Malcy’s Blog: Oil price, PetroTal, DEC, UJO, Afentra, Petro Matad, GKP. And finally…

WTI (Aug) $82.10 +69c, Brent (Sep) $85.08 +42c, Diff -$2.98 -27c.

USNG (Aug) $2.33 -2c, UKNG (Aug) 71.03p -1.52p, TTF (Aug) €30.68 -€0.65.

Oil price

Oil rallied yesterday mainly on the back of the inventory data which saw a crude draw of 3.443m barrels against a forecast of -1.3m. Also some slightly dovish comments by Jerome Powell who said that ‘if the data stays good it could be the basis for the Fed to act. CPI stats today might help….

With apologies, I took a day off yesterday for a long arranged event. Todays news along with those announcements yesterday is below.

PetroTal Corp

PetroTal Corp has announced the following operational, financial and corporate updates. All amounts are in US dollars unless stated otherwise.

Q2 2024 Production

PetroTal achieved an average production of 18,290 barrels of oil per day in Q2 2024, which included a brief river blockade during the quarter.  June’s average production was 20,555 bopd.

Drilling and Production Update

Wells 18H and 19H were successfully completed in early May and June 2024, respectively, and the Company commenced drilling well 5WD on June 17, 2024.

Well 18H is currently performing within expectations with initial 7-day and 30-day production rates of 4,621 bopd and 3,929 bopd, respectively. The well cost approximately $17.3 million and its investment payback is expected to be around six months at current oil prices.

Well 19H, the Company‘s 20^th oil producing well, commenced drilling on May 9, 2024, and production on June 14, 2024.  Subsequent to clean up, well 19H achieved strong 7-day production rates of 8,511 bopd.  Given its structural location, the 19H well was completed with a shorter 600-meter horizontal section. It was also drilled and completed well below budget at a cost of approximately $11.5 million. The well’s investment payback is expected in less than two months at current oil prices. 

The 5WD will be the Company’s 4th formation water disposal well allowing for water injection capacity to increase to approximately 170,000 barrels of water per day by year-end; facilitating the Company’s ability to produce over 20,000 bopd on a recurring basis.  The 5WD has an approximate cost of $12.5 million.

As announced on May 7, 2024, PetroTal is accelerating an additional well (20H) into its 2024 drilling program.  Drilling will commence in late July for an approximate cost of $15.0 million.

Production Milestone Achieved

During the first week of July, the Company achieved total production of 20 million barrels of oil since PetroTal’s first production in June 2018. This significant milestone was accomplished in six and half years and is a result of hard work and dedication to continuous improvement. Bretana’s proved and probable (“2P”) oil reserves have more than tripled, bringing the field’s estimated ultimate recovery to around 120 million barrels of oil. While the field’s current 2P well inventory is more than halfway completed, it still has nearly 100 million barrels of oil to be recovered.

Ecuador Export Pilot

PetroTal has achieved a significant milestone, securing all regulatory approvals for the Oleoducto de Crudos Pesados (“OCP”) pipeline in Ecuador.  Oil loading into barges will commence shortly for the previously announced 100,000 barrel pilot program.  This pilot allows for a comprehensive evaluation of the transportation route, and with collaboration with Ecuadorian partners, the Company will pursue long-term route optimization for efficient and cost-effective oil transportation.

Social Update

PetroTal is pleased to announce that, on May 9, 2024, the Company transferred $12.6 million to the Social Trust Fund’s operating bank account, representing a significant milestone since the creation of the social trust fund concept in late 2021.  The funds have been held by the Company as restricted cash while the fund’s administrative and governance aspects were formalized.  The Social Trust’s board of directors, consisting of community representatives, the Puinahua district municipality, and Perupetro, have agreed on the first set of initiatives to be financed with contributions from the fund, some of which are listed below:

1)  Establish internet connectivity to over 7,000 inhabitants in the Puinahua district;

2)  Provide scholarships to 100 Puinahua students for post-secondary education;

3)  Create of an external technical team that will support the elaboration, implementation, and follow up of projects to be financed by the Social Trust; and,

4)  Install solar energy pods for clean power access, through coordination with the Minister of Energy and Mines, in 17 communities that are part of PetroTal’s area of influence.

Cash and Liquidity Update

PetroTal exited Q2 2024 in a strong position with approximately $84 million of unrestricted cash and $12 million of restricted cash for a total of $96 million, as at June 30, 2024. Restricted cash includes amounts reserved for the social trust funds to be deposited at a later date. During Q2 2024, the Company purchased 1.2 million shares at an average price of US$0.61/share pursuant to the share buyback program, and paid dividends of $13.7 million (US$0.015/share) on June 14, 2024, related to Q1 2024 operations. At the end of Q2 2024, accounts receivable and accounts payable of approximately $113 million and $69 million respectively, were outstanding.

This is another excellent update from PetroTal, 18,290 b/d included a brief river blockade but the June number of 20,555 b/d is a good indication as to how well it is going. The 18H and 19H wells completed in May and June and the 5WD spudded in June, it unsurprisingly a water disposal well. 

The 18H well performed within expectations, cost $17.3m and will payback within 6 months but is well beaten by the 19H well which has higher production, nearly $6m cheaper and pays back in two months. No surprise then that since they started in June 2018 the company has produced 20m barrels.

Going forward the company report a ‘significant milestone’ in being permitted to use the OCP pipeline in Peru and a 100,000 barrel pilot scheme is being considered. Financially the cash continues to pour off PetroTal, they have bought back 1.2m shares and paid $13.7m of dividends in the quarter and still have $84m of unrestricted and $12m of restricted cash on the balance sheet. 

So PetroTal is in very good shape with strong production, more to come, plenty of cash and paying out a significant yield so the shares are chronically undervalued at this level. 

Q2 2024 results webcast link for August 8, 2024

PetroTal will host a webcast for its Q2 2024 results on August 8, 2024 at 9am CT (Houston), 3pm BST (London). Please see the link below to register.

https://stream.brrmedia.co.uk/broadcast/666ae961ee30aaf32018b5c3

Diversified Energy Company

Diversified has announced the execution of a conditional purchase and sale agreement for the acquisition of high-working interest, operated natural gas properties and related facilities located within eastern Texas  from Crescent Pass Energy.

The Acquisition will be funded through a combination of the issuance of approximately 2.4 million new U.S. dollar-denominated ordinary shares direct to the Seller and a senior secured bank facility supported by the acquired assets, along with existing and expanded liquidity from the Company’s recently increased borrowing capacity. The ordinary shares will be subject to a customary commercial lock-up agreement. The Company expects to close the Acquisition in the third quarter of 2024.

Acquisition Highlights

•     Purchase price of $106 million before anticipated, customary purchase price adjustments

◦     Estimated Net Purchase Price of $100 million

◦     Anticipated close during the third quarter of 2024

•     Net purchase price represents a PV-20 valuation

•     Current net production of 38 MMcfepd (6 Mboepd)^(a) with low annual declines of ~9%^(b)

◦     Complements industry-leading corporate declines and capital intensity

◦     Significantly gas-weighted production with ~92% gas volumes

◦     Attractively priced at $2,651 per flowing Mcfe

◦     Provides opportunities for additional cost efficiencies

•     Estimated NTM EBITDA of ~$26 million^(c) representing a 3.8x purchase multiple

◦     PDP Reserves of ~170 Bcfe (28 MMboe) with PV-10 of $155 million^(b)

•     Assets are contiguous with Diversified’s existing East Texas assets

◦     Proximity to existing assets creates immediate line of sight to future operating efficiencies

◦    Includes ~170,000 acres of commercially attractive leasehold in both East Texas and the Freestone Trend

Commenting on the Acquisition, CEO Rusty Hutson, Jr. said:

“The target assets are a perfect fit with our existing East Texas operations and offer meaningful opportunities for cost efficiencies upon completion of the Acquisition. The accretive transaction adds scale to our Central region footprint and remains consistent with our strategy to focus on high-quality, low-decline producing assets at attractive PV values where we can apply our Smarter Asset Management approach to enhance margins and grow free cash flow. The evolution of our funding sources, illustrated by the use of direct equity issuance to the seller as a portion of the consideration, highlights the importance of our recent NYSE listing while providing additional financial flexibility. Our Company has a long-standing, demonstrated track record of delivering value to shareholders from our strategy of acquiring, optimizing, and managing mature producing assets, making us the Right Company at the Right Time.”

Its great to see DEC back on the acquisition trail and also in eastern Texas near other ‘previously acquired DEC assets’ and this $106m purchase should come with decent synergies or ‘cost efficiencies’ as CEO Rusty Hutson says above. 

I like the fact that part of the deal was funded with shares which gives credence to the management decision to list on the NYSE and give funding flexibility. I can see a good deal of upside on a number of fronts, the assets look cheap to me and with all that infrastructure, such as possible local leases to tap into I think that it could be a really fantastic deal, just what the DEC management are best at.

Bolt-On Addition of Low-Decline PDP Assets

The Acquisition’s estimated NTM EBITDA of ~$26 million represents a 3.8x purchase multiple and reflects attractive valuations of PV-20 and $2,651 per flowing Mcfe, well within the Company’s target valuation range.

The Assets include 827 net operated PDP wells and are expected to add 38 MMcfepd (6 Mboepd) of production (+5% vs 1Q2024 reported of 723 MMcfepd) and ~170 Bcfe reserves with a PV-10 of $155 million. Additionally, the production profile of the Assets are highly complementary to the Company’s existing portfolio and operational strategy, with low annual production declines of ~9% per year that result in an unchanged consolidated decline rate, pro forma for the Acquisition. The Assets also include over 500 miles of owned pipelines and associated compression facilities and feature additional undeveloped acreage that presents potential upside opportunities in line with Diversified’s demonstrated ability to unlock value on non-core assets.

The Assets are in close proximity to the Company’s previously acquired East Texas assets and provide opportunities to realize synergies attributable to operating scale and asset density.

The Acquisition constitutes a Class 2 transaction for the purposes of the FCA Listing Rules, and this announcement is made in accordance with the Company’s disclosure obligations pursuant to Chapter 10 of the FCA Listing Rules.

Footnotes:

For Company-specific items, refer also to the Glossary of Terms and/or Alternative Performance Measures found in the Company’s  Annual Report and Form 20-F for the year ended December 31, 2023 filed with the United States Securities and Exchange Commission.

Union Jack Oil

Union Jack has reported, further to the Company’s announcement dated 11 June 2024, that it has been informed by the Operator, Reach Oil & Gas Company Inc that the Andrews 2-17 well, located in Seminole County, Oklahoma, USA,  has been spudded.

Union Jack hold a 45% working interest in the Andrews 2-17 well.

·    Andrews 2-17 well has an Operator estimated geological chance of success of circa 80%

·    Approximate eight-day drilling period to a depth of circa 4,700 feet

·    Completion time is swift; approximately eight days including perforating and flow-back if successful

·    This up-dip (located up the slope) offset well to Andrews 1-17 is expected to encounter a similar reservoir above the oil/water contact seen in that commercial discovery well

·    On success, the 2-17 well will share common production facilities with the Andrews 1-17, thereby lowering costs and optimising project economics

·    Union Jack paying pro-rata 45% share of well costs – no promote or back charges

·    Drilling and completion costs of circa US$340,000 net, already paid from the Company’s existing cash resources

The target for this well is the Hunton Limestone, one of the main hydrocarbon reservoirs in Oklahoma.  The Hunton Limestone is unconformably overlain by the main oil-prone source rock, the Woodford Shale and is in an excellent position for the migration of oil.

Primary oil recovery is expected to be by solution gas drive with any gas recovered to surface being sold into the local network.

Reach is an accredited operator in the USA, owning and operating oil and gas production facilities in Seminole and Pottawatomie Counties in Oklahoma. All prospects are generated by Reach which owns modern seismic data acquisition equipment, supplied by a UK based company Stryde Limited.

Follow the Company on X (formerly Twitter): @UnionJackOilplc

David Bramhill, Executive Chairman, commented: 

“I am pleased to announce the spudding of our second well, in Seminole County, Oklahoma, in partnership with Reach.

“The Andrews 2-17 well has a high chance of success and if proven commercial could be in production within weeks from spudding.  Similar low-cost development wells nearby demonstrate that rapid pay-back can be achieved within six months.

“The rate of progress from generating a drillable prospect, obtaining permission to drill and spudding in Oklahoma is remarkable.

“Work continues at the Andrews 1-17 wellsite, comprising installation of gas export facilities and further upgrades.  This work is expected to be completed by late July/early August 2024, followed by flow rates and other associated information.

“I look forward to reporting to shareholders on drilling progress of the Andrews 2-17 well over the course of the next few weeks.

“Our relationship with Reach continues to grow and over the coming months we expect to expand our drilling portfolio and establish an impressive inventory of wells to be drilled, all covered by high-quality 3D seismic data.

“Closer to home I am delighted to report revenues exceeding US$20,000,000 net to Union Jack, from our key Wressle project, onshore UK, where we remain of the view that the most productive phase of development, the material Penistone Flags formation awaits.”

Good to see UJO kicking straight on with Reach by spudding the Andrews 2-17 well in Seminole County, Oklahoma in which it has a 45% WI and the operator has an estimated 80% gcos. One of the best things about these wells is that with a TD of 4,700 feet the well should only take 8 days and that includes perforating and any flow-back needed. 

Added to that Chairman Bramhill reports revenues that exceed $20m net to Union Jack from the Wressle project with plenty more to come. UJO is very cheap and offers income and capital growth for shareholders from these levels.

Afentra

Afentra has provided the following update for the 6 months ending 30 June 2024:

Angolan Acquisitions

The Company completed the Azule Acquisition in May 2024 for a net consideration of $28.4 million and inherited a crude oil stock of 480,000 barrels.

Onshore License Award

Following the announcement by ANPG, which confirmed Afentra as preferred bidder for a 45% non-operated interest in both KON 15 and KON 19 onshore Angola, the Company has made good progress. The KON 19 contract was formally approved and awarded by Presidential Decree on 05 July. Contract discussions on KON 15 continue to make progress.

Financial Summary (unaudited)

Crude oil realisations and hedging

–       The Company sold in aggregate 900,000 bbls of crude in the first 6 months across two lifting in February and June.

–       The average sales price realised inclusive of the Brent premium differential for 1H 2024 sales was $84.3/bbl.

–       Pre-tax revenue of $75.9 million for 1H 2024.

–       Crude oil entitlement stock at 30 June 2024, post June lifting, ~570,000 bbls.

–       The Company expects to sell its next cargo of crude oil (~790,000 bbls) in August 2024 and has placed hedges to provide a $80/bbl floor for 70% of the August cargo.

Selected Balance Sheet Information as at 30 June 2024

–       Cash resources of $13.8 million.

–       Debt drawdowns: Reserve Based Lending Facility $47.3 million, Working Capital Facility $13.7 million.

–       Net debt of $46.4 million.

–       Net debt excludes the June crude oil sale of $37.6m, which is classified as a receivable as at 30 June 2024 (due to timing of cash receipt (July) post-period).

Key indicators for H1 2024

¹ Represents 18% WI for B/305 and 5.33% WI for B3/05A.

² Cash received for the June lifting of $37.6m whilst recognised in Pre-tax revenue, is not recognised in Q2 cash resources or net debt due to timing of cash receipt (July) post-period.

Operational Summary

–       Gross average combined production for the period to the end of June 2024 for both Block 3/05 and 3/05A was 22,686 bopd (Net: B3/05 6,411 bopd; B3/05A 281 bopd).

–       Field Operations progressed in 1H 2024:

o  15 LWI’s were completed delivering an overall 2,500 bopd increase to field potential, a further campaign of up to 20 LWI’s commenced at the end of June.

o  Water injection remains a key priority with a peak injection rates of around 60,000 bwipd achieved in April.

o  Upgrade works on the power systems ongoing to maintain water injection rates on a consistent basis.

o  Planning for future workovers, ESP installations and selection of drilling candidate continues.

o  Preparations continue for the extended shutdown planed for September 2024.

Commenting on the update, CEO Paul McDade said:

“The mid-year revenue demonstrates the strong cash flow profile of the assets that we have acquired in Angola.  We are very pleased with the latest lifting as it strengthens our financial position and provides a platform for further growth.  Our liquidity position will be further strengthened by the next scheduled lifting which we expect to occur in August, and we have taken measures to mitigate downside risk through our hedging policy.  We are pleased to report on steady operational progress at 3/05 as the field responds positively to the optimisation activities and we hope to maintain this momentum through the second half of the year and beyond. Finally we are delighted to announce the award of the Kwanza onshore license KON 19, a further demonstration of our successful efforts to expand our business in Angola.”

I am so pleased for Paul McDade and his excellent team at Afentra, they have identified a geography with high quality assets that can be transferred and importantly run by an independent like it. The experience shown in the negotiations should not be ignored and the way that backdating the deals brings substantial rewards proves that.

Investors have been rewarded by a near tripling since last summer when they went into the bucket list at around 23p and with directors all buying stock this important tick in the box was the final proof if I needed any that Afentra is a keeper…

Petro Matad

LONDON, 10 July 2024: Petro Matad Limited, the AIM quoted Mongolian oil company announced on 5 July 2024 that Mike Buck, Chief Executive Officer, and members of the Company’s management team will make an Investor Presentation on the Investor Meet Company platform today at 10:30 BST.

The Investor Presentation will go into further details on the 2024/2025 work programme, following the recent Placing, Subscription and Open Offer. The Presentation will be made available on the Company’s website.

As announced on 29 May 2024, the Company has received the remaining approvals necessary from Matad District to allow the 2024 operational programme to commence. Land certificates have been issued for the three areas of operation selected by the Company.

The overall goals of the 2024/2025 work programme are to:

·    Commence production and development of the Heron discovery in Block XX

o  Heron-1: Re-perforation, stimulation and completion scheduled for July, installation of surface equipment and targeting the well to be put on production in late Q3 2024

o  Heron-2: Drill & complete in late Q3, installation of equipment and targeting the well to be put on production in Q4 2024

·    Undertake near field low-cost exploration drilling

o  Planning to drill the high-impact Gobi Bear-1 exploration well in late Q3/early Q4, depending on rig availability

·    Develop renewable energy projects to bankable, ready to build status

o  Choir 50MW battery energy storage system targeting ready-to-build in early 2025

o  OT Green Hydrogen, targeting phase 1 onstream in 2025

·    Achieve self-sustainability and deploy oil production revenue on development drilling, near-field exploration, new PSCs and developing renewable energy projects

o  Targeting the signature of two new PSCs in late 2024/early 2025

Mike Buck, CEO of Petro Matad, said:

“With land access permits in hand and following the recent equity raise we are now gearing up for a busy operational period. Members of the management team look forward to presenting to shareholders on the Investor Meet Company platform and will outline the upcoming work programme including our plans for SunSteppe Renewable Energy and the expected award of two new Production Sharing Contracts.”

Further operational updates will be provided in due course.

Just a bit of advertising for Petro Matad and Mike Buck, its worth listening when he talks and the presentation will add value.

Gulf Keystone Petroleum

Gulf Keystone announced on 21 June 2024 the declaration of a $15 million interim dividend, equivalent to 6.832 US cents per Common Share of the Company. The dividend will be paid on 19 July 2024 to those shareholders that were on the register of members of the Company as at 5 July 2024.

The Company announces that shareholders receiving dividends in GBP will receive an equivalent payment of 5.333 pence per Common Share, based on the conversion of US dollars into pounds sterling at a rate of $1:£0.7806 prevailing on 10 July 2024.

Nothing here to add, just the details of the dividends from GKP. 

And finally…

Well last night in Dortmund it was Ollie Watkins what did it coming off the bench to score the winner. In my view England looked sharper than previously in the first half and deserved the win. As for Sunday…..

And at Lords England bowled out the WIndies for 121 before putting on 371 leaving them a deficit of 250, they have just started batting.