Malcy’s Blog – Oil price, Serica, Longboat, Pharos, Hurricane, Zephyr, Lekoil, Decklar. And finally…

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Oil price, Serica, Longboat, Pharos, Hurricane, Zephyr, Lekoil, Decklar. And finally…

WTI $69.96 -9c, Brent $72.22 U/C, Diff -$2.26 +9c, NG $3.13 U/C, UKNG (Aug) 68.92p +1.07p

Oil price

Oil is doing nothing as the reporting agencies come in with their monthly reports, even a decent set of inventory stats seemed to be ignored by the market. The EIA report was read as bearish as it upped supply and reduced demand numbers but it is forgotten that they either take no notice of the politics of Opec+ or feel it is not for them to get involved. It is more important to be aware of what has been said most recently by the KSA and Secretary General Barkindo that stocks are falling and that betting against Opec is always a risk…

As to those inventory stats, they can be explained in one line. A big draw in crude and compensating product builds are always the case when, as is normal at this time of the year, refiners increase runs to ensure higher seasonal consumer demand is covered. Hence crude drew by 5.2m barrels, gasoline built by 7m b’s and distillates by 4.4m, a rise of 2.6 points to 95.1% in the refinery operating capacity rate was the culprit.

Serica Energy

Serica has provided an operational update for the Rhum R3 well. The new completion equipment has been successfully installed into R3 and a flow test has now been performed. Astabilised flow rate of 58.4mmscf/d of gas and 135bbls/d of condensate has been achieved through a 60/64ths inch choke. This rate was constrained by the surface well test equipment on board the WilPhoenix semi-submersible drilling rig and it is expected that the well will be able to produce at higher rates when in production.

A diving support vessel  has been contracted to install the subsea control equipment required so the well can start producing in Q3 2021. The successful recompletion of R3 will increase the Rhum production capacity utilising the existing facilities located on the Bruce platform and will, therefore, not lead to significant additional CO2 emissions. This is in line with Serica’s stated objective of reducing the carbon intensity (i.e. CO2 per barrel of oil equivalent) of its production operations.

Mitch Flegg, Chief Executive of Serica Energy, commented:

“Operations on R3 have proved more challenging than expected but the skill and dedication of our operational team has enabled us to achieve this welcome result. The volumes flowed during the test are equivalent to over 10,000 boe/d which demonstrates the quality of the Rhum asset.

It was always expected that the flow test results would be constrained by the surface test equipment, but initial analysis of the data recovered indicates that the flow potential of the well is at the upper end of our range of expectations.

The third Rhum well will enable enhanced production rates from the field and will provide redundancy to support production from the other two Rhum wells.”

A great result from Serica today and in its own quiet, understated way the company has yet again delivered the goods for shareholders. Accordingly, whilst the share price has risen some 35% off the lows it is way lower than it should be and for a share that ticks all the boxes that investors require nowadays, particularly in low carbon and associated ESG issues, but in an old fashioned way is still finding hydrocarbons in increasingly profitable volumes and don’t forget gas is increasingly important in the mix.

Longboat Energy

Longboat has successfully raised gross proceeds of £35 million by means of a placing and subscription with the fundraising completed at a price of 75 pence per share, a 6.8% discount.  The raise is for long promised deals two of which are detailed today. The company has executed farm-in agreements with Equinor and Spirit Energy Norway with a third transaction anticipated to be executed imminently – Longboat has also executed a NOK 600 million (£52 million) Exploration Finance Facility (“EFF”) with SpareBank 1 SR-Bank ASA and ING Bank N.V.

The Fundraising and EFF ‘will enable Longboat to pursue a significant, near-term, low-risk exploration drilling programme on the Norwegian Continental Shelf across seven wells targeting net mean prospective resource potential of 104 MMboe and an additional 220 MMboe of upside and follow-on prospectivity’. The first well in the programme is expected to spud in Q3 2021.

Helge Hammer, Chief Executive of Longboat, commented:
“The Board of Longboat is delighted by the support we have received from new and existing shareholders. Securing these Farm-Ins will enable us to pursue a significant, near-term, low-risk exploration drilling programme. We can now look forward to a busy period of almost continuous drilling and frequent catalysts during the next 18 months. “Our ambition remains to build Longboat in to a full-cycle, North Sea E&P company.”

At long last investors were saying when the news came out that the former Faroe team had actually done a deal, or three in this case, and came to the market for a raise. Apart from the glitch on day 1 of dealing last time, when the brokers messed up letting a loose underwriter crash the price single handedly, the market is excited about Longboat being back and with only a few months before first spud on the newly acquired assets.

This is a classy, experienced management who which will relish getting to grips with a new portfolio of exciting assets, it may take some storytelling but if it were me I would undoubtedly back Helge and the team.

Pharos Energy

Pharos updates the market today, in Egypt where the Batran-1X commitment exploration well, drilled on a fault bounded and three-way-closed dip prospect located 4km west of the Main Tersa-1X well, reached Total Depth on Friday 4 June. The well encountered 52 ft (15.85m) of net oil pay in the LARG and UB sands. Additional thin pay zones may also be present in the Abu Roash “A”, “D” and “E” sands where oil shows were also encountered whilst drilling.

Pressure readings confirm that the oil-bearing reservoirs are at initial pressure. The Batran-1X well will be completed as a potential future producer in the LARG and UB reservoir sections using a workover rig as part of El Fayum field activities ramp up phase. The preliminary post-well in-place volume and resource estimates for the LARG and UB discoveries are 4.3 mmbbls and 430,000 bbls respectively.

El Fayum concession

The El Fayum concession prospect and lead inventory has an estimated unrisked in-place volume potential of >400 mmbbls in 40 prospects all with “more of the same geology” and covered by the existing 3D seismic. Of this total >220 mmbbls is in prospects close to existing infrastructure and 156 mmbbls is located within current long-term development leases. An additional 230 mmbbls of unrisked in place volumetric potential lies in new plays (e.g. deeper untested formations) or in leads outside of the present 3D seismic area.

The unconventional Abu Roash “F” play, which is considered potentially prospective over the northern half of El Fayum and which was also encountered in the Batran-1X well, has a further 1.5 billion bbls of unrisked unconventional oil in place potential in tight organic-rich marls.

The Company is currently engaged in a farm out process run by Jefferies, to seek a partner before recommencing investment in the development of the existing discovered resource on El Fayum and the exploration potential of both blocks.

Future exploration drilling activity in the proven basins of El Fayum and NBS can be expected to focus on near field prospects close to existing facilities and prospects with new play potential. Similarly future seismic acquisition will focus on 3D seismic in the northern portion of El Fayum, once land access is granted, to mature existing leads and 2D seismic in the unexplored eastern desert portion of NBS to evaluate its frontier potential.

Ed Story, President and Chief Executive Officer, commented:

“In Egypt the Batran-1X exploration commitment well has encountered oil in the Abu Roash Lower “G” (LARG) and the Upper Bahariya (UB) reservoirs. This modest discovery reconfirms the potential for additional oil on the El Fayum concession. Separately, offshore Vietnam, we are poised to commence a low risk development drilling programme in the Cuu Long Basin and a 3D seismic acquisition programme over Exploration Acreage in the Phu Khanh Basin.”

Whilst there is good news from Pharos today I think that it will be the news from the farm-out process that the market will be keen to hear, and to be frank before too long. Assuming that this is imminent they Pharos remains an attractive offer in the sector.

Hurricane Energy

May 2021 Lancaster Field Data

As of 7 June 2021, Lancaster was producing 11,020 bopd from the P6 well alone with an associated water cut of 31%. On 8 June 2021, the electric submersible pump (“ESP”) in the P6 well tripped causing the well to be shut in. The well is currently on natural flow while the cause of the trip is investigated and the ESP’s electrical system is tested ahead of an attempt to restart the ESP. Further announcements will be made in due course.

Hurricane have a busy few weeks, tomorrow sees the shareholder restructuring plan meeting and then on July 5th the board restructuring vote. Expect plenty of noise from all the camps involved but equity shareholders should be preparing to get a grip and vote or they will likely lose most of their holding…

Decklar Resources

Decklar Resources has  announce the completion of a non-binding Letter of Intent to purchase all of the issued and outstanding ordinary shares of Purion Energy Limited, a Nigerian entity that has the right to enter into a Risk Finance and Technical Services Agreement (“RFTSA”) with Prime Exploration and Production Limited (“Prime”) to participate in the Asaramatoru field in Nigeria, located in OML 11, the same block where Decklar is also currently developing the Oza Field.

 

Zephyr Energy

I managed to get a few valuable minutes with Colin Harrington, CEO of Zephyr yesterday and it was very much worth the while. This imaginative, smart board is constantly coming up with ways of differentiating the offer to investors who have taken to the company since it appeared on the Paradox scene.

Already this week the company have had results and given guidance on the Paradox Basin and also delivered a pledge to move to an operationally 100% carbon neutral situation by the end of September. These are not just box ticking exercises, the board are clearly determined to deliver and their mission statement ‘ good environmental & operational performance + good governance = superior investor returns’ tells it all. 

Core Finance CEO Interview: Colin Harrington, Zephyr Energy

Lekoil Ltd

Lekoil Ltd has made an announcement trying to explain the sacking of CEO Olalekan Akinyanmi who is, and remains CEO of Lekoil Nigeria. Best if you try and make something of that…

And finally…

Today sees the start of the 2nd Test match between England and the Black Caps at Edgbaston, England won the toss and are batting and are 67-0 at lunch.

And for those of you who remember Tim Hoare I have noticed that the very substantial collection at Hollycombe House is going under the hammer next week through Dreweats, worth a look on their website but way too rich for me…!

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