WTI (Feb) $72.68 u/c*, Brent (Mar) $78.15 -14c, Diff -$5.47 -14c*.
USNG (Feb) $3.31 u/c*, UKNG (Feb) 74.99p -4.29p, TTF (Feb) €29.555 -€0.775.
*US markets closed for Martin Luther King, Jr. Day.
Oil price
Oil is today recovering from the holiday yesterday, WTI is unchanged and Brent is around 50 cents up. The Red Sea is about the same, the USA has reported just the one attack on its vessels.
Pharos Energy
Pharos has issued the following trading and operations update to summarise recent operational activities and to provide trading guidance in respect of the financial year to 31 December 2023 and outlook guidance for 2024. This is in advance of the Company’s Preliminary Results on 27 March 2024. The information contained herein has not been audited and may be subject to further review and amendment.
Jann Brown, Chief Executive Officer, commented:
“Pharos delivered a strong operational performance across the portfolio in 2023 and there is significant operational momentum going into 2024. The Group had success on drilling in both Vietnam, with the CNV well coming in strongly, and in Egypt, with discoveries on the first NBS exploration well and the El Fayum exploration well. On Block 125, parallel discussions with several potential farm-in partners are ongoing and we have joined forces with another operator in the region to enhance our position in the rig market.
“The Company has built solid foundations of sustainable cash generation from a robust and diverse production base, which enabled us to make returns of $8.4m to shareholders, invest in our assets and reduce our net debt to c.$6.5m, despite the ongoing payment lags in Egypt. Alongside this solid base, in Block 125 in Vietnam we have an exploration prospect which offers significant upside potential and we are progressing plans to drill as quickly as possible. We continue to execute on our strategy of regular returns to shareholders plus growth, and we look forward to delivering value for all shareholders in 2024 and beyond.”
Pharos’ workmanlike performance continues, operational success with the drill bit in both key geographical areas has led to a powerful position both financially, which has enabled significant generosity in shareholder distributions as well as in potential for growth across the portfolio.
Production was good across the company, at 6,508 boe/d was in line with guidance in both countries, Egypt managed 1.381 bopd and in Vietnam 5,127 boe/d was an excellent achievement. Guidance for 2024 is 5,200 – 6,500 boepd net which splits Vietnam 3,900 – 5,000 boepd and Egypt 1,300 – 1,500 bopd.
In Egypt, despite local economic headwinds causing significant currency inconvenience, there has been progress and in Vietnam the CNV well surprised on the upside meaning that all systems are go for action on the exciting Block 125. This is already underway with the two major requirements, finding a partner and maybe the even more important task of finding a rig giving signs for optimism.
Taking everything into account one should really praise the financial team, taking the debt down so much, at the year end debt is down to $6.5m from $16.4m at the interim stage, this highly creditable performance looks even better when you note the EGPC receivable number and proves formidable free cash flow during the period.
I personally was very sorry to hear about Ed Story, a fine industry companion and a good friend, he was one of my first CEO interviewees and gave as good as he got. Bill Higgs replacing him is an inspired choice and keeps the Pharos board in very strong shape.
So, the shareholders have seen the benefit of the good state that Pharos is in to the tune of a $3m share buyback programme and $5.6m worth of dividend for the year. Pharos is in excellent shape, is exhibiting decent production and has the spice of Block 125 to look forward to from Vietnam before long.
Operational Highlights
· Group working interest 2023 production was 6,508 boepd net (2022: 7,166 boepd net), in line with 2023 guidance:
o Vietnam 5,127 boepd (2022: 5,418 boepd)
o Egypt 1,381 bopd (2022: 1,748 bopd)
· In Vietnam:
o On TGT, Revised Field Development Plan (“RFDP”) approved by MOIT on 9 January 2024
o On CNV, strong performance from first new lateral well, delivered on time and under budget and put on production in 1Q 2023
o CNV RFDP submitted to partners for approval, with discussions ongoing
o Initial positive feedback received from PVN and MOIT on five-year extension proposals to the TGT & CNV licences
o On Blocks 125 & 126, two-year PSC extension granted to 8 November 2025
o CPR for Block 125 published in July 2023, confirming a range of gross unrisked prospective oil resources of between 1,178 MMstb (1U) and 29,785 MMstb (3U) with a Mean value of 13,328 MMstb
· In Egypt:
o Three new wells (2 producers and 1 injector) put on production and injection in 2023 in line with expectations
o On El Fayum, exploration success with the first commitment well in the Abu Roash G and Upper Bahariya formations in July 2023. The well is set up for re-entry and testing in 2024
o On NBS, first exploration commitment well (NBS-SW1X) declared a commercial discovery in April 2023 and put on production in December 2023, opening up a new area for production and development
o Second NBS exploration commitment well was drilled in the Abu Roash G formation at a deeper depth and failed to encounter oil-bearing sands. The result of this well does not hinder other mapped prospects in the concession
o Approval received from EGPC in December 2023 for the grant of a 20 year development lease for NBS-SW1X
o 3D seismic survey acquired on time and on budget in 2H 2023
Financial Highlights
· Group revenue for 2023 was c.$168m with minimal hedging losses (2022: $221.6m before hedging loss of $22.5m)
o Vietnam c.$149m
o Egyptian c.$19m 1
· Cash balances as at 31 December 2023 were c.$32.6m; net debt c.$6.5m (2022: cash balances $45.3m; net debt $28.9m)
· Egypt receivable position as at 31 December 2023 stood at $37.3m (31 Dec 2022: $24.2m). The continuing volatility of the macro-economic environment in Egypt and further devaluation of EGP against USD during the year, plus the lack of ability to convert EGP into USD, means that it remains preferable to continue to hold USD denominated receivables, other than where they can be used to fund ongoing expenditures on expiry of the carry from IPR
· The December redetermination process under the RBL completed with a principal repayment of $12.6m made in December 2023
· Following that repayment, the remaining amount drawn under the RBL stands at $30.0m
1 Egyptian revenues are given post government take including corporate taxes.
Corporate Highlights
· $3m share buyback programme substantially completed by year end 2023
· Final dividend for the 2022 financial year of 1p per share, totalling $5.6m, paid on 12 July 2023
· Net Zero roadmap published on 6 December 2023
· Appointment of Dr Bill Higgs as a new independent Non-Executive Director, as announced separately today
· Appointment of Shore Capital Stockbrokers Limited (Shore Capital) as the Company’s joint broker with immediate effect
2024 Outlook
· Group working interest production guidance of 5,200 – 6,500 boepd net:
o Vietnam 3,900 – 5,000 boepd
o Egypt 1,300 – 1,500 bopd
· In Vietnam:
o Planning underway for a two-well TGT drilling programme, expected to commence 2H
o On Block 125, ongoing discussions with another operator to secure a well drilling slot in connection with their proposed multi-well drilling programme in the region
o Parallel discussions with several potential farm-in partners for Block 125 in progress
· In Egypt:
o Continuation of modest and measured approach to capital allocation and drilling in El Fayum and NBS, with an eye on the receivables balance
o Focus for this year’s work programme in El Fayum is low cost recompletions and waterflood
o Processing and interpretation of c.130km2 of 3D seismic data on NBS is underway and expected to be completed in 2H
o Development drilling in the NBS SW field planned to start in 2H
· Forecast Group cash capex in the year is expected to be c.$32.2m (c.$27.3m after Egyptian carry by IPR)
· Continuation of share buyback programme, with a further $3m committed as announced on 6 December 2023
· Interim dividend in relation to the financial year ending 31 December 2023 of 0.33p per share declared on 6 December 2023, amounting to c.$1.8m, to be paid out on 24 January 2024. Final dividend, in line with the Company’s policy announced in September 2022, to be paid in July 2024, subject to shareholder approval
Ed Story
The Company noted with great sadness the death of its founder, Ed Story, in December 2023. Since retiring as CEO in March 2022, Ed had remained active as part of the team dealing with Vietnam and his responsibilities will now pass to Vincent Duignan, the Group Exploration Manager & General Manager South East Asia. Vinny will be supported at Board level by Dr Bill Higgs, whose appointment as Non-Executive Director was announced today.
Pharos Energy plc is delighted to announce the appointment of Dr Bill Higgs as an Independent Non-Executive Director with immediate effect.
Bill has over 30 years of global exploration, development and operations experience, including more than 10 years in executive roles for listed independent exploration and production companies. He is a qualified geologist with extensive expertise in all engineering and other technical and commercial aspects of hydrocarbon exploration, development and production. Most recently, Bill was Chief Executive Officer of Genel Energy between 2019 and 2022, having served as Chief Operating Officer from 2017. Preceding his roles at Genel, Bill was Chief Operating Officer for Ophir Energy plc, responsible for managing the global asset portfolio. Before that he served as Chief Executive Officer of Mediterranean Oil and Gas, overseeing the successful sale of the company in 2014. Bill began his industry career at Chevron, spending 23 years across a number of global roles.
In parallel with this appointment, Bill will continue his role as Chairman of Chappal Energies Mauritius Limited, a West Africa-focussed energy company that has recently embarked on building a portfolio of upstream assets.
Bill will serve as a member of the ESG Committee, with further committee assignments to be discussed at the next scheduled meeting of the Board. Bill will also be the Board representative with responsibility for oversight of the Group’s technical work and output.
John Martin, Chair, commented:
“I’m delighted that Bill is joining the Pharos Board as an Independent Non-Executive Director. Bill is a very high calibre appointment that will bring a wealth of technical and commercial experience to the Board. I expect him to add significant value to the business as it develops and implements its strategic objectives, with his initial focus to include maximising value from our exciting exploration prospects in Vietnam Blocks 125 and 126.”
Southern Energy
Southern has announced the preliminary results from its recent Upper Selma Chalk horizontal well completion in the Gwinville Field. In mid-December 2023, Southern successfully completed the first of its four drilled but uncompleted (“DUC”) wells from the Company’s Q1 2023 drilling program – the GH 14-06 #3 wellbore. Over the first 20 days of production, natural gas rates from the well exceeded 6.5 MMcf/d and averaged 5.3 MMcf/d under restricted flowing conditions as the well cleans up, recovering approximately 33% of load fluid to-date with gas produced flowing directly to Company owned facilities with all volumes sold.
Southern implemented a number of stimulation design changes for this latest Upper Selma Chalk horizontal completion that improved the predictability and efficiency of the fracture operation and, more importantly, reduced the overall completion cost down to US$2.1 million, well below budget estimates. Costs for this completion operation are approximately 40% lower than the two previous 18-10 pad Upper Selma Chalk wells that were completed earlier in 2023.
Southern will continue to monitor the early production performance from the GH 14-06 #3 well over the next couple of months before making a decision on the completion timing of the remaining three DUC wells. The remaining DUC wellbores have been drilled in the Lower Selma Chalk (2) and City Bank formations.
Ian Atkinson, President and Chief Executive Officer of Southern, commented:
“We are extremely excited to deliver the results of this latest Upper Selma Chalk horizontal well, which we expect to fall in-line with our Gen 2 IP30 type curve estimates. The Southern operations team has successfully analyzed and optimized our early well results to execute what may be our best well to-date, for a fraction of the cost of the prior well completions which bodes well for future well activity. Southern is already selling volumes of gas associated with its latest well at gas prices up over 30% from November lows. Improved production rates at lower capital costs will allow Southern to start redeveloping the Gwinville Field on an accelerated timeline as natural gas prices are expected to improve materially into the second half of 2024.
With the success of the completed well, the Company is now looking forward to deploying these successful design changes on our first two Lower Selma Chalk laterals and the next City Bank lateral that remain uncompleted. Our original City Bank horizontal completion at GH 18-10 #1 has shown no decline since being placed on production in July 2023. With these updates we remain eager to highlight the benefits of an optimized completion design performance in this formation delivering value for the business.”
Now this is a properly successful well and makes the somewhat controversial decision to return to the Gwinville field very much worth the while. Southern has successfully completed the first of its four DUC’s from the Company’s Q1 2023 drilling program – the GH 14-06 #3 wellbore.
Over the first 20 days of production, natural gas rates from the well exceeded 6.5 MMcf/d and averaged 5.3 MMcf/d under restricted flowing conditions as the well cleans up, recovering approximately 33% of load fluid to-date with gas produced flowing directly to Company owned facilities with all volumes sold.
The company has now got its ‘best well to date’ but most importantly for a fraction of the cost of the prior well completions which bodes well for its future well activity. And with US Natural Gas prices having staged a significant recovery, improved production rates at lower capital costs will allow Southern to start redeveloping the Gwinville Field on an accelerated timeline.
This new successful template will be used for the Lower Selma Chalk laterals and the City Bank lateral which now look exceptionally promising and considerably more profitable for a number of reasons. The market didn’t understand the moves in recent months but this really does confirm how good those decisions were, the company has hit the right template for drilling the wells, more cheaply and are being rewarded with higher gas prices into the bargain. The upside from here is huge, my TP is still 150p…
Diversified Energy Company
Diversified has today noted the recent decline in its share price and confirms it is unaware of any operational or company-specific reason for this share price movement. The Company further confirms there has been no material change to its financial and operational condition.
The Company intends to issue its fourth quarter and year-end 2023 Trading Statement during the customary timeframe at the end of this month.
I have had a number of requests from shareholders about DEC since I was away before Christmas and am preparing a report and have asked a few questions of the company. As soon as that is completed I will report back here in the blog.
Energy Pathways
EnergyPathways has provided the following update regarding its wholly owned and operated Marram Field project and strategic objectives for 2024.
Investment Highlights
· EnergyPathways was admitted to AIM on 20 December via a reverse takeover transaction with Dial Square Investments plc
· Proceeds of the £2m equity raise to be used to progress the Marram Project to FID in 2024
· The Marram Project is a fully appraised low emission gas field in the UK Irish Sea containing up to 35.3 Bcf of undeveloped gas 2P Reserves and 11 Bcf of 2C Contingent Resources in high-quality reservoirs
· The Marram Project has potential to be developed as a short cycle low emission project with first production potentially as early as 2025
· Focused strategy based around near-term, low emission gas development and longer-term energy transition solutions
· Supportive market drivers underpinned by the UK’s prioritisation of domestic gas to support Energy Security and Energy Transition to Net Zero
Strategic Milestones for 2024
In support of its strategic objectives, the Company is progressing a number of interrelated commercial and technical workstreams in support of a Marram Project FID , which the Directors of the Company anticipate may be as early as in 6-9 months’ time, as follows.
· securing certain long lead items for development;
· results from tie-back optimisation studies
· pre-FEED and FEED completion;
· Field Development Plan (FDP) Government approval;
· Project FID;
· Environmental Statement and approval;
· arranging development financing (debt and equity);
· UKCS 33rd licensing application and]”Out of Round” licence requests;
· securing additional low emission gas resources; and
· establishing low carbon technology partnerships
Recent Developments
The Company has secured a first right of refusal with a major subsea equipment provider to purchase two subsea production trees. The Company is going to progress with equipment certification and testing of the trees. This arrangement will remove a major critical path item from the Marram Project schedule, noting that the manufacture of new subsea trees in the industry is estimated to take 18-24 months.
EnergyPathways submitted an interim Environmental Statement to OPRED for consultation with relevant local, regional and national authorities and favourable feedback was received from OPRED. Due to the high shipping levels of the region, a Navigation Risk Assessment is necessary and will now be undertakento prepare the project’s final Environmental Statement for OPRED approval, which is expected to take approximately two months. The Company believes it is well positioned to meet the Environmental Statement approval strategic milestone in line with its objectives.
In parallel with these operational milestones, management continues to assess optionality with regards to the development financing of the Marram Project. In this regard, the Company has received expressions of interest, including term-sheet offers, and will seek to progress those discussions in the near-term. The attractive economics of the Marram Project, make the project appropriate for debt financing, with management estimating that in the order of 70% of the development capex could be funded through such a facility.
With regard to business development, EnergyPathways awaits the result of its 33rd licensing round application for an additional licence,. The Company notes recent confirmation from the NSTA that it expects to announce the awards of the 33rd Licencing Round during Q1 2024.
Commenting on the outlook, CEO Ben Clube said:
“With our AIM admission concluded a few weeks ago, our full focus has turned towards the operational milestones that will define this year and generate material long-term value for our stakeholders. Our intention is to progress the Marram Project towards FID and we are progressing the various commercial and technical workstreams to achieve that critical value-catalyst. The economics of the project are very attractive and the fundamental market drivers for the development of the Marram Project remain compelling – both of which provide confidence that we will achieve FID in the timeframe set out during the IPO process.
We are presently engaged in evaluating tie back options for the development that best position the Company for the development of the broader regional potential. We are in progressive discussions regarding development financing arrangements and are encouraged by the reaction of counterparties who recognise the strong cash flow profile and rapid payback of the project. In parallel, we continue to screen opportunities to build materiality and scale, and hope to receive positive news in the coming months regarding the Marram Project lookalikes that we have bid for in the 33rd licencing round, as we seek to capitalise on our early mover advantage in UK Irish Sea, a region with numerous undeveloped gas discoveries, existing infrastructure and the ability to support the UK’s objectives in terms of Energy Security and Transition. We look forward to communicating our progress to the market as we achieve the numerous core operational milestones set out today.”
I was on the Webinar this morning and the story is a very impressive one. I have yet to meet with the company management (my fault not theirs!) and look forward to adding what looks like an inexpensive new addition to the sector.
Strategic Overview
On 20 December 2023 the Company concluded its reverse take-over transaction with Dial Square Investments plc, and IPO and was admitted to trading on AIM as EnergyPathways plc, under the ticker EPP.
EnergyPathways was the only energy company admitted to AIM in 2023 and the Board believes that this success, which was achieved despite extremely challenging market conditions, reflects the substantial potential value that the Company’s strategy can create for its shareholders.
The macro factors that underpin the attractiveness of the Company’s strategy continue to develop favourably with ever-increasing recognition in the UK, across Government, among regulators, energy consumers and the investment community, all of which recognise the inescapable fundamental that UK domestic gas will have a critical role to play in the UK’s energy mix for decades to come and that the expansion of the UK gas sector is essential to providing energy security and delivering on the nation’s net zero commitments.
EnergyPathways is well positioned to contribute to delivering on the exceptional growth in this expanding energy arena both in the near term and long term. The Company’s foundation gas asset, the 100% owned Marram Project, is a field that is fully appraised, “development ready” and has the potential to generate high rates of return and significant value for shareholders in the near term. The Company is targeting similar low emission energy assets for development that can be dedicated to supplying the UK market with low emission domestic gas, offsetting the significantly higher emissions of imported LNG, and so provide the UK with much needed energy security, while also contributing a more environmentally beneficial solution for the nation’s energy requirements.
The Company has a “first mover advantage” in the East Irish Sea region, a region that has substantial overlooked low emission gas accumulations, based on EnergyPathways’ estimates, of over 2 Tcf. This region has significant potential to integrate its untapped gas resources with energy transition opportunities and energy infrastructure contained within the region. These include the nearby hydrogen hubs, extensive carbon capture and storage reservoir capacity under development. Regional gas production can also be used to compliment the significant and currently under-utilised renewable wind generating capacity of the region, by providing long duration energy storage, hydrogen production and back up low emission powergen.
To this end, the Company is pleased to see that the UK Government continues to progress its plans for UK licences for oil and gas projects in the North Sea to be awarded annually in the future.
And finally…
Tonight sees the FA Cup third round replays, Wolves host the Bees, Birmingham entertain Hull, the Hatters go to Bolton and the Robins host the Hammers live on BBC…Finally in a modest fixture Eastleigh host Newport, and why is this lower league match important, because the winners host the Red Devils…
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