WTI $50.75 +$1.14, Brent $55.28 +$1.32 , Diff -$4.53 +18c, NG $1.86 -1c
A rally of sorts in oil, yesterday had 1 story that the Chinese had a cure for the Coronavirus, 1 story that the Brits had discovered a vaccine for it, a bit late this time and sundry positive vibes on the Chinese situation. Incoming BP CEO Looney suggests virus will knock half a point off world growth between 300-500/- b/d of oil demand.
Whilst over in the US it seems that the Democrats have had a poor week, they have fought for an impeachment they couldnt win, been made to look even more stupid by the caucus shenanigans in Diddleypop Iowa where the favourite came 4th, and Nancy with the laughing face tore up the State of the Nation speech even though it took her two goes. After that a mixed bag from the inventory numbers with crude registering a modest build, gasoline a smaller draw but distillates drawing 1.5m barrels in February is good news.
Hurricane has provided an operational update regarding the Lincoln Crestal well on the Greater Warwick Area (GWA), whilst also describing plans to accelerate the next production well on Lancaster.
The Lincoln Crestal well was drilled in 2019 and tested at 9,800 stb/d. It was suspended with gauges downhole for purposes of completing pressure build-up tests and gathering interference data. The GWA partners, Hurricane and Spirit Energy, always hoped to be able to obtain consents to be able to tie it back to the Aoka Mizu FPSO. This is the Lancaster early production system (EPS) vessel which has been producing from two Lancaster wells nearby since last June. The Lincoln Crestal tie-back would deliver long-term dynamic data as well as production generated revenue – it would effectively be another EPS on the GWA. The plan had been to do this tie-back during the summer weather window this year, though regulatory consents had been highlighted as potential hurdles.
The GWA partners have now concluded that it will not be possible to tie-back to the Aoka Mizu FPSO in 2020 and have released the vessels to carry out this work by the service provider. They continue to pursue an extension to the suspension consent for data gathering purposes during testing of the planned Lincoln commitment well, scheduled for this summer. Without any such regulatory approved extension, the Lincoln Crestal well will be plugged and abandoned in March 2020 prior to drilling of the Lincoln commitment well. Hurricane was at particular pains to point out that the decision to defer the tie-back was driven by the OGA and did not reflect Spirit’s technical view of the GWA nor was it caused by Spirit’s ongoing sales process.
The good news is that Hurricane is planning an additional production well on Lancaster in 2020 in addition to the one or more subvertical wells in 2021 to determine maximum extent of the Lancaster field. In its Lancaster update of 29th January, the company reported a very strong performance by the Lancaster EPS with production significantly above guidance, indeed they reported having sold the best part of 3m barrels of oil with revenues of $170m.
So, overall whilst the RNS infers a different upcoming plan for the company, Hurricane is still pressing ahead with the development of its assets. This will provide opportunities to ramp-up production and cash flow, whilst proving out its acreage. The RNS came out as Hurricane had to release the vessels that would have been required under the previous work programme. The OGA is taking a strict approach with regards to suspended wells in hostile environments such as the West of Shetlands and Hurricane is changing its own work programme to accommodate this. Fortunately the ongoing success of Lancaster gives it the capex flexibility to think about the share price and I can see the significant upside of taking this route.
Following a DNO update Genel has announced data from Tawke, 4Q 2019 production was 122,800 bopd of which Peshkabir was 58,000 bopd. The Peshkabir-12 exploration well has been drilled and is being tested whilst 9 wells are currently producing and the 3A well is is expected back in production after a workover. At Tawke the 57A deep well tested with formation water from the shallower Jurassic interval and is in production whilst the 59 well came onstream in 4Q 2019 and in the quarter 7 Jeribe wells were drilled.
This brings to 19 the total number of wells drilled last year including 2 appraisal and 17 development wells. Finally the Peshkabir to Tawke gas gathering and reinjection project designed to increase oil recovery rates at Tawke whilst eliminating flaring at Peshkabir will be completed in Spring 2020.
Finally I rarely comment on Non Executive appointments but I will do with regard to Genel’s appointment this morning that they have appointed David McManus as their new Chairman. I have known David for many years and his broad experience, talent and appetite for hard work cannot be doubted, Genel have indeed made a good call to replace Steve Whyte.
A reserves and trading report from IGas this morning where the team have provided a very healthy base with its conventional portfolio and of course potential of significant upside into the bargain. Production last year was 2,325 boepd dead in line with guidance which for this year has been set at 2,250-2,450 boepd, operating costs remain at c.$30 per barrel.
The company flag that the Ellesmere Port appeal is due on or before the 8th April and continues to analyse the data from Springs Road. In addition they are working with partners and regulators with regard to the moratorium on fraccing and its need to operate safely and environmentally responsibly. CEO Steve Bowler continues the crusade by reminding anyone who might listen just how much gas we import in this country, he can now add independence from Europe to his list of advantages for energy security.
2019 saw free cash flow of £15.5m on capex of £6m, next year capex is expected to be nearer £10m, £3m on producing assets and 7m on future development. With the conventional portfolio valued at a conservative $180m and UK onshore is about as good as it gets IGas on a market cap of only $49m looks cheap enough by any standards.
The Cascadura well on the Ortoire block in Trinidad has been exciting the industry fora while now and today the answer is given, it is indeed a liquids rich gas discovery and a dramatic change for Touchstone. Whilst only testing the lowermost 162 feet of the 777 feet of pay in the Herrera formation they averaged 5,180 boe/d including 26.9 mmcf/d and 694 b/d of natural gas liquids.
The distribution of results on a well of this type is difficult and they have managed to successfully deliver the results well in difficult circumstances, oil or gas or something in between updates have been given as promised even when diagnosis was tricky. I spoke to Paul Baay recently and he needed to get the right testing equipment on site, difficult when you are unsure of what you are testing.
So, as they had believed, the Ortoire Block looks like being a genuine company maker for Touchstone who have so much further work to do that even with the shares at 40p, some peoples target price, I suspect that there is plenty more to aim for.