WTI $73.08 +23c, Brent $75.19 +38c, Diff -$2.11 +15c, NG $3.33 +8c, UKNG 76.75p +1.07p

Oil price

Another modest up day for oil yesterday as the EIA stats came in with a good performance. Indeed with the draw in crude of 7.6m barrels being maybe in line with forecasts the draw of nearly 3m b’s of gasoline was impressive. This was because the refineries are pumping like mad, the rate is 92.2% only 0.4 of a point below last week, as I said then they are not mucking about by undersupplying the gasoline market.

Challenger Energy Group

Challenger has provided an update on progress of the Saffron-2 appraisal well as part of the Saffron Project. Drilling of Saffron-2 has reached a total depth of 4,126ft, with an intermediate casing string added to the well plan at 4,118ft so as to preserve and bank the lower Middle Cruse and upper reservoir units of the main Lower Cruse target horizon, and thus maximise capacity for production testing.

Hydrocarbons were encountered in the most recently drilled section and initial petrophysical interpretation of logs to depth of 3,530ft have identified a further 42ft of net pay in the lower Middle Cruse, increasing the total of oil-bearing sands thus far identified in the Upper Cruse and Middle Cruse to over 200ft.

Drilling is continuing to target depth of 4,557ft, at which both Lower Cruse sections – the primary reservoirs of interest – will be logged, and thereafter the well will be production tested; the inclusion of an intermediate casing string has extended the schedule for completion of drilling and logging by approximately 7 days to 30 June 2021, with production testing remaining on track for mid-July.

Eytan Uliel, Chief Executive Officer, commented:

 “Our last update on Saffron-2 highlighted to shareholders that we had encountered hydrocarbons and identified a very encouraging net pay of approximately 165ft of oil-bearing sands in secondary well targets. I am pleased to update that drilling has now reached a depth of 4,126ft, intersecting both a mobile shale zone and the first of the primary Lower Cruse target reservoirs, and at which depth based on drilling conditions we decided to set intermediate casing. This is so as to stabilise the mobile shale and protect the upper Lower Cruse reservoir sands, thus best assuring our ability to deliver Saffron-2’s core objective: production. As with the first sections of the well, we have again encountered hydrocarbons in the most recently drilled section, and logging the balance of the Middle Cruse has indicated a further 42ft of net pay – meaning that we have now identified a total of over 200ft of oil-bearing sands in secondary reservoirs of interest. Drilling continues, to an anticipated TD of 4,557ft, at which point the primary reservoirs of interest will be logged. We will provide a further update once drilling is complete.”

This is another regular update from Saffron in which more pay has been encountered in the Lower Middle Cruse. Also CEG has added additional casing in order to isolate these shales, a sensible belt and braces approach as the Lower Cruse is the most important part of the well. There surely can’t be many more updates still to come without the final results from the well.

San Leon

San Leon has announced a conditional investment of $2 million as well as an option to conditionally invest a further $6.5 million in the equity of Energy Link Infrastructure (“ELI”), the company which owns the Alternative Crude Oil Evacuation System (“ACOES”) project. The equity being conditionally purchased and the equity that may be purchased via the option are existing equity interests in ELI owned by Walstrand, ELI’s largest shareholder.

As previously announced, the ACOES is being constructed to provide a dedicated oil export route from OML 18, comprising a new pipeline from OML 18 and a floating storage and offloading vessel (“FSO”). Once commissioned, which is expected to be during the second half of 2021, the system is expected by Eroton to reduce the downtime and allocated pipeline losses currently associated with the Nembe Creek Trunk Line (“NCTL”), to below 10%.

The conditional investment will comprise of the Company investing $2 million for 1.323% of ELI, with San Leon simultaneously receiving an option to conditionally purchase a further 4.302% of ELI for $6.5 million (together the “Further Investment”). The total consideration payable should the Option be exercised in full will therefore be $8.5 million and will be payable by the Company in cash.  Any investment pursuant to the Further Investment will be conditional on obtaining the consent of Guaranty Trust Bank PLC who currently hold a pledge over the shares held by Walstrand in ELI.  The exercise of the Option will be at the sole discretion of the Company, although such exercise will be subject to the consent of GTBank.

As previously announced, the Company currently holds a 10% equity interest in ELI. Following the completion of the Further Investment, San Leon will own a maximum of 15.625% of ELI, assuming that the Option is exercised in full. San Leon has also previously made shareholder loans to ELI totalling US$15.0 million which bear a coupon of 14% per annum.

Under the terms of ELI’s senior debt facility with GTBank, the lender has a charge over all of ELI’s assets and, as further security, each shareholder in ELI (including San Leon in relation to its current shareholding in ELI) has pledged their shares in ELI to the lender.  The terms of the pledge are that the shares in ELI cannot be transferred or otherwise utilised without the lender’s consent.  All shares in ELI that will be acquired pursuant to the Further Investment will be returned to this pledge.

Oisin Fanning, Chief Executive, commented:

“We are delighted to have conditionally agreed to increase our investment in ELI which owns the ACOES project, which we believe will be an important strategic asset that is expected to generate regular cash flow once it is commissioned, whilst also providing significant benefits to downtime and reductions in production losses for OML 18. Becoming a more influential shareholder in ELI is consistent with our overall strategy of developing the world class OML 18 asset and building value for our shareholders.”

“We look forward to providing further updates in due course.”

This is further good news for San Leon shareholders who are now able to take a larger stake in the ACOES project which in turn will pay back substantially to the company and through its distribution policy should reap significant rewards. A low risk and ultimately high yielding play has been added to by SLE who know their way around this asset and I’m very happy to still have it in the Bucket List.

Zephyr Energy

Zephyr has updated on its project in the Paradox Basin, Utah, U.S.A where the Company is preparing to spud the State 16-2LN-CC appraisal well.  The well will seek to target the Company’s first production on the Paradox project, and it is expected that drilling operations will commence in July as previously forecast.

The Company is pleased to announce that it has received all final approvals and permits required to proceed with the drilling of the well. These approvals include surface rights and rights to drill from the Utah School and Institutional Trust Lands Administration, approvals from the Bureau of Land Management (“BLM”), and Application to Drill (“APD”) approval from the Utah Division of Oil, Gas and Mining (“DOGM”).  In addition, the Company has received all necessary consents from its joint-venture partner on the Paradox project. With all approvals and permits now in place, the Company is working to finalise the project contracts needed to enable the Company to meet its proposed timeline of a July spud date.

Colin Harrington, Zephyr’s Chief Executive said

“Securing all approvals and consents needed to drill the State 16-2LN-CC is another step in our efforts to unlock significant value from what we believe is a project of substantial scale.

“I would like to thank all parties involved in this process, especially our advisers and the dedicated staff at SITLA, DOGM and the BLM.  We are now well-positioned to finalise drilling preparations and third-party service contracts in advance of the proposed well spud next month.”

Great news this from Zephyr who continue to please the market with its speedy work at the Paradox Basin, its key asset at which drilling is now looking likely to start next month. With this exploration and the acquired production elsewhere, ZPHR is already looking like a very grown-up company indeed.

Block Energy

Block has announced the spudding of the WR-B1 well at WR-BA location on the Company’s West Rustavi field on 23 June 2021. The well will target the West Rustavi Middle Eocene reservoir with a horizontal section approximately 800 metres long and completed with a production packer and a slotted horizontal liner fitted with external swellable packers to provide water shut off capability.

WR-B1 will target 2.1 MMboe of recoverable oil and gas and be the first well to be drilled using the data from the 3D-seismic survey acquired over the West Rustavi licence area in 2019. If the well is successful, WR-B1 will be rapidly tied into Block’s Early Production Facility, processing both oil and gas produced from the well.

Block Energy’s Chief Executive Officer, Paul Haywood, said:

“I am very excited to have commenced our latest drilling campaign in Georgia with the spudding of WR-B1 on our West Rustavi field. The team has worked systematically and tirelessly in preparation of drilling this well, using the latest 3D-seismic technology to pinpoint its location. In addition, we will employ the latest directional drilling technologies to optimise the outcome of this well. On success, the WR-B1 well will be rapidly tied into our production facilities and significantly boost our production in Georgia. I look forward to updating the market further as we progress.

Hurricane Energy

Hurricane announced yesterday that the sanction hearing of the High Court of Justice of England and Wales in relation to the restructuring plan proposed by the Company under Part 26A of the Companies Act 2006 concluded today, 23 June 2021. 

Judgment is reserved and the Company will announce further updates once the outcome of the hearing is known. 

There is a huge amount riding on this judgement and depending on it the need for a vote on the 5th July may be unnecessary, the demolition of equity value may or may not happen.

And finally…

As we watched the games from the Group of death last night despite the fact that England might have played any of the four teams it was inevitable that it would be Germany on Tuesday.

Also England played Sri Lanka in the first T20 which England won comfortably, the second game is tonight and yes, it’s live on the BBC….

And the Government has said that the British Grand Prix on July 18th will have a full capacity of 140,000 fans…