WTI $33.92 +43c, Brent $36.06 +31c, Diff -$2.14 -12c, NG $1.71 -6c
This has been a very good week for crude oil although this morning there is some weakness brought on by further China crises. The Government in Beijing is apparently drawing up laws to ban any demonstrations in Hong Kong and we know what happens then. Also, perhaps more worrying to markets is that China has stepped away from giving any growth target for its sic, planned economy for this year. Along with slightly intemperate talk from the US re COVID-19, the Far East is heating up, not to mention Chinese/Japanese tensions.
With no blog yesterday I wanted to mention a couple of things on the oil price front, firstly the EIA said yesterday that the number of active US crude oil and natural gas rigs are at the lowest on record at 339 on May 12th going back to 1987. Figures are down 56% since March 2017 mostly in oil but gas plays also saw significant decreases.
The boss of Pioneer was on CNBC this morning, not sure quite what market he was talking about but not the oil one I know and love… At $30 most companies ok some parts need $45 and they havent shut much in….
An operational update on the testing programme at the Lancaster EPS where Hurricane has been testing the two wells, 6 and 7z to determine the sustainable combined production rates of up to 20,000 b/d. This has not been possible as a result of interference between the wells due to their proximity and changes to the forward testing plan have therefore caused full year production guidance to be suspended.
As a result of instability in the flow regime on the 7z well, this well has been shut-in (perhaps temporarily) whilst testing maximum rates of the 6 well. It is worth noting that water production from the 7z well when instability was experienced was in line with that over previous weeks. The 6 well is now producing at 10,300 b/d and will be increased incrementally to determine its ‘maximum sustainable level’. The company previously flowed this well at a stable rate of 14,700 b/d at the end of 2019 (as announced in December) and higher than this during start-up testing so expectations are that the production rate from the 6 well by itself will be considerably higher than the 10,300 b/d at which the test is starting. However, even if the maximum sustainable level that the 6 well can produce is close to prior guidance of 18,000 b/d, the testing period itself would bring down that average for the year and therefore the company has suspended previous FY guidance, presumably until it has established a stable flow rate on the 6 well..
Hurricane CEO Dr Robert Trice commented,
“The results of the recent testing of the Lancaster EPS wells at elevated combined production rates are disappointing and the degree of interference encountered is unexpected. Whilst the wells show high productivity individually, their proximity and associated interference behaviour requires further data acquisition before the Company can be confident about optimum long-term well rates. This latest development reinforces that. This data acquisition process continues, and further updates will be provided once we have determined our target plateau production rate with the existing well configuration.”
I think it is worth noting that this unexpected development will have an impact on what options for the company are from existing well stock. I would think that some sort of re-intervention in the 7z well is necessary as it appears that it is flowing from a part of the reservoir that is not ideal, especially as the two wells are effectively on top of each other and acting as a single well. That re-intervention could be used to shut off the perched water or to help access a more permeable part of the reservoir further down the well bore. The company needs to assess the timing of this activity based on capital considerations and whilst also ensuring safe operations are possible with the COVID-19 backdrop.
In the meantime, the 6 well as I mentioned is going to build up production to see what production might realistically be, after all we know it has done nearly 15,000 b/d on a stable basis and this is the time to see how high it can go.
Hurricane will obviously be conducting a review of all these issues and whilst this is a disappointment, we always knew from its historical global history was never going to be straightforward. This latest challenge is a product of the well configuration which has led to high interference and doesn’t necessarily mean anything negative about the reservoir’s ultimate potential.
Coro has announced that completion of the acquisition from West Natuna Exploration of a 15% interest in the Duyung PSC has been achieved. I look forward to the CPR from Gaffney Cline before long.
Gulf Marine Services
GMS has announced that it has now received letters from 14 shareholders who collectively hold 52.08 per cent. of the Company’s issued share capital, indicating that they have no current intention to accept any offer on the terms of the Seafox proposal. In this case, whilst nothing is certain one would normally say that GMS could block a bid from Seafox who seem to have played their last hand in this process.
Seafox’ activity in the bid process has been somewhat curious, they have bought stock in the market for cash, spending money on that buying operation in addition to advisors I imagine which must push their in-price up a fair bit. They now have some 20% of GMS and if I remember correctly said that they wouldnt support a GMS equity offer should that come. I would not rule that out and accordingly I find their position hard to square…
At the meeting for the EUR 20m 8% notes restructuring was all passed and now all the company’s debts have had interest payments deferred to March 2021.
CEO Martin Hull said ‘Combined with uninterrupted production, improved near term gas pricing recently announced, field cost efficiencies achieved at Santa Cruz and Argentinian Government initiatives to support domestic Argentinian producers, the successful completion of the debt restructuring is an important and positive step forward for the Company. Notwithstanding the prevailing macro-economic conditions these developments provide the Board with renewed optimism as we refocus efforts to pursue the growth opportunities within the portfolio.’
I spoke to Doc Holiday of Total Market Solutions yesterday and we chatted about SAVE, PPC, CORO, PRD, DGOC, WEN, AEX, LBE, SQZ, RRE. The link is below.