Malcy’s Blog: Oil price, San Leon, CEG, UJO, Petro Matad, IGas.

WTI (July) $69.42 +$2.30, Brent (Aug) $74.29 +$2.45, Diff -$4.87 +15c.

USNG (July) $2.34 +8c, UKNG (July) 90.05p +15.8p, TTF (July) €33.70 +€4.7.

Oil price

After two bad days, yesterday was a recovery one for oil ahead of Fed day today where, as I write, the whisper is for no change in what is already being known as a hawkish pause. The market didn’t care but the API stats came in as expected with a row of small plusses.

As you know I don’t cover the majors but Shell updated today, interestingly the divvi goes up 15% and the buy-back stays but Capex and Opex both fall, but not in hydrocarbons, particularly in integrated gas and LNG. They are no fools, fossil fuels will be needed in the years to come…

San Leon Energy

San Leon has announced a further update in relation to its proposed refinancing and its current financial situation. 

Update on refinancing discussions and outstanding creditors

Since the announcement by the Company on 8 July 2022 of the proposed transactions with Midwestern Oil & Gas Company Limited and the Company’s further conditional investments in Energy Link Infrastructure (Malta) Limited the Company has had continuing discussions in relation to securing an alternative US$50 million loan facility to be applied towards the Proposed Transactions and to satisfy the Company’s working capital requirements.  Details of the Proposed Transactions were announced by the Company on 8 July 2022 and set out in the Admission Document published by the Company on 8 July 2022.

As previously announced, the proposed refinancing discussions have not progressed as fast as the Board expected and, although the discussions are now at a very advanced stage, the Company has not yet been able to access the funding from such an alternative loan facility.  However, with significant progress having been made in the past weeks, the Board is still optimistic that a conclusion will be reached and expects to provide an update to shareholders in due course.

As announced on 24 March 2023 (and previously), pending completion of the proposed refinancing, the Company has received only very limited cash inflows.  The Company currently has approximately US$10.5 million of unpaid creditors, including directors, employees, professional advisers and tax authorities.  San Leon has sought to maintain a regular dialogue with both its creditors and major shareholders and keep them informed of the status of the proposed refinancing, but there is understandably some pressure from creditors for settlement of amounts due to them and the continuing support of creditors cannot be guaranteed indefinitely.  However, the Board is confident that, following the proposed refinancing being successfully concluded, all creditors will be settled in full shortly afterwards.

Assets update

Further to the announcement by the Company on 3 April 2023, the spread mooring of the FSO (floating storage and offloading) vessel for ELI has been completed (spread mooring is a multi-point mooring system that moors vessels to the seabed using multiple mooring lines).  ELI is now in the process of finalising the renewal of necessary administrative regulatory permits to commence full terminal operations.  The importance of this milestone is that it places ELI, once it receives the funds from the Further ELI Investments from the Company (details of which are set out in the Admission Document), in a position to export crude oil and thereby generate near-term cashflows which, in turn, will enable it in time to repay San Leon’s investment and loans.

San Leon reminds shareholders and investors that, notwithstanding its short term cashflow constraints, the Company’s current unaudited balance sheet has a significant asset base with, inter alia, over US$115 million and US$20 million owed by Midwestern Leon Petroleum Limited  and ELI respectively.  Although the MLPL Loan would be extinguished as part of the Proposed Transactions (and is currently subject to a conditional payment waiver with Midwestern until the sooner of completion of the MLPL Reorganisation) it otherwise remains a valid obligation, with interest continuing to accrue on the principal amounts waived pending completion of the MLPL Reorganisation, and therefore a significant asset of the Company. 

Furthermore, the Board remains in negotiations for the proposed sale of the Company’s non-core investment in the Oza oil field in Nigeria, which had a current book value of US$5.6 million in San Leon’s unaudited interim results for the six months ended 30 June 2022, to generate near-term funding.  Disappointingly the prospective buyer’s own funding has taken longer than expected to conclude, but this potential transaction remains live with discussions ongoing. 

Accounts for the year ended 31 December 2022

In light of the delay in securing the proposed refinancing referred to above, the Board has concluded that the Company will not be in a position to publish its audited accounts for the year ended 31 December 2022 before 30 June 2023.  The delay is due to San Leon not yet receiving the audited financial statements for the year ended 31 December 2022 of Midwestern Leon Petroleum Limited (“MLPL”), which includes the consolidated results of both Martwestern Energy Limited and Eroton Exploration & Production Company Limited (the operator of OML 18), as well as not yet receiving the audited financial statements of ELI for the same period.  Each of these are independently run companies and so San Leon has no control over their respective audit and year end processes.

This process also involves several jurisdictions, and when completed, it will be followed by a number of normal audit confirmatory and technical review matters, which when completed (following the completion of the Company’s refinancing) will then put the Company in a position to finalise and publish its audited accounts for the year ended 31 December 2022.

Although it is the Board’s intention and expectation that work will continue expeditiously on finalising its accounts, the Board expects that the Company’s shares will be suspended from trading on AIM with effect from 3 July 2023, pending publication of the Company’s accounts for the year ended 31 December 2022. 

Further announcements will be made as and when appropriate. 

Oisin Fanning, CEO of San Leon, commented: 

“I recognise that shareholders will be disappointed with the delays to our refinancing and publication of accounts and I, and all of the San Leon board, share that frustration.  However, based on our most recent discussions with our proposed funding partners, there is good reason to be optimistic that we are nearing a satisfactory conclusion. Once funding has been secured, we expect to progress quickly towards making our further investments in ELI and finalising our accounts.  In the meantime, San Leon’s asset base, including our investment in the OML 18 oil & gas field and its prospects in the second half of this calendar year, particularly through ELI’s activities, is looking exciting.”

CEO Oisin Fanning is right to be disappointed with this further delay in the refinancing but by the very nature of it it has been a ‘frustrating’ time without any ability to actually make things happen. The big advantage here is that the size of the prize will make up for it significantly, hopefully quite shortly.  

Whilst this has meant a delay in the results and subsequent suspension operationally, things are actually going pretty well in Nigeria. Once ELI gets its permit renewals to allow the start up of full terminal operations, which will enable crude oil exports and generate cashflows due to San Leon followed by repayment of loans.

So, whilst the suspension is indeed a disappointment, there is nothing here that makes me think that investors should throw the baby out with the bathwater and will indeed be richly rewarded if they exercise patience and hang on in there. 

Challenger Energy Group

Challenger has advised that CEG Goudron Trinidad Limited, a wholly owned Trinidadian subsidiary, has been notified by the Trinidad and Tobago Ministry of Energy and Energy Industries that the Government of Trinidad and Tobago has authorised MEEI to enter into negotiations with CGTL for the grant of an Exploration and Production Licence for the Guayaguayare block, following a successful bid for that Licence by CGTL. 

The Guayaguayare block is located onshore in south-east Trinidad. It is one of the largest onshore exploration and production blocks in Trinidad (approximately 306 km²), and is strategically and operationally synergistic with the Company’s core Trinidadian production business, in that the Licence wholly encloses the Company’s Goudron licence area, and is adjacent to the Company’s Trinity-Inniss licence area.

The Company considers the Guayaguayare block to be highly prospective, being amongst the largest remaining under-explored / undrained contiguous onshore areas in Trinidad. Additionally, the block contains approximately 65 historic wells, a few of which are active, but most of which are currently shut-in / suspended / abandoned, and many of which the Company believes can be reactivated and serviced from existing operations, thus offering the opportunity for near-term production uplift at minimal incremental cost.

The Company will advise the terms and conditions of the Licence, including the Company’s agreed work obligations, on completion of negotiations with MEEI.

Eytan Uliel, Chief Executive Officer of Challenger Energy, said:

“Late last year, we advised of our Trinidad strategic focus, which was to concentrate on the south-east of Trinidad, where we have most of our existing production and operations, and thus a competitive advantage. Recognising the strategic and operational synergies available, we submitted only one bid as part of MEEI’s 2022 Onshore and Nearshore Competitive Bid Round, for the Guayaguayare licence – one of the largest available onshore licences in Trinidad, and a block that is fully aligned to our strategy. We are thus extremely pleased to have now been selected by Cabinet as the party with whom MEEI is to negotiate licence terms, and we look forward to working with MEEI on this process. We are enthusiastic about the prospects this block offers for CEG in Trinidad – both in terms of near-term production gains, and long-term exploration upside.”

When everyone involved in something like a licence round either agrees or disagrees you know that you have either got it very right or very wrong, in the last few days the companies in Trinidad have to a man come out saying how good their awards have been and just what they wanted. 

To me it was more of the companies being realistic about what they might get and also to apply for licences nearby to existing acreage and facilities and in some cases having already done some work  or being prepared to work with the authorities to add to existing awards.

For CEG specifically, the Guayaguayare also makes total common sense being such a large block and looks like an almost perfect fit, as it does enclosing the company’s Goudron licence area and on the other side next to the Trinity-Inniss licence area. 

Challenger should be on investors radar screen big time, it has a very decent conventional business in Trinidad and is on the verge of something potentially huge in Uruguay, watch this space…

Union Jack Oil

Union Jack has announced that material landmark net revenues, in excess of US$16,000,000 have been achieved from the Wressle hydrocarbon development, located within licences PEDL180 and PEDL182 in North Lincolnshire on the western margin of the Humber Basin.

Union Jack holds a 40% economic interest in this development.

Highlights

·    Landmark US$16,000,000 revenues generated to Union Jack since re-commencement of production at Wressle during August 2021

·    Well producing under natural flow with zero water cut

·    Oil production stable at approximately 780 barrels per day under restricted flow

·    Union Jack continues to be cash flow positive covering all G&A, OPEX and contracted or planned CAPEX costs, including any drilling activities for at least the next 12 months

·    As of 13 June 2023, the Company held cash balances and short-term receivables in excess of £9,230,000 and liquid investments stood at over £2,300,000, totalling over £11,500,000

·    Debt free and remains highly cash generative

·    Selective share buy-back programme since commencement has bought 4.6% of shares in issue and will improve earnings per share accordingly

·    Interim Dividend of 0.3 pence per share (announced 28 March 2023) to be paid on 28 July 2023

Executive Chairman of Union Jack, David Bramhill, commented:

“Revenues from Wressle continue to bolster the Company’s Balance Sheet, complemented by cash-flow from the Keddington Oilfield (UJO 55% interest), where planning is in place and a side-track well is planned to be drilled.

“Since the last production update of 10 May 2023, another consistent and impressive performance from the Wressle-1 well has been recorded.

“The share buy-back and dividend programmes continue and the Company now holds 5,200,000 ordinary shares in Treasury, or 4.6% of the shares in issue, that will improve earnings per share accordingly.

“An Interim Dividend of 0.3 pence will be paid on 28 July 2023, with an ex-dividend date of Thursday 6 July 2023.

“The Company looks forward to the revised Wressle Competent Person`s Report, implementation of multiple work programmes and the drilling of wells on its project interests, all of which will be fully funded from existing cash balances and investments.”

Another excellent update from Union Jack as Wressle performance continues to be exemplary, throwing off significant cash flow, now funding any work programme in the portfolio and funding the capital programme to shareholders. 

All the company needs now is to get going on with West Newton which would provide the answer for the next sizeable project but it seems that you know who are on an Italian job…

Petro Matad

Petro Matad has announced that the Velociraptor-1 exploration well in the Taats Basin of Block V located in central Mongolia spudded on 13 June. The well is the first on the Raptor Trend of prospects located 7km south of the Snow Leopard-1 well drilled in 2018 that proved a working petroleum system in the Taats Basin. Velociraptor-1 is targeting an inversion anticline prospect estimated to have 200 million barrels (MMbo) of Mean Prospective Recoverable Resource potential and is planned to drill to a total depth (“TD”) of circa 1,500 metres. The well is expected to take circa 30 days to reach TD and encouraging results in the Velociraptor prospect would significantly de-risk two adjacent prospects on the Raptor Trend which together have Mean Prospective Recoverable Resource potential of an additional 375 MMbo.

Block XX Exploitation Licence

On Block XX, the Ministry of Construction and Urban Development has completed its internal work on the certification of the Company’s Exploitation Area as special purpose land and has submitted the documentation to all other government ministries for comment prior to submission to Cabinet. We continue to press the relevant authorities to conclude this process.

The well that some thought might never get drilled is underway as Velociraptor-1 has spudded in the search for  some 200 million barrels of oil and we will all know in around a month’s time the result of a well which could open up the adjacent Raptor prospects for another 375 MMbo. 

Oh, and the certification of Block XX still awaits submission to Cabinet but surely… 

IGas Energy

IGas today provides the following trading update in advance of the Company’s AGM, which is being held at 10.30 am today. 

Chris Hopkinson, Chief Executive Officer said:

“I am delighted that we continue to maintain strong momentum in production. We have secured planning permission for our Glentworth project which has the potential to add c.200 bbls/d in its first phase.  Construction has begun at our Corringham site, which we anticipate will come online at the end of 2023.  Both these projects will help us deliver on our strategy of pursuing lower risk, infill opportunities, bolstering our oil production whilst we grow our geothermal business.

We continue to make progress in UK geothermal, securing projects with NHS trusts at Wythenshawe and Salisbury Hospitals.  Encouragingly, a Government commissioned report was published recently highlighting the need for a deep geothermal industry in the UK.  There is no doubt that geothermal is the only utility scale source of renewable heat that can deliver the major reduction in emissions needed to meet the 2050 net zero target.“

Highlights

·    Production remains in line with guidance at c. 2,000 boepd

·    As at 31 May 2023, cash balances were £1.6 million and net debt was £4.0 million

·    Planning permission granted for Glentworth project

·    Construction has commenced on the Corringham project

·   Appointed preferred bidder for Manchester University NHS Foundation Trust’s Wythenshawe Hospital and preferred contractor for Salisbury NHS Foundation Trust’s Salisbury General Hospital to provide geothermal heat solutions, driving the decarbonisation of the hospitals

·   Dr Kieran Mullan MP releases a geothermal report for the UK Government recommending a long term financial incentives for the industry.  His review can be found here: https://lnkd.in/eqMqQtQU

Change is coming slowly for IGas, out with the old is taking some time but not as in with the new where trusting in geothermal solutions is one not taken lightly…