Malcy’s Blog: Oil price, Genel, Union Jack, Egdon, UOG.

WTI (Feb) $79.86 u/c *US Market shut MLK Day.Brent (Mar) $84.46 -82c, Diff -82c*

USNG (Feb) $3.41 u/c*, UKNG (Feb) 141.0p -19.0p, TTF (Feb) €53.6 -€6.9.

Oil price-Dav-oh-No…

With the US shut for Martin Luther King Day Brent eased but has bounced today in thin volume, the movers and shakers decamping to the Swiss alps to spend all their shareholders/citizens money on private jets and 5 star hotels while they meander from cocktail party to receptions galore while they claim to be putting the world to rights. If your board are attending I would like to know the reason why….

Genel Energy

Genel has issued the following trading and operations update in advance of the Company’s full-year 2022 results, which are scheduled for release on 22 March 2023. The information contained herein has not been audited and may be subject to further review.

2022 PERFORMANCE

• Zero lost time incidents in 2022, with over three million hours worked since the last incident
• Net production of 30,150 bopd in 2022 (31,710 bopd in 2021), and 29,600 bopd in Q4, in line with guidance
• $473 million of cash proceeds were received from the KRG in 2022 (2021: $281 million)
  • Higher Brent oil price of $101/bbl in 2022 ($71/bbl in 2021)
  • $124 million received relating to Tawke PSC override payments
  • $94 million received for deferred receivables relating to unpaid oil sales from November 2019 to February 2020 and the suspended override from March to December 2020
• Capital expenditure of $140 million, slightly below guidance due to the deferral of a well at Taq Taq and lower than budgeted spend at Sarta
  •  $74 million at Tawke PSC, and $47 million at Sarta
• Free cash flow of $233 million ($86 million in 2021)
• Dividends totalling 18¢ per share paid in 2022 (2021: 15¢ per share), a total distribution of $50 million

• Cash of $495 million at 31 December 2022 ($314 million at 31 December 2021)
  • Excludes $64 million which was due for payment in 2022
• Net cash under IFRS of $228 million at 31 December 2022 ($44 million at 31 December 2021)
  • Total debt of $274 million at 31 December 2022 ($280 million at 31 December 2021)

2023 OUTLOOK AND GUIDANCE

• Production in 2023 is expected to be 27-29,000 bopd, with similar operating expenditure to last year of c.$50 million, equating to c.$5/bbl
• Material reduction in capital expenditure, with 2023 expenditure expected to be between $100 million and $125 million, with key asset spend including:
  • Production business cost recoverable capital expenditure roughly flat at c.$90 million
  • Up to c.$25 million expenditure in Somaliland, as we progress towards the spudding of the Toosan-1 well in this frontier basin
  • c.$10 million currently expected on maintenance of other assets including Sarta, a reduction of c.$50 million on 2022
• Genel is committed to our material and sustainable dividend programme. The dividend is currently at 18¢ per share, equating to $50 million, which we expect to be covered by free cash flow in 2023
• Genel continues to actively screen and work up opportunities to put our cash to work in order to extend the line of sight on cash flows that support our dividend programme into the long-term
• Genel continues to invest in the host communities in which we operate, aiming to invest in those areas in which we can make a material difference to society, with an increasing focus on Somaliland in 2023

PRODUCTION BUSINESS

• Production by field was as follows:

(bopd)	Gross production 2022	Net production 2022	Net production 2021
Tawke	107,090	26,770	27,180
Taq Taq	4,490	1,980	2,610
Sarta	4,710	1,400	1,920
Total	121,060	30,150	31,710

 

• Tawke PSC (25% working interest)
  • Gross production averaged 107,090 bopd in 2022, and 106,480 bopd in Q4
• Sarta (30% working interest and operator)
  • Gross production 4,710 bopd in 2022, and 3,960 bopd in Q4
  • Genel’s focus is on making ongoing production from Sarta profitable, with any further capital investment contingent on both licence profitability and the extent to which there can be confidence that such investment can add cash generative production
• Taq Taq PSC (44% working interest and joint operator)
  • Gross production averaged 4,490 bopd in 2022, and 3,970 bopd in Q4
  • Activity in 2023 is expected to include one sidetrack well targeting the Upper Shiranish formation

PRE-PRODUCTION BUSINESS

• Somaliland
  • Preparation continues for the drilling of the Toosan-1 well on the highly prospective SL10B13 block (51% working interest and operator)
  • The Toosan prospect contains stacked Mesozoic reservoir objectives, with multiple individual prospective resource estimates each ranging from 100 to 200 MMbbls
  • The geotechnical survey has now completed as we progress towards construction of the well pad. Environmental and social impact assessments are underway, and tendering has commenced for the rig and well services
  • Genel continues to target a spud date in the next 12-18 months, acknowledging the challenges of operating in such a frontier area with limited existing infrastructure
• Morocco
  • The farm-out programme on the Lagzira block (75% working interest and operator) is continuing
• Qara Dagh
  • The results of the QD-2 well were announced in January 2022
  • Under the terms of the PSC the licence has now expired
  • The joint venture partners are engaging with the KRG on the future of the licence area

ARBITRATION

• The London-seated international arbitration regarding Genel’s claim for substantial compensation from the KRG following the termination of the Miran and Bina Bawi PSCs is progressing. The trial is scheduled for February 2024

Paul Weir, Chief Executive of Genel, said:

“Genel starts 2023 with a strong balance sheet, a net cash balance of over $200 million, and a cash generative production business. Our focus is now the preservation of capital for the addition of new resilient and cash-generative assets to our production portfolio, with free cash generation in 2023 funding both our dividend programme and progress towards the drilling of our exploration well in Somaliland.

As we work to centre our business around the delivery of our material, sustainable, and progressive dividend programme, our capital allocation decisions are targeted towards delivering the profitability and cash generation required to support that programme in the long-term.”

Steady as she goes is probably accurate for performance from Genel and the update was in line with expectations and contained no surprises. With Tawke shouldering the burden of production doing a very good job Genel is still throwing off cash and has $500m in the balance sheet ready for suitable acquisitions.

And with a number of questions aimed at the M&A situation it is clear that a decent sized deal, hundreds of millions preferred to tens, would be perfect but I don’t get the impression there is anything imminent, although there is of course limited guidance that can be given. 

Work continues on a modest basis at both Sarta and Taq Taq, neither of which will be pulling any trees up any time and while Somaliland may have the scale should it come in it is a way off yet hence the need for a deal. 

No news on the arbitration yet, I can say with recent experience that these things travel very slowly but if there are any vibes then they are a  bit more positive, as they are those coming from the relationship between Erbil and Baghdad which has been indifferent but is looking up and the backlog of receivables which is also encouraging. 

Genel is clearly in good nick, cash flow is very strong, and whilst the acquisition process is important it plays second fiddle to the dividend payout so shareholders can rely on that pretty much whatever else happens at the company. 

Egdon Resources

Egdon has provided the following business update ahead of its Annual General Meeting.

Revenue

The Company’s revenue continue to be strong with unaudited revenue for the five-month period from August to December 2022 of £3.08 million (2021: £2.07 million).

Operations

Progress is being made across Egdon’s entire portfolio of assets, highlights include:

Wressle

·     Cumulative oil production of more than 341,100 barrels to 12 January 2023, with no water

·     Current daily production rate of approximately 825-850 barrels of oil per day (“bopd”), however, a daily rate of in excess of 1,000 bopd was achieved in late December 2022, following a four day shut-down

·     Three microturbines have been delivered to site and installation and commissioning is ongoing

·     The microturbines will generate all site electricity and are expected to enable up to a 20% uplift in oil production

·     3D seismic reprocessing completed and new field interpretation being finalised to confirm final target locations for future appraisal and development drilling

·    New Competent Persons Report to be commissioned incorporating the new field interpretation and exceptional production performance

·     Planning and permitting process for Penistone Flags development has commenced

·   Drilling of a Penistone Flags development well is planned for H2 2023, subject to receipt of regulatory and planning consents

·   Progressing gas to wire, and gas export options to generate further revenue streams and to eliminate gas incineration at Wressle

Keddington

·   Reprocessing of existing 3D seismic data currently being finalised to inform final sub-surface location for a side-track well to target around 160,000 barrels of incremental oil production

·   Planning consent and permits in place to enable drilling during H2 2023

Avington

·   All planning conditions have been discharged and the operator is planning to restart production during H1 2023

·   Egdon will increase its interest in the field to 36.33% on completion of the acquisition of Aurora Production Limited

Waddock Cross

·   Egdon will increase its interest in the field to 73.75% on completion of the acquisition of Aurora Production Limited

·    Planned redevelopment of the Waddock Cross oil field

·   The Company is progressing planning and permitting to secure consents for drilling with the target of H1 2024

Biscathorpe

·     A Planning Hearing was held on 11 October 2022 and the Inspector’s decision is awaited

·     Preparations for drilling in H2 2023 would follow from a successful planning appeal

North Kelsey

·   Egdon submitted a planning appeal in August 2022 and we have been informed that the appeal will be held as a Hearing with the detailed timing awaited from the Planning Inspectorate  

Resolution and Endeavour (P1929 and P2304)

·  Shell has completed its withdrawal from the P1929 licence and Egdon is now operator with a 100% interest

·   P2034 (Endeavour) was surrendered in November 2022

·  The nearby, analogous Pensacola Prospect has discovered gas and a testing programme is underway

Updated Corporate Presentation

An updated corporate presentation, including updates as detailed above, will be made following the AGM and will be available on the Company’s website at www.egdon-resources.com

Mark Abbott, Managing Director of Egdon, commented:

“Egdon continues to generate strong revenues from its UK producing assets with Wressle being the standout asset, performing ahead of expectations. We anticipate a further uplift in production at Wressle in the near future once the microturbines are fully commissioned and operational. We are actively progressing planning and permitting for the development of the Penistone Flags reservoir, which along with the associated gas to grid project will result in a further material uplift in production and revenues.

Elsewhere, we are progressing our plans for a drilling campaign during the next 12 to 24 months designed to further increase our production and revenue and funded from the material cash flow being generated from our existing production.”

Egdon, like others has much to be pleased about at Wressle as the performance has been exceptional and is delivering very strong revenues, hopefully to be increased by the microturbines and the Penistone Flats which should be reflected in an updated CPR report. 

Elsewhere the company remains at the mercy of the shameful planning system which gives every Tom Dick and Harry a chance to delay highly regulated operational progress. Thanks to Wressle Egdon is funded and set fair albeit the shares are some 60% off the peak and maybe are expecting some portfolio restructuring…

Union Jack Oil 

Union Jack Oil notes a positive  project update published today by Egdon Resources plc  in respect of projects in which the Company holds economic interests.

Highlights

Wressle-PEDL180/182 (Union Jack 40%)

·    Cumulative oil production of more than 341,100 barrels to 12 January 2023, with zero water-cut

·    Current daily production rate of approximately 825-850 barrels of oil per day (“bopd”), however, a daily rate of in excess of 1,000 bopd was achieved during December 2022, following a maintenance shut-down of four days

·    Three microturbines have been delivered to site and installation and commissioning is ongoing

·    The microturbines will generate all site electricity and are expected to enable up to a 20% uplift in oil production

·    3D seismic reprocessing completed and new field interpretation being finalised to confirm final locations for future appraisal and development drilling

·    Planning and permitting process for Penistone Flags development has commenced

·    Drilling of a Penistone Flags development well is planned for H2 2023, subject to receipt of regulatory and planning consents

·    Progressing gas to wire and gas export options to provide further revenue streams and eliminate routine gas incineration at Wressle

·    New Competent Persons Report to be commissioned incorporating the new field interpretation and exceptional production performance

Keddington-PEDL005(R) (Union Jack 55%)

·    Reprocessing of existing 3D seismic data being finalised to inform final sub-surface location for a side-track well targeting approximately 160,000 barrels of incremental oil production

·    Planning consent and permits in place to enable drilling during H2 2023

Biscathorpe-PEDL253 (Union Jack 45%)

·    A Planning Hearing was held on 11 October 2022 and the Inspector’s decision is awaited

·    Preparations for drilling in H2 2023 would follow from a successful planning appeal

North Kelsey-PEDL241 (Union Jack 40%)

·    Egdon submitted a planning in appeal in August 2022 and have been informed that the appeal will be held as a Hearing with the detailed timing awaited from the Planning Inspectorate

Executive Chairman of Union Jack, David Bramhill, commented: 

“Union Jack continues to generate robust revenues from Wressle which is currently delivering record consistent oil production, expected to be even further enhanced when the microturbines are fully commissioned and operational.

“We also expect a material uplift in production as the Penistone Flags development and gas to wire operations unfold.

“What is encouraging from this Egdon update is the active drilling programme anticipated during 2023.

“Union Jack are fully funded for these operations without recourse to the Capital Markets”

Once again a great performance from Wressle and as with Egdon, fully funded and with a good deal of upside. But UJO has significant further potential from elsewhere in the portfolio such as West Newton and looks to have more scope to outperform. Having been a good second in the 2022 Bucket List this year could do even better…

United Oil & Gas-Deja vue all over again…

United Oil & Gas has announced that it has entered into a binding Asset Purchase Agreement with Quattro Energy Limited to sell UK Central North Sea Licence P2519 containing the Maria discovery in Block 15/18e for a maximum consideration including contingent bonus payments of up to £5.7 million (c.US$6.95 million) as set out below.

Consideration comprises:

–       Initial cash payment of £2.45 million to United (c.US$3 million) at completion.

–       An additional £1.0 million to be paid to United upon approval of an FDP (expected late 2023) for Block 15/18e.

–       Contingent bonus payments of up to £2.25 million upon reaching gross production thresholds from the field of three, four and five million barrels.

The completion of the APA is subject to a number of pre-conditions including the North Sea Transition Authority approval to the Licence acquisition and Quattro having available an amount equal to the completion payment of £2.45 million in cash. It is anticipated that completion of the APA will be within 90 days from this announcement.

The divestment of the Licence reflects United’s strategy to focus its new ventures programme on opportunities in the Greater Mediterranean and North Africa whilst remaining opportunistic for value accretive transactions outside of these core areas.

Following completion of this transaction, the Company will consider options to use a portion of the proceeds received to fund a limited share buyback programme and therefore intends to seek the requisite shareholder approvals at this year’s Annual General Meeting to approve such a programme. The funds not used on the buyback programme will further strengthen the Group’s balance sheet and support the growth strategy of the Group.

United was awarded Licence P2519, in the UK Oil and Gas Authority  32^nd Licencing Round in December 2020. Licence P2519 includes the Maria Discovery in Block 15/18e. United holds a 100% equity interest and it has a carrying value of c.£0.7million (c.US$0.85 million) as at 31 December 2022 (as per the Company’s unaudited management accounts). The Licence has an independently audited mid-case 2C gross contingent resource estimate of 6.3 mmbbls and 23.3Bcf (10.2 mmboe). The Licence was formerly subject to a disposal to Quattro which did not complete as per the announcement on 3 March 2022.

Quattro is a UK company, incorporated in April 2021 with an experienced North Sea focused management team, which as separately announced today is entering into a binding agreement to be acquired by Jesmond Capital Ltd (“Jesmond”), a Canadian company listed on the Toronto Stock Exchange (TSXV JES.P).  In conjunction with the acquisition of Quattro by Jesmond and listing of the enlarged entity on the TSXV, the parties will be conducting a financing which is required by them to fund the completion of the acquisition of the Licence.

United Chief Executive Officer, Brian Larkin commented:

“Active portfolio management, to realise value from our assets, has always been a key part of United’s strategy. We are pleased to be signing the APA with Quattro, who have agreed a materially higher maximum consideration than in 2021, reflecting the increased value of the Licence following the work completed by our technical team over the last 12 months. Whilst the Company explored options whereby we participated directly in the future development of Maria, we ultimately believe that monetising the Maria discovery at this time provides us with a significant return from our investment and gives us additional capital to continue to execute our ambition to grow the business in our core focus areas in the Greater Mediterranean and North Africa regions. We wish Quattro all the very best for their new venture.”

Having got more money this time round UOG have given themselves the put and the call, in effect selling an asset that they wouldnt want to finance all the way through and pocketing some cash. The company, which hasn’t gone to its shareholders for four years which must be rare will pay a little back and keep the resy for any passing deals.

The UOG team are always on the look out and this canny piece of portfolio management gives them, in the word of the moment, optionality, in this case to repay faithful and patient holders and to move into other areas when the time and deal arises.