WTI $67.72 +$1.40, Brent $70.25 +93c, Diff -$2.53 -47c, NG $3.10 +12c, UKNG 63.0p -0.36p

Oil price

As the Opec+ meeting closed with the status quo unchanged oil was slightly off the best of the day but even so the bulls had the upper hand. The agenda of bringing back on 700/- b/d in June and 840/- b/d in July was rubber stamped but interestingly no decision was made for August or beyond.

That seems quite sensible as most of the virus news is helpful, with the US booming including as mentioned here in the jet fuel market but GasBuddy report that last Sunday demand was up 9.6% on the last 4 Sundays, impressive even for Memorial Day.

On the subject of retail gasoline prices it is no surprise that in the US a gallon of gas will rush you $3.027 up a cent on the week but 13.7c on the month and just over a dollar y/y. Drivers on the West Coast are paying $3.322 a gallon for their sins.

Jersey Oil & Gas

A Greater Buchan Area Development Project update from JOG today in which the company announce that subsurface evaluations and independent peer review of subsurface and facilities concept select scopes have been completed.

The Concept Select Report has been issued to the UK Oil and Gas Authority and as outlined in the report, the preferred GBA development concept is for a fully electrified Net-Zero solution, estimated to emit carbon at a rate of less than 1kg of CO2 per barrel of oil equivalent produced, significantly below the North Sea average of approximately 22kg of CO2/boe.

The ‘Supply Chain Action Plan’ has been issued to the OGA and evaluation of export pipeline options is underway. In line with the strategy to electrify the GBA development, applications for UK electricity grid connection has been submitted and a pipeline & subsea electricity cable survey contract awarded. In addition to being economically attractive to electrify the planned Buchan platform, the installation of a subsea electricity cable has the potential to facilitate the electrification of other nearby platforms, with collaboration efforts ongoing.

The Front-End Engineering and Design tendering is ongoing and an application has been made to the OGA to be appointed OSD Installation Operator. Separate tenders for the provision of engineering services for topsides and substructure have been received and are now subject to ongoing technical and commercial evaluation.  Invitations to tender have also been issued for the provision of subsea engineering services and well engineering services.  Tenders are due to be received for these scopes of work by the end of June 2021.

A Farm-out process is underway with broad interest and participation from multiple parties, clearly at this stage it is too early for any comment of expressions of interest.

Andrew Benitz, CEO of Jersey Oil & Gas, commented:

“The submission of the Concept Select Report to the OGA represents a significant milestone for JOG in our journey to deliver maximum value from the Greater Buchan Area.

“Our chosen development concept ensures that, through electrification, the GBA Development could produce less than 1kg of CO2 per barrel produced; fully aligned with the UK’s “Net-Zero” targets. The submission of the CSR ahead of schedule is testament to the growing project team’s continued hard work.”

With its growing and high quality technical team working hard and ahead of time on the GBA, JOG is well underway in the process of defining what could be the first fully electrified low carbon offshore development in the UK North Sea – a very exciting proposition.

Whilst this determination to achieve such low carbon targets might seem overly keen, there is no doubt that this will not only be the marker for the future but will also stand to benefit from ESG conscious and energy transition focused investors. Recent calls by various industry commentators, some more believable than others, have led to calls for at the very minimum for responsible developments for the future.

I happen to believe that with expected changes in the industry set-up there will be fewer installations that tick the ESG boxes for investors but those that do will take advantage of what I expect to be strongly higher prices and that those operators such as JOG should make huge returns. Accordingly the upside for investors with the shares at around 150p should be very substantial indeed.

 

United Oil & Gas

UOG has provided an update on the Abu Sennan Licence, Egypt in which United holds a 22% non-operating interest. Approval from the Minister of Petroleum of the award of a development lease covering the ASD-1X discovery and commencement of production from the ASD-1X well with initial gross rates of 1,295 bopd (285 bopd net to UOG’s working interest).

Commencement of production from the ASD-1X exploration well was achieved less than two months from the announcement of the initial discovery in April 2021 and the successful workover at the ASH-1ST2 well, adding over 1,000 bopd gross (220 bopd net) to production from the ASH Field.

 

United Chief Executive Officer, Brian Larkin commented:

“The speed at which the Joint Venture is developing Abu Sennan is demonstrative of the excitement we share for the long-term potential of the licence, which continues to deliver for the Company. Today’s announcement is yet more positive news, with the approval of the development lease at ASD-1X and the start of production from that well. We would also expect this result to add to the proven reserves on the licence.

 

“In tandem with exploration success in Abu Sennan, the encouraging result from the ASH-1ST2 workover will provide a further boost to production, and will also help increase our understanding of the ASH Field.

 

“With the EDC-50 rig still drilling the Al Jahraa-8 development well, we look forward to providing further updates on the continuing 2021 Abu Sennan drilling campaign in due course.”

 

 

Trinity Exploration & Production

Trinity has confirmed this morning that its Onshore Lease Operatorship Agreements in Trinidad have been renewed for a 10 year period effective 1 January 2021. The 10 year licence period (versus five years previously) provides a longer investment horizon and therefore a greater ability to maximise returns.

Appropriate work programmes have been set for each of the LOAs, a minimum of 15 new infill wells and 30 heavy workovers (these are inclusive of recompletions) to be completed over the licence period, obligations which Trinity is highly confident of exceeding and a new focus on Enhanced Oil Recovery projects/feasibility assessments marries well with Trinity’s 3D data driven approach enabling the company to identify applicable areas of interest and reduce geological risk.

The overriding royalty rates have been favourably adjusted on a block-by-block basis to incentivise higher activity levels and maximise economic recoveries: For the current oil price band (US$50.01-70.00) the base ORR has been reduced by 15% and the enhanced ORRs have been reduced by between 40-63% dependent on the oil price band.

New super-enhanced ORRs, 50% lower than the enhanced ORRs, apply across all oil price bands once the production thresholds are exceeded. The thresholds up to which the base and enhanced ORRs apply decline at approximately 2% per annum across the licence term, further incentivising the licence operators to optimise the productivity of the fields for the long term.

The improved royalty structure rewards production increases from all activity types (not just drilling new infill wells as was previously the case) so the aggregate increase in NAV across the onshore portfolio is estimated at between 4-14% dependent on where realised prices are between US$30-US$65/bbl and at the current oil price, the accretion to the onshore portfolio NAV is estimated to be c.7%.

Bruce Dingwall, CBE, Executive Chairman of Trinity, commented:

“We are delighted to have renewed these licences for double the previous tenure, and on improved terms, which will work for the benefit of all stakeholders. We continue to have a strong relationship with Heritage and the terms of the extension provide us with the ability to focus on driving value as we increase production from existing and new wells, especially on the back of now having the 3D seismic data. When combined with the Government’s recent moves to reform the SPT regime, the commercial and fiscal backdrop is moving in the right direction for existing operators to invest further and to attract new entrants into the region.

 “Trinity has long-championed its portfolio approach and we have a broad range of near-term and longer-term opportunities all geared towards increased production, returns and scalability.”

 

And finally…

The first test of the English cricket summer started at Lords today, winning the toss New Zealand elected to bat and are 85-1 as we come to lunch. England debutant  Ollie Robinson has taken his first wicket while England also called up James Bracey as wicket keeper batsman. England are without Stokes, Buttler, Curran, Woakes and Archer at present and are second favourites here.

With the squads announced the participants are starting the warm-up friendlies, tonight England play Austria Scotland go to the Netherlands and Wales are in France.

And after a short spell in charge, the Toffees have lost manager Carlos Ancelotti to Real Madrid, it would have been a difficult choice…