Oil price, President, Echo, VOG, Zenith, And finally…
WTI $69.12 +47c, Brent $79.78 +47c, Diff -$10.66 +2c, NG $3.25 +5c
With various pulls on the oil price exerting their pressure last week oil prices fell again, WTI by $2.22 but Brent was only off 65c, this morning both have rallied modestly. We still have the Khashoggi incident overhanging the market with most parties unsure that they know the truth, or for that matter what they would do if they did know. With the Saudis reminding Mr Trump that if he thought $80 was high how did he fancy $200 and the mid term elections on the way the US has to pick its enemies here very carefully.
Another factor, also positive for oil was the Chinese data from last Friday which was followed by a big rise in their indices, refinery throughput indicated substantial domestic demand however temporary it might be. On the downside whilst I was away the EIA inventory stocks rose again and are now above the five year average that I talked about recently, this is OK this quarter but it won’t be in 1H 2019. This led to the expected CFTC numbers showing that money managers and traders were continuing to cut back on long positions. Finally the Baker Hughes rig count showed another rise, +4 overall to 1067 units, in oil also up 4 at 873 units.
More excellent news from President who have announced an update from the Puesto Flores well, PFO 1001 which is the first of a three well sequence and has now been successfully drilled, cased, cemented and logged on time and within budget and awaiting completion. Results so far are at the upper end of expectations with oil shows at three different formations and live oil coming to the surface over the shakers. The company also said that ‘commendable peak gas readings while drilling reached up to nearly 1 million ppm with the range of C1 to C5 gas present’. Having such good pay in the shallower and deeper target formations is extremely exciting and bodes well for the programme.
Indeed, at the beginning this programme was intended to be targeting an aggregate 600 b/d, and whilst all the wells have to be completed successfully “based on the evidence to date, we now view the achievement of this target with increasing confidence.” Existing production of 2,700 b/d should be significantly increased and the company’s target of 5,000 b/d by the end of 2019 already looks eminently achievable.
Echo has announced that it has been able to boost production at FD, the Cañadon Salto field from 5 b/d to 115 b/d following four successful pilot well interventions. These results are very encouraging as the wells are improving as they ‘oil in’ and pumps and facilities are optimised. At a very modest cost of in the range $100-150 net to Echo, and despite this being only a pilot project there seems to be significant potential upside.
With a large well stock to evaluate for well interventions, re completing a good number of them could put Echo well on the way to producing say, up to 400 b/d which would have the doubly positive effect of increasing contingent resources as well as providing good, stable cash generation. This is already demonstrating how upside from this field can be achieved and with so much potential it looks like showing how Echo can add something with little spend and using the significant experience they bring to the party in Argentina.
Victoria Oil & Gas
VOG has announced its Q3 2018 operational update and Non-Grid Business development. In the quarter gross gas sales were up 11%on Q2 to 356 mmscf with gas production up 12% to 3.7 mmscf/d. Four additional thermal customers, two new, two former consumed gas in Q3 with one connected just after the quarter end. GDC signed GSA’s with four new customers for industrial power in the quarter.
With regard to the suspension of sales to the ENEO owned Logbaba and Bassa power stations in Douala, GDC remains confident that a solution can be found but that ‘a resolution has been further delayed due to the recent Presidential elections in Cameroon’.
As a result of this the company is concentrating on the Non-Grid Business Development to reduce dependence on any single customer although they do say that grid supply will always be a key strategy. They are aware that existing and new customers need power due to recurrent power shortages so they have developed a solution called the GDC Industrial Power Unit. Most of these customers are already connected to the GDC gas pipeline and just need a generator which can be supplied at a minimal cost to GDC. They are in discussions and contract negotiations with a large number already and plan to have 18 gas to power customers by the end of 2019. These customers will pay 13MMBtu and consume 4.5 MMscf/d with no seasonality and in addition to thermal demand. Finally VOG are still in commercial negotiations with regard to CNG and these are expected to close during Q4 2018 and the company are also progressing its ‘Energy well’ concept to roll out gas sales into the large part of the Cameroon population that has no access to gas.
Whilst it is disappointing that the ENEO contract has yet to be signed after positive noises during the summer, it looks like VOG have really got their act together to supply gas to those customers who need thermal or industrial power and yet still find many hours of blackouts in Douala. This higher margin business, often not so seasonal as before should go a long way to replacing the ENEO business and assuming it does return, should lead to a bigger, more rounded and less cyclical company capable of making up for recent events.
Zenith has announced this morning that it has identified a new structure in the Middle Eocene and Upper Cretaceous formations of the Jafarli field in Azerbaijan. It measures 3km² with a significant degree of closure indicated by the thickness of approximately 100m. The company will deepen the C-37 well to penetrate sandstone layers and the Mesozoic formation not previously tested here.
This is potentially very exciting news as the company is now getting to grips with the asset base that I visited some months ago. With a new Senior Reservoir Engineer with what looks like over 30 years of experience and of course all the new kit bought by the company recently Zenith do look like they are about to get very serious in country.
A mixed weekend of sport but no doubting that Liverpool and the Noisy Neighbours are heading the way at the top of the Prem. Chelski unexpectedly dropped points at home to the Red Devils who nearly made off with the points.
At Ascot the Champions Day was really worth it with Frankie and John Gosden sharing a number of spoils including Stradivarius and Cracksman and OM on Roaring Lion.
In Austen, Texas it looked like for all the world that Lewis was going to conquer but a combination of Raikkonen and then Verstappen make him wait until at least next week in Mexico.
In the Japanese MotoGP Marc Marquez stormed to his 8th win this season and his 5th. MotoGP World Title . With Lorenzo sidelined through injury the race was only between Dovizioso’s Ducati and Marquez’s Honda until the penultimate lap when Dovi slid into the gravel whilst trying to find a way past, leaving Marquez to claim the win. Determined Brit Cal Crutchlow, on a satellite Honda, was a superb 2nd and Alex Rins Suzuki 3rd.