WTI $52.24 +$1.41, Brent $55.99 +$1.61, Diff -$3.75 +20c, NG $2.70 -3c

Oil price

Last week was a good one for oil, the fact that the KSA had warned speculators against shorting crude only made it more funny to see the bears short and wrong. Week on week WTI was up $3.72 or 7.7% whilst Brent rose $4.19 or 8.1%. Oil is down a bit this morning, taking a breather on a no news market day.

IOG

A corporate and operating update from IOG this morning and for such an important year in which the company is moving to first production and cash flow this is very encouraging.  The company report that ‘intensive work has continued across all key Phase 1 development disciplines, as well as increasing project integration activities focused on efficient completion, installation and commissioning of infrastructure in conjunction with the drilling programme over the coming months’.

Construction-wise, fabrication of the Phase 1 Southwark and Blythe platforms at HSM’s yard in Schiedam remains on track for mechanical completion later in Q1 2021. Construction of both jackets is proceeding alongside installation and testing of topside equipment including risers, helidecks, controls, communications and integrity management systems. Transport and installation (T&I) of the platforms at the field locations is planned for Q2 2021, in coordination with drilling operations.

The Blythe and Elgood pipe-laying continued in Q4 undertaken by Subsea 7, itself a key part of the Phase 1 subsea and pipelines scope. In addition, ‘detailed well design for the drilling campaign is on track to complete in Q1, with the first development well now expected to spud by early Q2. Contracting of Tier 1, 2 and 3 drilling services, logistics and tangibles is also now well advanced, while permit applications and risk assessments continue in parallel.

IOG safely and successfully completed all planned tie-ins to the Perenco LAPS facilities during the regular maintenance shutdown of the Bacton gas terminal in November 2020, a handy use of the break.  ‘The wider Thames Reception Facilities (TRF) process continues onshore at Bacton, for which ODE, a specialist engineering house with extensive knowledge of the terminal, has been selected as engineering, procurement and construction (EPC) contractor’.

IOG say that an updated assessment of expected Phase 1 outturn cost versus budget is expected later in Q1, once detailed well design is complete and key operational windows have been further defined.

The company is also stepping up preparations for a competitive gas sales tender process for the initial years of production, on behalf of the IOG-CalEnergy Resources (UK) Limited JV. The Energy Contract Company (ECC), a specialist gas sales advisor, has been engaged to assist the process.

Andrew Hockey, CEO of IOG, commented:

“This is set to be another breakthrough year for IOG, when we deliver our first production and revenue, paving the way for sustained value generation for shareholders. Having made real progress in 2020 in difficult conditions, we expect to complete fabrication of our Phase 1 platforms this quarter and start development drilling by early Q2. We recently completed important steps towards achieving First Gas in Q3 including the LAPS tie-ins at Bacton and the offshore Blythe-Elgood pipelay campaign.

We now have our full development team in place, led by in-house specialist senior managers across all disciplines. This is important both for Phase 1 execution and to maximise wider portfolio value. We also expect to confirm the selection of a highly experienced new COO in the coming weeks.

IOG’s ambition is to be a safe, efficient, low-carbon intensity gas producer helping to provide reliable domestic energy supply as the UK transitions to Net Zero by 2050. In that context, we were pleased to adopt a new Climate Change and Sustainability Policy late last year and are initiating a comprehensive independent emissions certification process which we hope will confirm IOG’s low environmental impact business model.

We are also very encouraged by the significant gas market recovery, with UK NBP day-ahead prices reaching over 55p/therm and Winter-21 prices over 50p/therm last week – higher than at any point in 2020.”

From this I can see that work is going on on all fronts at IOG, drilling is imminent at least in Q2 whilst engineering-wise platform fabrication is expected in this quarter. IOG is clearly very well placed and on-time to deliver first gas in 3Q of this year, a tribute to all those involved. In addition this is all being done whilst ensuring that IOG goes to the forefront of the drive for low carbon energy producers. At 15.5p the upside looks substantial as the year unfolds and the opportunity to profit from the years of hard work produce results.

Union Jack/Egdon

A Wressle update from the operator today where they state that the workover rig and associated services and equipment were successfully mobilised to site during the week commencing 4 January 2021 and that operations to recomplete and reperforate the well have commenced. 

Operations are expected to be completed to enable the Ashover Grit reservoir to be flowed prior to the end of January 2021 as previously advised. The Ashover Grit reservoir is expected to produce at a constrained rate of 500 bopd increasing Egdon’s 30% of production by 150 bopd and Union Jack’s 40% by 200 bopd when fully on stream.

Both companies will benefit but it is worth noting that with Biscathorpe and West Newton up their sleeves UJO are looking astonishingly cheap at this level.

Block Energy

A West Rustavi update today where the company are well underway in particular those things that it can control such as the construction and commissioning of the Early Production Facility and gas gathering line.

Bago LLC has completed the construction and final pressure testing of its 8km gas sales pipeline. The remaining key steps leading up to inaugural gas sales are all under the control of Bago LLC and include finalising the construction of the compressor station, which is well underway, and hooking it up to the state’s main gas line. Delivery of first gas is now forecast to occur by late January or early February.

Block plans to restart oil and gas production at its West Rustavi licence area and will be mobilising teams to the WR-16aZ and WR-38Z wells in the coming days to open those two wells.

Also, Block’s Drilling and G&G departments are finalising preparations for the 2021 drilling and workover programme, details of which will be communicated to shareholders in the coming weeks.

Block Energy Chief Executive Officer, Paul Haywood, said:

“I am pleased to provide an update on our gas sales in Georgia, where after safely installing and commissioning the Early Production Facility and constructing a gas gathering pipeline, we are on the cusp of our inaugural gas sales. The commencement of gas sales will be a significant event for Block and is testament to the capability of our team, who have continued to prioritise this project, despite some significant operational and travel challenges associated with COVID-19. As well as the commencement of gas sales, we are pleased to be recommencing production and sales of crude oil at West Rustavi with the Brent oil price now over $50 per barrel.”

After a pretty indifferent spell things are looking up at Block, with the gas sales no doubt being a ‘significant’ effect and at a realistic price as well. The shareholder group have certainly had a massive, positive effect and it looks like that they still have their hands on the appropriate parts to ensure their hearts and minds will follow…

And finally…

The FA Cup dominated the weekend but there were few upsets. Crawley beat Leeds and Chorley beat Derby, tonight sees the draw for both 4th and 5th rounds.