WTI $36.26 -8c, Brent $38.73 +18c, Diff -$2.47 +26c, NG $1.73 -8c

Oil price

With a combination of what seems like a disturbing increase in COVID-19 cases in both China and a number of States of the Union and last week’s gloomy comments from the OECD and the World Bank it is no surprise that oil has tailed off a touch. Just wait until Disneyland re-opens on thursday….

But hey, it is less than 10% off the top of what was a slightly spirited run-up and as my dear friend Gavin Oram used to say, ‘trees don’t grow up to the sky’. Also as I commented last week not only are most economists a waste of time and money they often tell us the bleeding obvious just three months after we all knew in the first place, freakonomics, you bet….

BP or as they now put it bp, are writing off up to $17.5bn of non-cash impairments at the next results, shame they upped the divvi last time they probably wish that they had done a Ben…

Predator Oil & Gas

Predator has announced that it has incorporated a new subsidiary Predator LNG Ireland Limited and has appointed SLR Environmental Consulting to advance Predator’s Floating, Storage & Regasification Unit (FSRU) solution for Ireland.

Predator has also already executed a Confidentiality Agreement with one potential purchaser of gas ‘to facilitate the exchange of information to develop scoping commercial terms for any future potential Gas Sales Contract’.

Predator noted the announcement on 28 May 2020 by Infrastrata plc in relation to their proposed FSRU Project, located in Barrow-in-Furness, northwest England and believes that comparative CAPEX costs are significantly less for the Predator FSRU solution due to the potential to utilise existing infrastructure which ties directly into the Irish gas transmission network. An additional advantage of this is that this eliminates the requirement for any new fixed infrastructure.

Predator say that their scoping technical capacity is not over-sized and is tailored to favour the strategic importance of securing premium prices for immediate access to indigenous local gas and energy supply during peak demand days when demand cannot be met by other sources of energy.

Predator estimated project revenues are consistent with those quoted for the Barrow-in-Furness FSRU Project of £80 to £100 million. Predator scoping technical capacity is approximately 40% of that for the Barrow-in-Furness FSRU Project but generates high profit margins due to lower capital and operating costs resulting from the mature nature of the infrastructure that can be potentially utilised. This significantly reduces the lead time to a Financial Investment Decision, as lower levels of risked capital can be absorbed as an operating cost over the anticipated 20 to 25-year life of the FSRU Project.

It is worth noting how that this potentially important development for gas supply in Ireland could be according to Predator CEO, Paul Griffiths.

Industrial and commercial energy users require certainty that peak day energy demands will be met in order to maintain competitiveness and secure investment for business growth to perpetuate alignment with their European neighbours. Brexit is making Ireland largely dependent on the United Kingdom for security of energy supply against a background of difficult trade negotiations. Southeast Ireland and the Cork area in particular has benefited greatly from the production of gas at Kinsale, by providing jobs, service industries and allowing sustained economic growth. It has historically been the energy hub for Ireland. The FSRU Project can maintain this tradition by providing a pragmatic and practical solution to security of energy supply utilising existing infrastructure. Promoting business recovery and expansion following the severe economic impact of COVID-19 will be necessary despite an environment of significant debt burden and reduced government taxes.”

I have become more and more impressed with Predator recently whilst looking at their activities in Trinidad and Morocco, the former has the potential to make the company a genuinely low carbon fossil fuel company with the latter, whilst delayed by COVID-19, is very exciting exploration. Today’s announcement brings the company’s expertise in the Irish gas market back to the fore and could be an opening for gas supply in what can be a tricky environmental situation.

President Energy

President has announced drilling and workover plans for H2 2020 which includes 2 new wells in the next four months and has already been in discussions with service providers given the capacity availability in the region. The first well will be the Las Bases 1001 development well targeting proven un-produced attic gas with 6 Bcf of total recoverable reserves with a ‘high’ COS and at a cost of $1.9m completed.

The second well is the Estancia Vieja EVN-x1 exploration well targeting a new and so far un-drilled independent structure for both gas and oil to the north of the producing Estancia Vieja field with a P50 case of 252 bopd of oil and 350 boepd of gas. Chances of success here are ‘good’ and at a cost of $2.5m completed. Should this be successful it would open up the whole of the Estancia Vieja north structure with an estimated 14 Mmbbls of Oil in place and 26 Bcf of gas in place which will require another 6 wells.

In Paraguay the concession period extends to 1Q 2022 and with successful drilling would be extended to a production licence. President acknowledge that they have had ‘meaningful discussions’ with an NOC with regard to a farm-in which are on hold at present due to COVID-19 related issues.

Peter Levine, President Chairman commented ‘We believe now is the time to plan and invest for the future, particularly as we will have negligible third party debt at the half year end and are in a solid position. The fact that we will be able to bring successful wells into production in Rio Negro without any delay or excessive costs demonstrates the value of our conventional onshore wells in central locations with the benefit of owning and operating the regional pipelines and infrastructure. This enables us to transport produced oil and gas from the fields to the main national pipelines and on to our off-taker Trafigura, a strategically important major shareholder in President.’

President shares are slightly below the recent issue price and whilst that can to an extent be explained by the placings taking demand out of the market on a short-term basis, for the longer term the recent corporate activity and imminent drilling campaign makes the shares look incredibly attractive.

Empyrean Energy

I recently took the opportunity to have a long chat with Tom Kelly, CEO of Empyrean Energy, I have written a bit recently on their Indonesian assets where the recent CPR was exceptionally good across the board. Whilst the 1C and 2C were dead in line with the Conrad expectations the 3C  number at 817 Bcf were some 30% higher than the operator had expected. This leads to what might happen in the case of a potential liquidity event at Duyung, a lot would depend on Conrad but I suspect a big payday might tempt EME to cash in some chips and concentrate on China.

Talking of China, I still believe that there is transformational potential here and recent results from the seismic inversion project were ‘as good as they could have been’. Excellent quality carbonates were better than hoped for with porosity and permeability rates at 20-30% and with CNOOC sharing their data comparisons to the log data of a crucial well, LH-23-1-1d, located approximately 12 km southwest of the Jade prospect in a permit operated by them were made significantly easier.

Timing of this drilling has been made easier by the granting of a 12 month extension to drill the first well so EME have until 12 June 2022 should they need it. Tom Kelly was at pains to point out that this is primarily a COVID-19 issue, they have made it very clear to CNOOC that if it is possible to execute the well earlier it would indeed do so.

This gives a possible window of Feb/March-May 2021, subject to cyclone activity, or a back-up of November 2021-May 2022 in which to drill, as of yet it has not been announced which prospect comes first. I have been looking at 29/11 with Tom and the enormously impressive Gaz Bisht for what seems many years and my excitement level has if anything gone up as we approach drilling.

As for valuations, Empyrean probably has one of the biggest potential upsides in the sector, there may be some corporate activity in Indonesia where Conrad, Empyrean and even Coro may have a decision to make should a decent price for cash or carry be offered but in China the numbers are without doubt mind-boggling. At 5p and a market cap of £23m any success in  China would dwarf those numbers, with my risked valuation of c.55p and on an unrisked case I would multiply that by 10, I mean there could be a billion barrels out there…