WTI $64.49 +91c, Brent $67.56 +80c, Diff -$3.07 -11c, NG $2.97 +4c, UKNG 61.26p +1.02p
By Malcolm Graham-Wood
Oil is without doubt feeling comfortable taking the bull tack at present, whilst the battle between the optimists, who see the USA and China growing fast and with that concomitant rises in demand for gasoline and product across the board and the pessimists who see the virus raging across India is being won by the former. Whatever is happening elsewhere it seems that Covid is in retreat Stateside and the lumber price is up 80% as people restart construction with a boom.
In the US the markets are opening up very quickly indeed, this weekend has seen in particular New York and the Tri-State area open for business whilst in Florida the Governor has ended the State of Emergency and started a vaccination programme for children this week. This all bodes well and the start of the driving season is only four weeks away with Memorial Day on May 31st.
Stats-wise the Baker Hughes rig count on Friday showed a rise of 2 units overall to 440 but a fall of 1 rig in oil to 342, this doesnt show that the US is increasing production any time soon. The retail gasoline price continues to creep forward as demand rises, a gallon of Shell’s finest will cost you an average across the States of $2.89 which is up 1.8 cents on the week, a rise of 3.3c month on month and a hefty 74.3 cents higher than this time last year.
More good news from Zephyr this morning as they update on their WI’s in North Dakota, announce the acquisition of near-term production nearby and also inform of progress at the Paradox Basin in Utah. The recently acquired Whiting wells target production from the Bakken and Three Forks Formations in the Williston Basin of North Dakota, USA and consist of non-operated working interests in five wells located across three separate pads.
They include the Iverson 11-14HU well, a well which is currently producing, the S-Bar 11-7HU and 11-7TFHU wells, which are drilled but uncompleted (“DUC”) wells and the Feehan 11-9HU and 11-9TFHU wells, which are also DUC wells.
The Company has announced that it received its first monthly revenue payment for production from its interest in the Iverson well. The payment of $140,662 is related to volumes produced in the month of February, during which net production averaged 110 barrels of oil equivalent per day.
In addition, the Company reports that completion operations are already underway on its four S-Bar and Feehan DUC wells, ahead of earlier operator forecasts. It is expected that all DUC wells will be subsequently tied into infrastructure and achieve first production by the end of July, with Zephyr expected to receive monthly revenue payments for production from all five Whiting wells by September 2021.
When the S-Bar and Feehan wells are brought online, these interests are expected to provide the Company with substantial additional oil production. The resulting cashflows, which will be sheltered from federal tax due to Company’s historical tax loss position of circa US$16 million, will be utilised to fund additional development of the Company’s Paradox Basin project or to acquire other attractive non-operated assets such as the Williston acquisition announced today.
In this respect, the Company has announced the acquisition of 11.6 acres in the Williston Basin, North Dakota (the “Continental acreage“) which gives Zephyr working interests in a drilling spacing unit operated by Continental Resources, the largest operator in the Williston Basin. The Continental acreage is located approximately ten miles from the Company’s Whiting wells, in a highly attractive part of the Basin. The cost of the acreage acquired by Zephyr was approximately US$170,000 and was paid for from the Company’s existing cash resources.
Continental has already commenced drilling two initial wells on the DSU, with up to an additional 22 future wells forecast to be drilled by 2023. For the Initial wells currently being drilled, Zephyr’s forecasted net capital expenditure is approximately $135,000 and will be funded from existing cash resources whilst for the 22 Future wells proposed, Zephyr’s net CAPEX is forecast to be approximately $710,000, which could also be funded from the Group’s internal cash resources. Indeed, CAPEX on the Future wells is discretionary, and Zephyr’s Board of Directors will elect whether to participate in those wells on a case-by-case basis giving Zephyr the best of both worlds.
The Continental acreage has, net to Zephyr, Company estimated 2P reserves (from all 24 wells) of circa 60,000 barrels of oil equivalent, which were acquired at a price of approximately $2.83 per BOE. The 1P reserves on the Continental acreage are, net to Zephyr, estimated at circa 41,000 BOE and the 3P reserves at circa 72,000 BOE. This opportunistic acquisition has strong forecast economics and provides the Company with further exposure to low risk, near-term production and initial revenues from the acquisition are expected to be received in the second half of this year.
The Company continues to make progress with permitting, detailed drill planning and vendor selection related to the drilling of the State 16-2 CC LN well on the Company’s flagship project in the Paradox Basin, Utah. The Company remains on track to drill the well in July 2021, and Zephyr will update Shareholders regularly as key well planning milestones are met.
In addition to drilling preparations, the detailed resource evaluation work remains ongoing, both in regard to the potential in overlying reservoirs above the Cane Creek reservoir, and in respect to the potential for a resource play development across the Company’s Paradox leasehold. Zephyr continues to work with its partners at the University of Utah, the Utah Geological Survey and third-party consulting firms to develop an updated geological model and resource estimates. The Company will update Shareholders when this evaluation work is complete.
Colin Harrington, Chief Executive of Zephyr, said: “Following the completion of our fundraise and acquisition earlier this month, I’m delighted that the Company has officially delivered a key corporate objective in becoming a cash-flowing oil producer. Furthermore, with the completions of the four Whiting DUC wells underway ahead of schedule, we look forward to substantially increased cashflows in the very near term. This provides us with an excellent platform on which to build, particularly with the envisioned incremental production coming online at a time of strong commodity pricing.
“Over the last few weeks, Zephyr has transformed into a fully-funded, self-sustaining platform with the potential for significant organic growth from the forthcoming drilling programme on our Paradox project. In addition, we will continue to be opportunistic in the pursuit of attractive, near-term, high-return, low-risk non-operated assets, especially as current market conditions are favourable for growth through acquisition.
“The acquisition of prime Bakken acreage announced today, in a DSU operated by a first-class Williston Basin participant, is a strong example of what can be achieved in the current market. The acreage is in an excellent location and provides both near-term drilling exposure and future drilling optionality. While the initial scale of the acquisition is small, for a minimal upfront cost Zephyr now has potential to participate in up to 24 highly economic wells over the next two years. Given the continued improvement in drilling costs and robust oil price environment, the Company believes this acreage will provide attractive near-term cash flow returns and is an excellent complement to our growing portfolio of non-operated production assets.
“The next few months are expected to bring news flow on all fronts as we target initial production on our Paradox project, further define our Paradox resource and begin to generate significant cash flow from our non-operated asset portfolio – including cash flow from today’s newly acquired asset.
“We look forward to keeping Shareholders updated as we look to deliver on these key objectives. As always, we will continue to strive to be responsible stewards of our investors’ capital and responsible stewards of the environment in which we work.”
Today’s news is excellent across the board, from North Dakota where it is significantly ahead of expectations and with revenue already coming in beats any whisper that I have seen. Having said that the board have been busy, the Continental acquisition has been done at very attractive prices and on excellent economics and of course the work at Paradox continues and with both in regard to the potential in overlying reservoirs above the Cane Creek reservoir, and in respect to the potential for a resource play development across the Company’s Paradox leasehold I am becoming increasingly optimistic.
As the shares go back above 3p and start to go into new territory not seen for many years investors should be delighted, I don’t think you could rule out a ten-bagger from here.
Far goes on and has today announced that CFO Peter Thiesson will be leaving the company in July and will be replaced by Victoria McLellan after that. Far still has an interesting portfolio and is now clearly moving on after the recent shenanigans over Senegal.
Trinity Exploration & Production
Trinity has announced that it has executed a Sale and Purchase Agreement with Moonsie Oil Company Limited, a private Trinidad based operator, to acquire an operated 100% interest in the PS-4 Block Lease Operatorship Sub-Licence, onshore Trinidad, for a total headline cash consideration of US$3.5 million, to be funded from the Company’s existing cash resources.
The deal offers ‘significant opportunities to add reserves and production on a meaningful scale’ and which is contiguous to Trinity’s largest and most prolific onshore Block, WD-5/6. It also enables Trinity to expand its new 3D seismic sequence stratigraphic interpretation approach as 80% of the PS-4 block is covered by Trinity’s 3D seismic cube. Finally as one might expect from the guys at Trinity it ‘provides substantial synergies from a financial, operational and technical perspective’.
Following a full 3D seismic interpretation and the re-mapping and integration of all historical wells and production data, the Company will update the market on reserves and forward plans for the Block and the greater Erin Basin area. This is expected to be largely completed during 2021. On the ground, the Company will, on further review of well data, promptly initiate a comprehensive workover plan to reinstate and build production. In addition the Company will examine and tier all the wells on the Block to seek automaton well candidates. Further updates will be made in due course.
Bruce Dingwall, CBE, Executive Chairman of Trinity, commented:
“Adding the PS-4 Block to our existing high return onshore portfolio demonstrates our ability to bolt on assets that increase our acreage position in the Erin syncline, and provides significant technical, operational and financial synergies. Crucially, the Block extends our contiguous acreage position around our most prolific existing acreage and where we expect to yield the most upside from the 3D seismic interpretation. The PS-4 Block adds both significant additional opportunity as well as further runway to our onshore operations. Putting additional barrels across Trinity’s highly efficient operating base provides attractive leverage, especially as we are applying modern 3D data and accelerating our moves to automate our operations.
“We are excited by the opportunity to deploy our expertise to optimise recoveries from this under-invested producing asset, particularly as we see significant reserves, production and prospectivity upside. The PS-4 Block has achieved very modest recovery factors to date, relative to the substantial estimated original oil in place and the surrounding analogies of the WD5/6 and WD2 blocks, thereby extending our platform to showcase our differentiated technical capabilities. With ongoing reinvestment into the fields, we foresee many opportunities to increase production alongside further exploration and appraisal targets that may be generated.
“The Acquisition is immediately accretive to shareholder value and will be funded entirely with cash on hand. “Looking at the growth initiatives in front of us, we see opportunity in two areas. Firstly, in advancing current developments both onshore and offshore, and secondly, via the strategic partnerships we have recently entered into. This strategy is aimed at pursuing further low-cost appraisal and exploration targets along-side the development of transitional energy projects such as micro LNG, wind and solar power.
“We proved the strength of our model during the most difficult of circumstances in 2020 and have ambitious plans to build on this during the current year and beyond.”
SDX has announced the commencement of the first, three well, phase of its 2021 drilling campaign in Morocco, which will comprise up to five wells over the year. This first phase of the Morocco drilling campaign will consist of three appraisal/development wells, which management estimates will target a total of 1.3 bcf of P90/1.8 bcf of P50, gross unrisked prospective recoverable resources, in its operated Gharb Basin acreage in Morocco (SDX: 75% working interest).
The first well, OYF-3, which spud on 30 April 2021, is targeting the Guebbas reservoir at approximately 1,160m. The second well, KSR-17, will target the Hoot reservoir at approximately 1,720m and the third well, KSR-18, is a dual target well, with the first in the Guebbas reservoir at 1,600m and the second in the Hoot reservoir at around 1,790m. All three wells are looking to encounter shallow, biogenic gas accumulations near to the Company’s existing infrastructure, thus enabling tie-ins to be completed quickly and at low cost. The Company will utilise the drilling rig that is already stacked in its yard in Morocco, thereby incurring minimal mobilisation cost.
The campaign is expected to complete in July 2021, at which point the Company will update the market on results. The second phase of the Moroccan drilling campaign will commence in September/October 2021.
Mark Reid, CEO of SDX, commented:
“I am pleased to announce that the Company has commenced its 2021 drilling activities of up to eleven wells across our portfolio of assets with the spud of the OYF-3 appraisal/development well in Morocco. This is the first of three wells to be drilled in the coming months with a further two planned for later in the year. The objective of these wells is to add reserves to allow us to continue to deliver gas to our customers in line with their contractual requirements. The commencement of this campaign has been delayed by approximately one month due to covid-19 related travel restrictions delaying the mobilisation of equipment and personnel into Morocco. We would particularly like to thank our partner ONHYM for providing invaluable assistance in enabling us to obtain the necessary Government authorisations to mobilise the equipment and people into the country to commence the campaign last week.
The Company’s Egyptian drilling activities are expected to commence in June with the first of four development wells in West Gharib and the start of our very exciting two well campaign in South Disouq where the second well, the Hanut-1X exploration well planned for mid-Q3, will be targeting gross unrisked mean recoverable volumes of 139bcf with a 33% chance of success.
I look forward to updating the market in the coming months on what is looking to be a very busy and exciting period of activity.”
Helium One Global
Helium One has announced the completion of its extended infill 2D seismic campaign and identification of new priority drill ready targets ahead of commencement of exploration drilling programme at Rukwa Project (100%) in Tanzania.
Completion of an extended 200km 2D seismic campaign, including an additional 50 line kilometres providing further data on new priority prospects, modern seismic data is of a higher quality than earlier work, resulting in a better understanding of the subsurface and reassessment of geological risk across our portfolio.
Improved data resolution over multiple prospects, highlighted by an upgrade of the Tai prospect, with stacked targets believed to be across a larger area than those interpreted from historical data. Ongoing seismic interpretation supports improved drill targeting over the three / four hole exploration drilling campaign, now commencing in early-June with first hole planned at Tai prospect.
David Minchin, Chief Executive Officer, commented:
“We are delighted to have successfully completed our extended infill 2D seismic campaign, which has provided high-quality data across multiple prospects. Based on encouraging early results, the seismic campaign was expanded with an additional 50 line kilometres of acquisition over new priority prospects.
“Safety is of paramount importance when working in a remote location. We are very grateful to our consultants and supervisors, but especially appreciative of the dedicated teams of workers recruited from local villages, who have been able to deliver this seismic campaign with zero lost-time injuries.
“Additional data has resulted in a reprioritised drilling campaign with drilling starting over a faulted 3-way dip closure at Tai, with multiple stacked targets. This prospect is believed to be larger than interpreted from historical data, which has contributed to the Technical Team’s decision to upgrade Tai from a ‘low-priority’ to ‘must-drill’ target. Drilling will therefore begin in early-June, giving additional time for road and drill pad construction at this new site.
“We look forward to commencing our exploration drilling reinforced by high-quality, modern, 2D seismic data.”
The weekend saw a most unusual sight as Red Devils fans protested before the game against Liverpool at Old Trafford. With some fans getting inside the ground, perish the thought, it all got a bit over the top and the game was abandoned before the start after things got out of hand. Time for the glazers to pack their bags methinks…
Elsewhere in the Prem the Noisy Neighbours won at the Eagles and are as good as nailed on for the title now. Elsewhere, the Seagulls beat Leeds 2-0, Chelski saw off neighbours the Cottagers by the same score and the Toffees lost 1-2 to Villa. On Sunday the Gooners won 0-2 at St James’s Park, Spurs beat the Blades 4-0, whilst yesterday the Baggies drew 1-1 with Wolves and the Hammers kept their CL dreams alive beating Burnley 1-2 in the claret and blue derby.
Tonight the Noisy Neighbours turn their attention to the second leg of the Champions League going into the home leg with a huge 2-1 lead from the first leg.
And the IPL has now been postponed as further cases of Covid were found in players who were supposed to be in bubbles, that is surely it for this year?
(The opinions expressed here are those of the author, a columnist for Share Talk.)
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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