Malcy’s Blog – Oil price, Zephyr Energy, San Leon, Falcon Oil & Gas & Finally

WTI $68.28 -81c, Brent $70.70 -59c, Diff -$2.42 +22c, NG $4.14 u/c, UKNG 108.04p -2.2p

By Malcolm Graham-Wood

Oil price

With the Covid numbers increasing in China and leading banks cutting growth forecasts oil has come under pressure, last week WTI fell by $5.67 and Brent $4.71 and this morning both are down around $1.70. With some feeling that the US is still vulnerable amid rising Covid numbers few are prepared to take a chance on the demand numbers right now but I’m sure that the monthly industry reports will not panic.

After the NFP numbers in the US on Friday showing many more jobs created the taper seems to be earlier than expected and that is not bearish for the US economy but the strength of the dollar has not helped the oil price.

Zephyr Energy

Zephyr has provided an update on its flagship project in the Paradox Basin, Utah, U.S.A. The Company reports that State 16-2LN-CC drilling operations, which began on 13 July 2021, have concluded successfully and safely.  The well reached Total Depth at 14,370 feet, at which point a full suite of wireline logs was run and production casing was set.

The well successfully encountered the primary Cane Creek reservoir target as well as multiple secondary targets in overlying reservoirs and penetrated 4,555 ft of the Cane Creek reservoir and was drilled 100% in zone. The Cane Creek reservoir target indicated hydrocarbon charge across its entirety, based on wireline logs, cuttings and mud gas readings.  Multiple overlying reservoirs also indicated hydrocarbon charge.

 Detailed analysis of the log data is now underway.  That analysis will inform the selection of an optimal well completion method, which is expected to be determined over the course of the next week. Based on the multitude of positive indications gathered to date, the Company elected to set production casing in anticipation of upcoming completion and production testing activity.

Colin Harrington, Zephyr’s Chief Executive, said:

“I am delighted to announce the safe and successful conclusion of drilling operations.  I’m even more pleased that we hit the Cane Creek reservoir target with success and stayed within that reservoir across the entire lateral portion of the well.  It’s also exciting to see evidence of hydrocarbon charge across the entirety of the Cane Creek lateral, as well as in multiple overlying reservoirs.

“Now that we’ve set production casing, we have an excellent well bore from which to complete the well and test production from the Cane Creek reservoir – and the log data gathered during drilling operations will help determine the optimal method by which to do so.

“The evaluation of the logs is underway, and we will keep our Shareholders informed in the coming days when the output from that analysis is finalised and the method for completing the well is selected.”

Zephyr goes from strength to strength and today’s news from the Paradox Basin takes the company another step towards producing from the cane Creek reservoir. In turn this will set up an income stream that will finance further development of what could be a substantial operation dwarfing the size of the business achieved so far.

Indeed, along with the substantial oil production from the Williston Basin interests which are now onstream and remember are sheltered from federal corporation tax, the company is in a very strong position, putting the company in a financially powerful place from which to move on with the ‘flagship’ Paradox Basin project and of course leaves the company massively well placed to build here and ‘pursue accretive transactions’. It should not be forgotten that already the company has already announced  an increase in its operated land position through the acquisition of an additional 12,260 acres in the Paradox Basin. 

San Leon Energy

San Leon has provided an update in relation to its investment in Energy Link Infrastructure (Malta) Limited (“ELI”), the company which owns the Alternative Crude Oil Evacuation System (“ACOES”) projectThe ACOES is being constructed to provide a dedicated oil export route from OML 18, comprising a new pipeline from OML 18 and a floating storage and offloading vessel.

 As previously announced by San Leon on 3 August 2020, the Company originally invested US$15 million in ELI. The investment comprised a 10% equity interest in ELI together with a US$15 million shareholder loan with a coupon of 14% per annum over four years, repayable quarterly following a one-year moratorium from the date of investment.  The first repayment instalment from ELI, which amounts to approximately US$2.2 million, has recently become due. 

 San Leon announced on 24 June 2021 that it is considering making further debt and equity investments in ELI and reaffirmed that intention in subsequent announcements during July 2021.  The Company has agreed with ELI that, should these further investments be made, then the First Instalment will be offset from any investment monies payable to ELI by San Leon under certain of these new arrangements.  Pending any further investment in ELI, the First Instalment will continue to accrue interest at 14% per annum.

This seems to me to be a perfectly sensible way of managing the situation and given that they want to continue with the project and enhance their roll-up value offsetting any missed payments is a smart way of doing it. I still rate SLE for an all round capital and income  growth within the sector with plenty of upside.

Falcon Oil & Gas

Falcon has announced the commencement of production testing operations at Amungee NW-1H (“Amungee”) in the Beetaloo Sub-Basin, Northern Territory, Australia with their joint venture partner, Origin Energy B2 Pty Ltd., a wholly owned subsidiary of Origin Energy Limited.

On-site operations at Amungee have begun with all equipment on site and preparatory works complete. A production test is now underway to determine whether all eleven frack stages contributed to the initial extended production test (“EPT”) in 2016.

So far, the Amungee horizontal well was drilled to 1,100 meters, 11 frack stages were executed along the entire horizontal section and on 22 December 2016 Falcon announced that, following a 57-day EPT of the well, production averaged 1.10 MMscf/d.

On 15 February 2017 Falcon announced that Origin had submitted the Results of Evaluation of the Discovery and Preliminary Estimate of Petroleum in Place for the Amungee NW-1H Velkerri B Shale Gas Pool to the Northern Territory Government amounting to a gross contingent resource of 6.6 TCF, 1.46 TCF net to Falcon.

Philip O’Quigley (CEO of Falcon) commented:
“We look forward to this production test and production logging operations being carried out. This production test at Amungee could provide interesting insights into whether all frack stages contributed to the results achieved. Updates will be provided as they become available”

I have stuck with Falcon through thick and thin over the years and admire the indefatigability of the shareholders and indeed the management. It will be interesting to see if the optimism of the operator is borne out, it certainly deserves to be.

And finally…

The Olympics that nearly didn’t happen finished yesterday with Team GB in 4th position including a rare and exciting mix of old and new sports.

The first test v India ended in a draw after the last day at Trent Bridge was washed out, there by the grace of god as India would likely have cruised to a low total. It was great to see Joe Root smiling his way through as nobody else scored any runs…

An uninspiring and bitter test series in South Africa ended with victory for the Springboks, I have never begrudged anyone for a win but the way the Rassie Erasmus behaved by questioning the integrity of the officials rather changes that.

Finally, with Scottish football up and running a bit of a reverse happened at the weekend. The City of Dundee provided the action as Celtic beat Dundee 6-0 and Dundee United beat undefeated Rangers 1-0. I cannot fail the mention the mighty Saint Johnstone who last week went to Galatasaray in the Boropa Cup and got a more than creditable 1-1 draw.

The opinions expressed here are those of the author

Malcolm Graham-Wood

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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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