A flash blog today as I have a number of meetings in town including a Capital Markets Event.
Zephyr Energy
Zephyr has announced the signing of a rig contract with CWC Ironhand Drilling (“CWC”) for its Ironhand Rig 118 (“Rig 118”) to be used to drill the Company’s State 36-2 LNW-CC well, the first of three wells designed to further delineate Zephyr’s acreage position on its project in the Paradox Basin, Utah, U.S.
Rig 118 will mobilise to site over the coming days, with the well expected to spud in the second half of this month. In the interim, the Company expects to set the conductor casing ahead of rig arrival prior to the commencement of the greater drilling operation.
Colin Harrington, Zephyr’s Chief Executive, said:
“Following the recent final permit award, Zephyr’s operational team moved quickly to secure the rig contract with CWC. We are pleased with the operational momentum and look forward to getting the drilling campaign underway this month.
“We look forward to keeping investors informed as operations progress at the well site.”
This is regulation news from Zephyr who are now ploughing through the operational details which will eventually lead to the drilling programme in a matter of weeks. I expect the shares to rise substantially as the autumn progresses.
Egdon Resourses/Union Jack
Egdon Resources plc (AIM: EDR), a UK-based exploration and production company primarily focused on the hydrocarbon-producing basins of onshore UK, today announces its preliminary results for the year ended 31 July 2022.
Operational and Corporate Highlights
· Egdon net production during the period increased by 160% to 84,894 barrels of oil equivalent (“boe”) equating to 233 boe per day (“boepd”) (2021: 32,686 boe, 90 boepd).
· Wressle production has significantly exceeded forecast expectations with average gross production during the period of 656 barrels of oil per day (“bopd”) at rates constrained by the EA Permit limits for gas disposal and with zero water production to date.
· The Ceres gas field is providing a late life renaissance due to the high gas price and low operating costs.
· Following the refusal of planning permission in November 2021 for the drilling of a side-track well, testing and long-term production at the Biscathorpe project, an appeal was submitted in April 2022.
· On 8 March 2022 a revised incentive package was put in place for all employees through the issue of new share options and the cancellation of all historical share options.
· On 14 March 2022, planning permission was refused to extend the existing consents to drill the North Kelsey-1 exploration well and an appeal was submitted in April 2022.
· On 5 April 2022, the Government announced that it had commissioned the British Geological Survey to advise on the latest scientific evidence around shale-gas extraction. Report delivered to BEIS on 5 July 2022.
· During April 2022, Shell advised Egdon of its intention to withdraw from licences P1929 and P2304, containing the Resolution and Endeavour gas discoveries. Egdon applied to the NSTA for an extension of time to complete the 3D seismic programme.
· Egdon has assumed the operatorship of PEDL343, increased its equity to 40% and agreed an extension to 20 March 2024. PEDL343 contains the Cloughton gas discovery.
· Licences PEDL202 and PEDL130 were relinquished during the period.
Financial Performance
· Oil and gas revenues increased by over 530% during the period to £6.91 million (2021: £1.09 million) as a result of significantly increased production and strengthening commodity prices.
· Earnings before interest, tax, depreciation, amortisation, asset impairments, impairment reversals and write-downs were £4.67 million (2021: loss of £0.72 million).
· Post tax profit for the period of £3.30 million including £1.40 million of impairment reversals, £1.80 million of impairments and £0.15 million of write-downs and pre-licence costs (2021: loss of £1.68 million including £0.48 million of write-downs, pre-licence costs and impairments).
· Basic earnings per share of 0.64p (2021: loss per share of 0.51p). Diluted earnings per share of 0.57p (2021: loss per share of 0.51p).
· Net current assets of £4.90 million (31 July 2021: £0.14) of which cash and cash equivalents were £4.80 million (31 July 2021: £1.96 million).
· The Company has no borrowings following the repayment of a £1 million loan during May 2022.
Subsequent Events
· On 8 August 2022 the North Kelsey Planning appeal documentation was submitted.
· On 8 September 2022 the Government announced the lifting of the moratorium on hydraulic fracturing for shale-gas.
· Egdon was advised in October 2022 that the NSTA had consented to Egdon’s request for a twelve-month extension to the P1929 licence obligation to acquire the 3D seismic. Egdon will now engage with the NSTA to confirm the detailed expectation in relation to this and subsequent timelines. Should the 3D survey not be acquired by April 2023, P1929 will determine in May 2023. Licence P2304 will be relinquished.
· A hearing was held on 11 October 2022 in relation to the Biscathorpe planning appeal and we now await the Planning Inspector’s decision.
· On 27 October 2022 the Government reintroduced the moratorium on hydraulic fracturing for shale-gas.
· Coincident with the release of its Preliminary Results, the Company has updated its corporate identity and released a new website (https://www.egdon-resources.com/).
Outlook
· Post-period-end production and revenues have continued to be strong with unaudited August to October 2022 revenues of £2.07 million.
The key operational focus for the coming period will be:
· Maintaining and enhancing the strong production performance at Wressle whilst progressing both the gas monetisation and Penistone Flags development as priorities.
· To add reserves, production and revenues through the drill-bit in both our exploration and development/redevelopment projects.
· To progress energy storage, hydrogen and renewable generation projects.
Commenting on the Results Egdon’s Chairman, Philip Stephens said;
“Egdon has been transformed over the past year through growing revenues and with a significantly improved outlook and operating environment.
The highlight has been the outstanding performance of the Wressle oil field which along with production from our existing fields and high oil and gas prices has resulted in a strong financial performance.
Despite the reintroduction of the moratorium on shale-gas by the Sunak led government, we will continue to make the case for the strategic importance that shale-gas could make to the UK’s economy and security of supply.
In the meantime, Egdon will focus on progressing its conventional oil and gas business and nascent energy transition projects to continue delivering long term value to its shareholders.”
Wressle has indeed transformed Egdon in recent months and despite upsets in the shale portfolio has a good outlook. The shares have underperformed significantly in the last two months which one would hope that could be recovered before too long.
Union Jack has noted that Egdon Resources plc, has today published its preliminary results for the year ended 31 July 2022 and provided operational commentary on a number of projects in which Union Jack holds material economic interests, namely, Wressle (40%), Keddington (55%) and Biscathorpe (45%) where certain details have been summarised below.
Highlights
· Wressle production has significantly exceeded forecast expectations with zero water to date
· Strong performance at Wressle maintained and enhanced whilst progressing both the gas monetisation and Penistone Flags development as priorities
· Two stage Wressle Gas monetisation being progressed
· Outcome of appeal on Biscathorpe planning decision expected around turn of the year
· Subject to finalising the sub-surface location, plans for a development well at Keddington to be drilled during 2023 to upgrade production
Wressle (PEDL 180 and PEDL 182) – Gas Monetisation Progressing
The implementation of a two-stage gas utilisation scheme is currently being progressed, which will enable the oil production limit to be lifted. For the first stage, it is the intention to utilise the Ashover Grit gas for electricity generation and export, for which planning is already in place. This will be undertaken in two steps. Initially, the site diesel generator will be replaced with a gas microturbine for site electrical power, and secondly, a separate gas engine installed to generate and export up to 1.75 MW of electricity into a local private power network.
It is expected that installation of the microturbine will be completed by year end. In parallel, the sourcing of a gas engine and equipment for step two is being expedited and further updates on timing will be made once confirmed. The additional revenue from monetisation of the Ashover Grit gas, together with increased oil production rates, will have a positive impact on the value of the Wressle field development when operational.
Stage two of the gas monetisation will focus on gas export from the significant resources in the Penistone Flags reservoir following a development plan and consenting process.
Executive Chairman of Union Jack, David Bramhill commented:
“The update provided today by Egdon, especially in respect of our flagship project, the Wressle development, is particularly encouraging.
“We now have a clear focus on our forward strategy at Wressle to implement, as a priority, the monetisation of its gas reserves that also facilitates optimum oil production from the producing Ashover Grit reservoir. In parallel, the development plan and consenting process are being progressed to enable future production of the significant resources within the Penistone Flags reservoir.
“The additional revenue from monetisation of the Ashover Grit gas, together with increased oil production rates, will have a positive financial impact on revenues from the Ashover Grit and on the value of the Wressle field development when operational.
“Wressle production over the past 12 months has been transformational for Union Jack. Revenues are fast approaching US$11 million and the Wressle-1 well continues to produce above expectations.”
More excellent news from Wressle which along with its other prospective assets puts the company in a prime position to ‘transform’ the company and with recent developments on the distribution front shareholders should gain on both a capital and income basis.
Challenger Energy Group
In the 2nd Instance of 2022, ANCAP received the documentation from CNOOC, OXY, Qatar Energy,TotalEnergies and YPF to qualify in the Open Uruguay Round. All these companies have excellent operational record, a corporate environmental policy committed to the reduction of emissions in their operations, and take part of different initiatives for the mitigation of climate change.
These companies add to Shell, APA Corporation, Challenger Energy, Kosmos Energy and Tullow Oil,which submitted their documentation to qualify in previous Instances. Only the companies that have fulfilled all the requirements of qualification, are authorized to submit bids.
This Open Uruguay Round system accomplishes with the most valued factors by oil companies at the moment of participating in a bidding round: transparency in the process of decision making,previously available database and a clear and predictable schedule. In this continuously open process,companies can qualify and submit offers at any time. However, the system doesn’t imply a direct negotiation; it works like two bidding rounds per year, with opening of offers at two Instances per year:the last working day of May and the last working day of November.
This is very good news for Challenger, as I have mentioned before its move into Uruguay during the pandemic was an inspired move as ANCAP has announced 5 new companies pre-qualifying as bidders for the current round: CNOOC, Total, YPF, Qatar Energy and OXY.
This adds to Shell and Apache, who picked up blocks in May.
So clearly, Uruguay is now increasingly on the radar for the big players, bids in the current round are due by the end of November, so we should expect to know by mid-December which of the remaining 3 blocks were bid on, by who, and the terms of any successful bids.
This fascinating list of super-majors all headed for Uruguay will be whittled down and those successful will join Challenger and others from previous rounds. I think that this means that the first 3-6 months of 2023 will be interesting and augurs well for CEG, its management and shareholders, a potentially transformational event is unfolding.
Predator Oil & Gas
Predator has provided an update on progress towards finalising its drilling operation to enable the MOU-2 well to commence drilling.
Currently it is estimated that the well will commence drilling within the first two weeks of December. The exact date will be determined by when all pre-ordered drilling materials have cleared Moroccan customs in the coming weeks. Materials have been sourced from Canada, Egypt, France, the UK and the Middle East, reflecting the pressure on logistics and the supply chain that the war in Ukraine has created for the larger drilling services companies.
Re-assessing and adjusting the components of the drilling mud system and carefully adjusting mud weights based on the information gathered from MOU-1 is anticipated to afford greater reservoir protection whilst drilling and to facilitate a successful rigless testing programme.
Optimisation of the overall drilling programme by using the MOU-1 experience together with our ability to connect to multiple service providers to overcome supply chain issues has enabled the Company to make significant cost savings such that the budgeted cost of MOU-2 remains very close to the final well cost for MOU-1. This is despite the significant increase in the cost of equipment, materials and personnel as a result of challenging global market conditions.
Following initial discussions during this year with a number of parties it is anticipated that the Company will sign agreements shortly after the announcement of the MOU-2 test results with certain companies that it has prioritised for gas sales and an initial financing package for a simple Compressed Natural Gas (“CNG”) pilot development. CNG is easily scalable, unlike a fixed pipeline development, and is attractive for developers of gas seeking a near-term increase in gas revenues.
Paul Griffiths, Executive Chairman of Predator Oil & Gas Holdings Plc commented:
“We are delighted to have made excellent progress towards commencing the drilling of the MOU-2 well as a result of being able to develop a diverse supply chain to ensure that all drilling materials are available at the well site to enable operating a successful well.
We are please with the level of interest being generated within Morocco and amongst those groups seeking gas to address the rise in demand for secure new gas resources.
We have multiple gas prospects in this area of the Guercif licence for further “running room” without any requirement to expand our licence portfolio.
The option to prudently finance further step-out drilling on the back of revenue generation from CNG sales is an attractive business development strategy. However MOU-2 and MOU-1 rigless testing could potentially confirm continuity of the Moulouya Fan over an area of 30km² to support a case for the higher end of the net contingent gas resources to the Company of 708 BCF, as defined in the independent SLR Consulting Ireland Ltd. (“SLR”) Competent Persons Report (“CPR”), (February 2020 and January 2022 “MOU-4″ updated). If this were the case the Company would not hesitate to initiate a corporate transaction to monetise shareholder value. In the current climate gas assets attract a significant premium as they can contribute to security of energy supply and the Energy Transition to help stabilise the near-term cost of energy.”
Shareholders will be delighted to see this update as the plan for Morocco starts to come good.
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.
