

‘To take advantage of opportunities provided by the Ruvuma Farm-Out, avoid the need for further dilution, and improve shareholder value, the Company has been working on several important strategic initiatives. As part of these initiatives, the Company is restructuring the Board and further cutting costs. 

In 2021, the Company intends to reduce gross general and administrative costs by 30% from 2020 levels and an additional 25-30% reduction in 2022. By 2022, these efforts will reduce gross general and administrative expenditure (before one-off costs and exceptional items) to less than £1 million per annum, representing a 75% reduction from 2018 levels.

The Company is reducing the Board from five directors to three. With immediate effect, Robert Ambrose is stepping down as interim CEO and director, and Charles Santos shall become Executive Chairman. Robert has kindly offered to assist in the transition. As announced on 26 January 2021, Jan Gunnar Opsal stepped down as a non-executive director’.

Charles Santos, Executive Chairman of Aminex, commented:

“We are indebted to Robert for stepping in at short notice last April, steering the Company through the farm-out process and positioning it for the future. In many respects, these current changes complete the restructuring started by Robert. Our objectives now are to capitalise on Aminex’s fully carried valuable Ruvuma asset, maintain discipline on expenditures, and with a lean and effective management team pursue our strategic initiatives. Finally, we all thank Robert and wish him well in his future endeavours.”

I have followed and supported Aminex for a very long time, indeed as some people said for a good deal longer than I should have. In December, when compiling the new Bucket List I decided that enough was enough and that given there would be no drilling until at least 2022 the best way to play Ruvuma would be via Scirocco.

My concerns about Aminex losing 2 non-execs at very short notice last year were not addressed and information flow from the company dried up. Today’s news that the excellent Robert Ambrose has been unceremonially been moved on has added to that concern. When I took them off the list in December the shares were around 0.97p, today they are almost exactly half that level but now there are fewer people on the board to represent investors and the call to drop Aminex looks the right one.

And finally…

In the Prem last night Liverpool went to White Hart Lane and won 1-3 and are back up to 4th in the table. Fixtures tomorrow are the Toffees hosting the Magpies, the Wolves go to the Eagles, the Noisy Neighbours entertain the Blades, the Baggies host the Cottagers, Villa go to the Saints and the Gooners welcome the Red Devils. On Sunday its Chelski v  Burnley, the Foxes host Leeds, the Hammers entertain Liverpool and Spurs go to the Seagulls.

Some great racing at Cheltenham and Doncaster with some great horses coming out only a few weeks before the festival.

A decent rugby programme ahead of the 6 Nations, Bristol v Bath always good, the Chiefs visit Worcester and on Sunday its Wasps v Quins in the capital.

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

Malcolm Graham-Wood

Source Link https://www.malcysblog.com/2021/01/oil-price-zephyr-aminex-and-finally/

Website Link www.malcysblog.com

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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