Another flash blog today as I’m in SA until this evening. Usual rules apply, brief comments where appropriate.
Genel Energy
Genel notes that DNO ASA, as operator of the Tawke PSC (Genel 25% working interest), has today issued an update on licence activity.
Gross production from the Tawke licence in the Kurdistan Region of Iraq continues to climb, with the December to date average approaching 90,000 bopd. That lifts the projected fourth quarter 2023 gross production figure to 65,000 bopd, up from 26,000 bopd in the third quarter and zero production in the second quarter, following closure of the Iraq-Türkiye Pipeline in March 2023.
Genel’s entitlement share of Tawke licence production in Q4 is 13%, which is sold to local buyers at prices in the low to mid-USD 30s per barrel. All such sales are conditional on advance payment in US dollars.
In addition to stepping up local sales, costs have materially reduced since the pipeline closure, with operational spend in the Tawke licence averaging 65% below the pre-export shutdown level.
Genel received $8.2 million for local sales in October (including final sales from storage from Sarta) and $6.6 million in November, and is set to receive over $10 million in December 2023. Genel’s share of Tawke licence expenditure is around $4 million per month.
Nothing much to add here, until the pipeline reopens it’s what eat what you kill but Tawke is actually improving at quite a lick although the ultimate goal keeps looking like an illusion but surely will happen before long.
Touchstone Exploration
Touchstone has announced its annual 2024 capital budget, preliminary 2024 guidance and an operational update.
Paul Baay, President and Chief Executive Officer, commented:
“Our top priority remains maintaining a culture of safe and responsible operations that continues to drive near and long-term value creation for our investors. I am pleased to announce our growth-oriented capital budget for 2024 which reinforces Touchstone’s commitment to pursue development opportunities that generate positive returns to position the Company for sustained success. The budget and preliminary guidance reflects our near-term strategy to deploy capital to developmental drilling opportunities and use our existing natural gas and liquids infrastructure capacity. We will remain disciplined when deploying our 2024 capital and increasing our credit capacity, adhering to our long-term net debt and liquidity targets. This approach will allow us to fund future exploration drilling from cash flows expected to be generated through our 2024 development drilling program and maximization of our existing financing facilities.”
Paul Baay and the team are beefing up the programme as Cascadura comes onstream and the capital budget for next year reflects, hopefully, drilling two development wells at Cascadura, two CO-1 Block crude oil development wells, one Coho development well, and one Coho exploration well.
Production guidance also reflects the growth and 9,400 boe/d represents an approximate 135 percent increase from the forecasted 2023 average production, with a budgeted exit average production rate of 14,500 boe/d. Annual production guidance is 9,100 to 9,700 boe/d (approximately 82 percent natural gas weighted).
The TXP share price has yet to barely notice, let alone take into account the bringing on of Cascadura and the management team are quite rightly managing the process including the debt and the drilling programme with significant care. When that process is given appropriate kudos, as surely it will the shares should rerate upwards by a factor.
Funding Position(1)
The Company is in advanced discussions with its existing lender to increase its current debt capacity to facilitate the forecasted timing and amount of the 2024 capital budget presented herein. The 2024 budget contemplates increasing the Company’s revolving component of its credit facility from $7 million to $20 million in the first quarter of 2024. Although we are confident of reaching agreement, currently there is no firm commitment in place between the parties. Accordingly, the 2024 budget and preliminary guidance may be subject to change, and such changes may be material. The Company will provide further updates in due course.
2024 Budget Highlights([1])
· Capital budget allocation – we plan to invest approximately $33 million of capital in 2024, with approximately 42 percent of our capital expenditures([2]) directed to our Cascadura field and 38 percent to our Coho assets. The remaining 20 percent is allocated to our legacy oil properties, exploration licence payments and corporate infrastructure.
· Drilling operations – the initial 2024 capital budget contemplates drilling two Cascadura development wells, two CO-1 Block crude oil development wells, one Coho development well, and one Coho exploration well.
· Production growth – our 2024 mid-point annual average production guidance of 9,400 boe/d represents an approximate 135 percent increase from our forecasted 2023 average production, with a budgeted exit average production rate of 14,500 boe/d. Annual production guidance is 9,100 to 9,700 boe/d (approximately 82 percent natural gas weighted).
· Funds flow generation and balance sheet strength – the 2024 budget is designed to generate approximately $32 million of funds flow from operations(2) (Brent price of $75.00/bbl and an 18 percent realized Brent differential), resulting in a net debt to annual funds flow from operations ratio(2) of 0.78 times.
2024 Budget and Guidance Overview
For 2024, Touchstone’s Board of Directors has approved an initial capital budget of $33 million to drill, complete and tie-in six wells, resulting in estimated annualized average daily production between 9,100 boe/d and 9,700 boe/d with a forecasted production mix of 82 percent natural gas and 18 percent crude oil and liquids.
Touchstone’s initial 2024 drilling plan includes drilling two legacy property crude oil wells, two Cascadura development wells, one Coho development well and one Coho exploration well. Production growth is expected to be weighted in the fourth quarter of 2024, with two Cascadura wells expected to be drilled in the first half of the year and tied-in to the Cascadura plant prior to the end of the third quarter of 2024. The two Coho wells are expected to be drilled in the fourth quarter of 2024, and production additions from those wells are anticipated in the first quarter of 2025.
Using midpoint forecasted average production of 9,400 boe/d and a Brent Benchmark price of $75.00 for crude oil and liquids, Touchstone expects to generate approximately $32 million of funds flow from operations. Based on the approved capital budget of $33 million, Touchstone is forecasting to exit 2024 with a net debt of $25 million, resulting in a net debt to annual funds flow from operations ratio of 0.78 times.
2024 Guidance Summary(1)
|
Annual Guidance |
|
Year ending December 31, 2024 |
|
|
||
|
Capital expenditures(2) ($000’s) |
33,000 |
|
|
Average daily production(3) (boe/d) |
9,100 to 9,700 |
|
|
% natural gas(4) |
|
82% |
|
% crude oil and liquids(4) |
|
18% |
|
|
||
|
Average Brent crude oil price ($/bbl) |
|
75.00 |
|
% realized discount to Brent benchmark price |
|
18% |
|
|
||
|
Funds flow from operations(5) ($000’s) |
|
32,000 |
|
|
||
|
Net debt – end of year(2)(5) ($000’s) |
|
25,000 |
|
|
Notes:
(1) Forward-looking statement representing Management estimates. Additional information regarding the assumptions used are provided in the “Advisories – Assumptions for 2024 Guidance” section herein.
(2) Non-GAAP financial measure. See the “Advisories – Non-GAAP Financial Measures” section herein for additional information on the definitions and calculation of these measures.
(3) In the table above and elsewhere in this announcement, references to “boe” mean barrels of oil equivalent that are calculated using the energy equivalent conversion method. See the “Advisories – Oil and Natural Gas Measures” section herein for further information.
(4) See the “Advisories – Product Type Disclosures” section herein for further information.
(5) The financial performance measures included in the Company’s 2024 preliminary guidance are based on the midpoint of the average production forecast.
Operational Update
In November 2023, we achieved average net sales volumes of 8,268 boe/d as follows:
· 6,623 boe/d (8,279 boe/d gross) of Cascadura field net sales volumes consisting of:
– net natural gas sales volumes of 36.1 MMcf/d or 6,022 boe/d (45.1 MMcf/d or 7,528 boe/d gross) with a realized price of $2.46/Mcf; and
– net natural gas liquids volumes of 601 bbls/d (751 bbls/d gross) with an average realized price of $71.46 per barrel;
· Coho field net average natural gas sales volumes of 3.2 MMcf/d or 527 boe/d (4.0 MMcf/d or 659 boe/d gross) at a realized price of $2.29/Mcf; and
· average gross and net daily crude oil sales volumes of 1,118 bbls/d with an average realized price of $71.46 per barrel.
Cascadura
Commissioning of the Cascadura natural gas facility has been completed, and the facility is fully functional. Since commencing production in September, the Cascadura facility has had an uptime of 97.9 percent with minimal interruptions experienced through the commissioning phase. Through November 30, 2023, the facility has processed 3.8 billion cubic feet of gross natural gas volumes and 73 Mbbls of gross NGL production volumes.
Touchstone continues to optimize Cascadura production volumes, with adjustments being made to the mechanical chokes which are constraining production in both wells. Through December 1 to December 17, 2023, Cascadura-1ST1 produced approximately 35.7 MMcf/d of gross field estimated natural gas volumes from the upper overthrust sheet while Cascadura Deep-1 contributed approximately 11.4 MMcf/d of gross field estimated natural gas production from the lower overthrust sheet.
We are evaluating the Cascadura Deep-1 well for future optimization, including the potential for additional perforations in the lower sheet. The additional perforations could increase production by reducing current reservoir draw down rates allowing for an increase in the surface choke, which is currently at 54 percent. These additional perforations can be achieved without the use of a service rig or having to kill the well. The Cascadura Deep-1 well has approximately 200 feet of perforations currently open (118 feet net pay), and wireline logs indicate an additional 149 feet of reservoir sands (109 feet net pay) in the lower part of the formation available for future completion. The well also has 366 feet of gross sand (274 feet net pay) in the upper overthrust sheet that can also be perforated in the future. Touchstone anticipates commencing a staged approach to adding these sands in the lower overthrust sheet in the first half of 2024.
Preparation works for drilling the Cascadura-2 development well using Star Valley Rig #205 are underway, with the intent to spud early in the first quarter of 2024 from the Cascadura-C surface location located approximately 5,000 feet northeast of our producing Cascadura wells. The Cascadura-2 well is targeting the same Herrera 7bc overthrust sand packages as the current Cascadura producing wells.
Coho
Touchstone completed a workover on the Coho-1 well on December 4, 2023, successfully isolating the lowermost perforations and shutting off approximately 77 percent of the produced water. Two weeks following the workover, field estimated gross production volumes have averaged approximately 4.6 MMcf/d of natural gas with approximately 54 barrels of water per day, compared to November gross production volumes of 4.0 MMcf/d of natural gas and 230 barrels of water per day. Based on the decreased water production, Touchstone expects fluid hauling expenses to decrease by approximately 80 percent.
Preparations are underway to facilitate the drilling of the Coho-2 development well and the Gibba-1 exploration well which are expected to be drilled on the existing Coho-1 surface location in the fourth quarter of 2024.
Royston
Production testing of the Royston-1X exploration well has been suspended, and no further testing or expenditures are planned. The uppermost Karamat and Herrera sands were put to pump, however the rates encountered were not economic. Touchstone will review the data collected during testing from both the Royston-1 and Royston-1X wells to determine if a declaration of commerciality for the Royston structure is warranted.
CO-1 Block
Preparations are underway on our CO-1 block for a two development well drilling program. A local drilling contractor is expected to mobilize a drilling rig to the location in late January, pending completion of their current drilling operations. Two wells are expected to be drilled from an existing surface location, both targeting Forest and Cruse sands which have proven to be highly prospective based on the Company’s previous drilling campaign offsetting the area.
Union Jack Oil
Union Jack has provided an update in respect of the UK onshore Wressle-1 well.
- Environment Agency approval has been received that allows higher volumes of fluid to be handled at surface and at nearby water disposal facilities, since 14 December 2023
- Prior to EA approval, production was constrained to delivering an average of 550 barrels of oil per day
- From 14 December 2023, the surface pump rate has been incrementally increased, resulting in a material uplift in oil production rates, with a gross average rate of 670 bopd since then, and 674 bopd recorded on 17 December 2023, over a 24 hour period
- Jet pump is capable of handling up to 1,440 barrels of fluid per day
- Notwithstanding the increasing oil production trend, production rates will be carefully monitored, whilst the flow rate is gradually increased over the coming weeks to determine the optimum oil flow rate as the well stabilises
- Site upgrades are ongoing
- Updated Wressle Competent Person’s Report (“CPR”) will be published during January 2024
Union Jack holds a 40% economic interest in PEDL180 and PEDL182.
David Bramhill, Executive Chairman of Union Jack, commented:
“The issue of the EA permit is welcome news and is instrumental in the optimisation of oil production rates at Wressle.
“I believe that the installation of the jet pump and additional surface facilities at Wressle provide significant scope for a material upgrade in oil and gas production, further supporting the Company’s strong balance sheet for many years to come.
“I look forward to updating shareholders and the market with the updated Wressle CPR in January 2024 and on future oil production rates in due course.”
As I have said often before Wressle is the gift that keeps on giving and will ultimately repay this investment in its facilities big time. As a base for growing the business in or outside of the UK the asset provides UJO with meaningful cash flow and will formulate significant growth for the future. In the meantime shareholders can look forward to a CPR in the new year which should make interesting reading.
Europa Oil & Gas
Europa has announced that the necessary Environment Agency approval has now been received to allow higher volumes of fluids to be handled at surface and nearby water disposal facilities.
Prior to the EA approval being granted, the W1 well at the onshore UK Wressle oilfield was producing at a stable gross production rate of over 550 barrels of oil per day (“bopd”) (net 165 bopd to Europa), however this rate was achieved at constrained surface jet pump rates. Since 14 December 2023, following the EA approval, the surface pump rate has gradually been increased and the oil production rate over a 24-hour period ending at 7am on 18 December 2023 was 680 bopd (net 204 bopd to Europa). In order to determine the best rate for the jet pump to optimise oil production rates and for reservoir management, the well is being carefully monitored as the pump rate is gradually increased. It is expected that it will be a few weeks before the well stabilises and an optimised production rate is achieved.
The updated Competent Person’s Report for Wressle is now being finalised and will be released in early January 2024.
Europa holds a 30% economic interest in PEDL180/182.
Will Holland, Chief Executive Officer of Europa, said:
“With the necessary EA permit now in place to allow us to utilise the capability of the jet pump, it is good to see the well responding so well to the increased pump rate. I believe that the W1 well has the potential to deliver stable production at materially higher levels than the 550 bopd level we were producing at and the current rate of 680 bopd is very encouraging. There will now follow a period where the well will be monitored closely and the pump rate may be further increased as our engineers optimise the well performance to maximise oil recovery and value. I look forward to updating the market with the resulting revised stable oil production rate once this has been achieved.”
Obviously the same asset but with a slightly lower interest this will deliver for EOG as it will for UJO and Will Holland and team will also have the luxury of a potentially bigger payday with which to build up Europa. With a number of projects in mind I think that it will be an interesting ride for shareholders.
Petro Matad
Petro Matad has provided the following operational update.
Key Company Updates
· The Company continues to push the Government to complete the regulatory formalities to guarantee land access and allow completion operations at Heron 1 to commence. Significant progress has been made with the Matad District authorities with one outstanding issue at the Provincial level still to complete.
· The slow bureaucratic process to complete the special purpose land certification has prevented any in-field well completion operations but the winter hiatus provides time to complete the formalities which will allow operations to commence as early as possible at the start of the operational season in 2024.
· The Company has completed the restoration of the Heron-1 drilling location in preparation for mobilization of well completion equipment.
· The 2022/23 Exploration Tender Round continues with Petro Matad being confirmed as the selected contractor on the two blocks for which it submitted applications.
· The renewable energy JV, SunSteppe Renewable Energy, continues to make progress on two projects and is pursuing three others.
Operational Update
Block XX: With Cabinet approval of the special purpose certification of the Block XX Exploitation Area in early July, a number of regulatory steps were required to be completed by the Government under the 2017 legislation covering the granting and management of such areas. The Central Land Agency has completed the registration of the area and issued and signed the key Tripartite Agreement. The Ministry of Mining and Heavy Industry (MMHI) has also signed, leaving only the Governor of Dornod Province to sign. He has said he will sign once the money to make compensation payments to the 10 herder families impacted by the certification of the area has been transferred to the Provincial Government account.
In meetings facilitated by the Company, all the herders have agreed to be compensated. Under the legislation, the compensation payments should be made from the State budget but recognizing that this could be a very slow process, the Company offered and the industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) accepted that Petro Matad would make these payments. The money has been paid into the appropriate MRPAM account and is awaiting transfer to Dornod Province once the Ministry of Finance gives approval for this to go ahead. The mechanics of the transfer have taken some time for the Government to determine but we are pushing and expect this to go through soon.
The remaining steps in the regulatory process involving issuance of the special permit to MMHI and the signing of the Land Contract between the Matad District and the Company have been agreed to go ahead once the Tripartite Agreement is signed off by the Provincial Governor.
As part of our interactions with the local authorities, the Company hosted the Matad District Citizens’ Representatives Committee on a visit to the South Gobi where mining and other development projects are providing tangible benefits to the local communities in which they operate. The trip was very successful and at a meeting to conclude the trip in Petro Matad’s Ulaan Baatar headquarters the Committee thanked the Company, declared their support for the Company’s development activities in Matad and agreed the terms of the Cooperation Agreement which governs community aid expenditure during oil exploitation activities. The Cooperation Agreement is being prepared for signature and will be executed once land access has been confirmed. In a demonstration of the improved relationship, the district authorities received a presentation on a necessary amendment to the Company’s environmental plan, raised no objections and provided the necessary documentation to allow the Company to secure Ministry of Environment approval to amend its Detailed Environmental Impact Assessment.
With the necessary approvals, the Company was also able to complete the restoration of the Heron-1 drilling location in preparation for the mobilization of well completion equipment and the installation of the beam pump, tanks and generator.
New acreage: On the two blocks for which Petro Matad submitted applications, the Company has been selected as the preferred contractor. Fiscal terms have been agreed and the Company’s proposed changes to the model Production Sharing Contract are now with MMHI for review and final submission to Cabinet. The tender process has slowed in recent months, perhaps in light of political attention being diverted due to next year’s parliamentary elections. Petro Matad is happy to have been confirmed as the selected contractor for the areas it has chosen and would like to see the tender process concluded soon although operational activity will focus on Block XX in 2024.
Renewables: Our renewable energy JV, SunSteppe Renewable Energy, continues to make progress under the leadership of its CEO Ms. Zula Luvsandorj. SunSteppe is progressing several exciting opportunities including two high graded projects with three more under detailed technical and commercial review.
Mike Buck, CEO of Petro Matad, said:
“On the land issue, we feel that we are almost there, but we will keep pushing until the process is complete. In the absence of any recent precedents, every step has been something new for the Government which has caused delays. We will certainly be ready to operate at the end of the winter stand down when we expect the long running saga of land access to be fully resolved.”
Nothing to add to what Mike Buck has said, its all about delays in the system in Mongolia.
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion
