WTI $45.60 -16c, Brent $48.84 +5c, Diff -$3.24b+21c, NG $2.40 -1c

Oil price

Not much to say right now, very little change yesterday and only slightly better this morning. The usual suspects are out there but I have a feeling that things are quieting down now ahead of the Christmas and New Year..


IOG issue a technical and portfolio update this morning specifically with regard to its 32nd Round Licence offers and the Harvey and Redwell licences. During 2020, IOG has been undertaking a programme of 3D seismic reprocessing to Pre-Stack Depth Migration (PSDM) over its SNS portfolio, covering an aggregate area in excess of 1200km², with the new seismic dataset for each licence area then reinterpreted in turn. The objectives of this programme are to enhance subsurface understanding across the portfolio, generate a development hopper of the best incremental investment opportunities, inform detailed well designs for Phase 1 assets and enable portfolio rationalisation where necessary.

Today’s RNS gives the details of their work and the initial results which determine the licence activity as well as the ongoing reinterpretation work on the Southwark, Nailsworth, Elland and Goddard licences. The 32nd Round offer of P2589was accepted which includes the Panther and Grafton gas discoveries and which management estimated recoverable gas resources of 46 Bcfe and 35 Bcfe respectively.

These assets are directly adjacent to IOG’s existing portfolio. Panther lies c.5km from the IOG-CER JV’s Elland field and c.10km north of its Southwark field, which is part of the Phase 1 development, while Grafton lies c.16km northeast of Southwark. The work programme includes reservoir studies and 79km² of 3D seismic reprocessing to PSDM. This will help to refine resource estimates, inform development planning and evaluate any further opportunities on the licence.

The P2587 Licence offer, with a work commitment to reprocess to PSDM 61km² of 3D seismic data, has now been completed early. The interpretation indicated that the structures are ‘relatively small and the overburden is complex, with further 3D seismic reprocessing deemed unlikely to mitigate trap risk’. Consequently, IOG has notified the OGA of its decision not to accept the offer of the notional Licence P2587. This will help prioritise capital and resource allocation appropriately, avoiding potentially significant expenditure on further seismic purchasing and reprocessing, as well as direct licence costs.

Reinterpretation of the newly reprocessed seismic over the Harvey and Redwell licences has now also integrated data from the Harvey well drilled in 2019, this gives a significantly improved image quality but the reinterpretation of this ‘remains challenging’.

The reinterpretation indicates that the structure around the 48/23b-2 well (Harvey-2) has a management estimated Minimum, Most Likely and Maximum recoverable gas resource of 12-21-35 billion cubic feet (Bcfe), while the structure around the 48/23b-6 well location remains a small isolated closure of sub-economic size. For comparison, the Elgood field, a single well subsea tie-back to Blythe as part of the Phase 1 development, has 2P reserves of 27 Bcfe.

Consequently, IOG has notified the OGA of its intention to retain the Harvey-2 structure and relinquish the remainder of the P2085 licence, which will minimise future costs. The Company will then undertake a detailed commercial assessment of Harvey-2, in particular evaluating a potential “Elgood lookalike” development concept. This entails a single well tied back subsea to the Blythe platform, which has been designed to have a spare 10-inch riser and j-tube. Harvey will then be ranked against other assets in IOG’s development opportunities hopper, which will mature over coming months as further seismic reinterpretation results become available.

With regard to Redwell, The reinterpretation indicates that the main section of the previously mapped Redwell structure is now estimated to have a Most Likely recoverable gas resource of 36 Bcfe. However, the relatively thin pay and poor reservoir quality represent significant challenges to commercial development. The reinterpretation ‘has therefore led to the decision to relinquish the P2441 Redwell licence to minimise any further costs and prioritise more commercial assets’.

Andrew Hockey, CEO of IOG, commented:

“We are pleased to formally accept the 32nd Round Licence P2589 containing the Panther and Grafton discoveries, as 50% Operator alongside our partner CalEnergy Resources. These development opportunities show good synergies with our core portfolio and further technical work will help to assess the full potential of the licence.

Alongside this we continue to evaluate a Harvey subsea tie-back to Blythe concept, to include in our development opportunities hopper being derived from the 3D seismic reinterpretation programme. In addition, completing the work commitment prior to formal award enabled us to save resources by declining the offer for Licence P2587.

Our ongoing technical re-evaluation and portfolio ranking work is key to realising our growth ambitions by allocating resources to the best incremental investment opportunities. We will continue to assess our portfolio against rigorous technical standards, enabling us to focus our acreage position and deploy capital where it creates most value for shareholders. I look forward to providing updates as further seismic reinterpretation results become available.”

It is clear that in this significant amount of reprocessing by IOG that it has become possible to have a chance to upgrade the portfolio and to have a ‘housekeeping’ approach to the portfolio. This can explain why Harvey-2 for example can be retained as it is an Elgood lookalike and worth persisting with and for the company partially relinquishing the licence.

Shareholders should appreciate that this rigorous approach to, both licences awarded in previous rounds and with further more detailed analysis, can lead to a slimmed down portfolio including the use of more up-to-date technology to upgrade its prospects without wasting money. As always it is wise not to ‘fall in love with ones assets’ and this proves that IOG are constantly looking at which assets to prioritise in the short and medium term.

Wentworth Resources

An operational update from WRL this morning in which they report that Mnazi Bay is fully operational with zero reported cases of COVID-19 and no impact on supply from the pandemic. Production in the 3rd Q was, as projected, higher at 68.8 MMscf/d (gross) compared to the first half of 58.3 MMscf/d as increased demand as a result of COVID restrictions being lifted  which has continued through the 4th quarter.

Overall 2020 annual production guidance remains at 60-70 MMscf/d and Mnazi Bay is well positioned to supply increased gas volumes and support incremental demand growth as seen in Q4 2020 and expected in 2021, with the capacity to supply volumes of 100 MMscf/d (gross).

Financially Wentworth remains very strong, demonstrated by the declaration of an interim dividend of $1.2m, a 20% increase on 1H 2019 and making the 12 month pay-out of $4.2m. Revenue was $15m to October 2020 underpinned by long term fixed price contracts with the Tanzanian Government. EBITDAX of $7.9m, the company has no debt and $17m of cash in hand at 31/10 and reports that the TPDC is up-to-date with its payments.

With regards sustainability the company report that ‘during 2020, we have undertaken a strategic review of our ESG priorities and reporting and look forward to publishing our inaugural Sustainability Report for 2020 next year. With an energy access rate of only 37% according to the IEA, population growth set to double by 2050 and an economy shifting from an agricultural to an industrial base, there is a real need for transformational growth in Tanzania’s domestic energy supply to deliver the Government’s target of universal energy access by 2030’.

‘Wentworth’s robust gas-to-power production platform is well-positioned to service this future demand growth, working hand-in-hand with low carbon technologies such as hydropower, for the development of a low carbon energy system that can ensure reliable, affordable access.
Finally, Wentworth remains focused on identifying sustainable and responsible growth opportunities that create value for Tanzania, Wentworth and all its stakeholders.

Katherine Roe, CEO, commented:
“The safety and wellbeing of our employees continues to be our number one priority and we’re pleased that Mnazi Bay has remained fully operational since the pandemic with no COVID-19 cases to date, a safe and healthy crew and no adverse impact on supply. Our annual production guidance range remains unchanged at 60 – 70 MMscf/d (gross).
We continue to operate a robust and resilient business due to stable production and reliable cash flows from our long-term fixed gas price contracts. We are especially proud of the strength of the business despite the challenging macroeconomic backdrop, which is reflected in our balance sheet, with zero debt and $17 million cash at the end of October. This has enabled us to return capital to shareholders totalling $4.2 million.

During 2020, a priority for myself and the wider team at Wentworth has been to ensure that our net impact on our communities and wider society in Tanzania is positive and that we have the appropriate disclosure in place to demonstrate how we are manging our core ESG risks. We have undertaken a strategic review of our ESG performance and look forward to sharing our inaugural report with you next year.

Our ambition is to grow our domestic gas business in Tanzania in a responsible way that enhances the lives of our domestic stakeholders whilst increasing returns for shareholders. We remain committed to being a long-term partner for Tanzania in the delivery of low-carbon, domestic energy supply growth that will underpin the socio-economic development of the country in the near and longer-term.”

Wentworth is in a very strong position with its long term contract leading to a revenue stream that allows it to make a meaningful dividend pay-out to shareholders. With no debt, having completed repayments at the beginning of this year, and no receivables, with TPDC fully current with payments, and the upside of the 100,000 MMscf/d the outlook for WRL is set fair in what is a strongly growing domestic market. Yielding some 8% with a very strong management team and highly supportive blue chip shareholders there must be significant upside for Wentworth.

And finally…

The Red Devils were knocked out of the Champions League last night after another inconsistent display losing to Leipzig. Chelski drew 1-1 with FK Krasnodar. Tonight Liverpool are at FC Midtjylland the Noisy Neighbours host Marseille.

And thoughts with Ben Stokes today.