WTI $71.81 +16c, Brent $73.59+12c, Diff -$1.78 -4c, NG $3.67 +6c, UKNG 88.16p +5.41p

Oil price

As expected there has been an agreement between the KSA and the UAE who get a modest rise in their baseline figure from 3.2m b/d to 3.5m b/d. They have agreed to extend the Opec+ deal beyond April 2022 in return. Accordingly the Opec+ deal goes ahead with a 400/- b/d increase in production in August. The group will meet September 1st and every month and bear in mind that the oil market will remain tight.

Elsewhere these ructions and also the Covid situation led to oil prices falling last week, WTI lost $2.75 and Brent $1.96. Markets are seeing the least vaccinated countries such as Japan really struggling and even in the US, Israel and the UK cases are rising as restrictions are lifted.

Finally no sign yet of much more US oil on the market as Baker Hughes reported a rise of 5 rigs overall and just 2 in oil at 380 units.

IOG

IOG has provided an update on the Elgood well 48/22c-7, its first Phase 1 development well. The well was drilled horizontally through the reservoir section to a Total Depth of 15,472ft Measured Depth (MD), intersecting 1,080 ft of high-quality Permian Leman Sandstone reservoir along hole between 14,290 ft MD and 15,370 ft MD, with a net: gross ratio of 91%, good porosity at 12.4% and average log-derived permeability of 13.3 milliDarcies (mD) versus the P50 prediction of 5mD.

‘Over recent days the well was successfully cleaned up and flow tested. Test rates were ahead of expectations, with a maximum rate of 57.8 mmscf/d of gas and 959 bbl/d condensate through a 80/64th inch choke, constrained by surface facilities on the Noble Hans Deul jack-up rig. The Elgood field is planned to be produced as a subsea tie-back, via the 6″ pipeline laid in Q4 2020, to the platform at the Blythe field once the single development well at the latter has also been drilled. The subsea tree will be controlled via the umbilical being installed over the coming weeks as part of the summer 2021 subsea installation campaign.

The company state that a number of mechanical issues were experienced on the Elgood well since it spudded on 9 April 2021, which extended it beyond the initially expected three-month duration. The Company has collaborated closely with Well Operator Petrofac and its key drilling contractors, Noble Corporation and Schlumberger, to overcome these challenges and execute the well as safely and efficiently as possible. The Company and its contractors have investigated the root causes of these issues and are putting in place protocols and procedures to limit the potential for similar mechanical issues to occur in subsequent wells.

The Noble Hans Deul rig is expected to mobilise within the next week to the Blythe field where it will drill the development well through the Blythe platform, before moving on to Southwark. Due to the extended duration at Elgood, the Blythe well despite being shorter is now expected to be completed by October 2021, and Phase 1 First Gas therefore to occur in Q4 2021.

The Elgood reservoir was encountered 39ft deep to prognosis. Management’s preliminary integration of the well data, prior to the well test, indicated that the range of ultimate recoverable gas may be less than the pre-well estimates. The Company will undertake a full technical review to determine an updated range of ultimate recoverable gas from the reservoir, which will require further modelling and analysis of several months of production. In the meantime, in light of the higher than expected clean-up flow rates combined with the high forward gas pricing environment for the coming year, management believes that near-term Elgood cashflows are likely to exceed the Company’s planning base case.

Andrew Hockey, CEO of IOG, commented: 

“Delivering our first development well at Elgood is another important milestone for IOG and a surface-constrained maximum well test rate of 57.8 mmscf/d and 959 bbl/d condensate is encouraging for initial production rates.

We expected the Elgood well to be technically challenging, being the first development well drilled on the smallest Phase 1 field and the only subsea tie-back in the programme. The mechanical issues experienced have indeed tested my team, but thanks to their hard work, resourcefulness and diligent collaboration with our key contractors, Petrofac, Noble Corporation and Schlumberger, we have now completed it safely and successfully. In that respect I would also like to acknowledge the continued support of our Joint Venture partner CalEnergy Resources (UK) Limited.

The Elgood volumetric range will be revised once we fully integrate well and production data. Initial field revenues look likely to be strong given the positive well test rates and the very buoyant gas market, with Winter 2021 prices currently over 90p/therm. We will shortly be spudding the Blythe well, which is expected to take under three months, after which we can provide a more comprehensive view of initial Phase 1 production rates.”

I have quoted in some detail from the RNS this morning as the technical details need to be assessed from what was a slightly tricky well but the company are supported by some of the best contractors in the business who will use the data from this, the smallest and most technically challenging well, in upcoming drills. However there is no doubt that to successfully drill over 1,000 feet of high-quality Permian Leman Sandstone reservoir, especially bearing in mind that it was a horizontal well to avoid the nearby wind farm deserves a great deal of credit.

The modest delay still means that first gas will be Q4 of this year and those who watch the UK gas price at the top of each blog will be aware how strong that price is, indeed later this year the strip shows a price of 95p which as the company state, would still mean cash flow to exceed the estimated base case.

With the next well at Blythe being significantly simpler and shorter than this one and what is more drilled through the platform, I think that the knock that the shares have taken this morning has been overdone and the advantages of this low carbon gas company are yet to be fully appreciated.

Union Jack Oil/Egdon Resources

Egdon as 35.8% owner and operator and Union Jack with a 45% interest in the Biscathorpe hydrocarbon project have published the positive conclusions of a Carbon Intensity Study on the Biscathorpe hydrocarbon project, located within the proven hydrocarbon fairway of the South Humber Basin containing PEDL253, onshore UK.

The GaffneyCline study highlighted that the Biscathorpe project, as currently envisaged has an AA rating for Carbon Intensity for its potential long-term production of oil using GaffneyCline’s own rating system. Carbon Intensities at Biscathorpe are estimated to be significantly lower than the current UK average when compared to other onshore analogues.

Once in production, based on the study GaffneyCline estimates that the Biscathorpe project will have a Carbon Intensity of just 3.06 grams of CO2 per megajoule of energy created (gCO2eq./MJ) and the study also highlighted that this number could be further reduced to just 1.49 gCO2eq./MJ by applying gas-to-grid technologies.

Mark Abbott, Managing Director of Egdon, commented:

“The results of GaffneyCline’s independent modelling provides strong evidence that a future development at Biscathorpe could achieve a low carbon intensity rating (AA).  The Climate Change Committee has acknowledged that the UK will still be using fossil fuels up to and beyond the UK’s Net Zero carbon emissions target of 2050. It follows that the production of fossil fuels should be from that which generates the lowest emissions footprint, which, like Biscathorpe, are indigenous UK sources.

I am also pleased to confirm the submission of additional information in support of our planning application for the Biscathorpe project. This is expected to be considered by the Planning Committee later in 2021.

Biscathorpe represents a material and financially robust opportunity to secure an indigenous oil resource which would generate local and regional economic benefits and have environmental benefits through its lower carbon footprint when compared to imported oil.

David Bramhill, Executive Chairman of Union Jack commented: 

“This study is an excellent overview of the green credentials for any potential future development decision at Biscathorpe. The AA rating achieved indicates the efforts made by the Operator, Egdon, to ensure that projects under its stewardship comply with best practice. Union Jack and Montrose Industries Ltd support Egdon’s strategy to negate the effects and threat of climate change. Union Jack’s growth strategy is aligned with our Carbon Management Practice for all of our development projects in the future in order to achieve significantly lower carbon intensities than the industry average.

“The Board of Union Jack believes that in these environmentally aware times, investors will only wish to commit to investments in companies and projects that support a transition to a low-carbon economy. As part of our ongoing strategy in respect of the environment going forward, we commit to be totally transparent in respect of our projects and on how our Carbon Management Practice is implemented.

 “Biscathorpe represents a material and financially robust opportunity to secure an indigenous oil resource which would generate local and regional economic benefits displaying environmental advantages through its lower carbon footprint when compared to imported hydrocarbons.”

This is more good news for the Biscathorpe partners who are sitting on a potentially very substantial and highly rewarding future development and of increasingly profitable hydrocarbons.

United Oil & Gas

UOG has provided an update on the drilling of the Al Jahraa-8 (“AJ-8”) development well in the Abu Sennan concession, onshore Egypt. Highlights from AJ-8 Well suggest initial interpretations indicate a total of over 40m MD of net oil pay encountered cumulatively across three different reservoir units in a side-track (AJ-8ST1), after the initial hole was plugged back due to stability issues.

Preliminary results indicate over 30m of net pay in the Upper and Lower Bahariya reservoirs,  significantly above pre-drill expectations and the Abu Roash E (“AR-E”) reservoir also appears to have encountered net pay, in line with pre-drill expectations. The well has now been secured with liner in place, and will be completed and tested across the three pay intervals and the successful discovery of commercial net pay in AJ-8ST1 makes it the 5th successful well in a row at Abu Sennan since United acquired its interest in the licence.

Following the continued success and potential demonstrated at Abu Sennan, an additional, fully funded, exploration well (“ASX-1X”) has now been added to the 2021 drilling schedule and will be drilled 11km to the west of the successful ASD-1X well, which discovered 22m of net oil pay, before being put into production approximately two months after discovery.

The well will target multiple Abu Roash and Bahariya reservoirs and will also be drilled using the EDC-50 rig following completion of operations at the AJ-8 well and longer-term plans for unlocking additional potential in Abu Sennan licence are currently under discussion amongst the Joint Venture Partnership.

United’s Chief Executive Officer, Brian Larkin commented:

 “We are delighted to be able to announce yet another positive result from the Abu Sennan licence. This latest success from the AJ-8 development well will not only provide an uplift to our low-cost production base, but also demonstrates the deeper potential that exists within the Bahariya Formation targets. Encountering over 30m of net pay in the Bahariya Formations is significantly above our pre-drill expectations and will likely be targeted further in subsequent drilling campaigns.  

 “The JV partners have discussed the upside potential on the Abu Sennan licence, both from the existing fields and the identified exploration targets, and it is great to have an additional exploration well added to the 2021 drilling schedule, funded from operating cashflow, showing the willingness of the JV partners to invest in unlocking that upside potential. Although this is expected to be the final well of the 2021 campaign, discussions are continuing with partners on the longer-term plans for accessing the unrealised value at Abu Sennan, and we look forward to updating the markets on these plans in due course.

 “Given the previously reported positive results from the ASD-1X well, we look forward to drilling this similar-looking structure, and will update the market as the drilling progresses.”

Trinity Exploration & Production

Trinity has announced that a new Galeota Exploration and Production Licence, on the East Coast of Trinidad, has been issued by the Ministry of Energy and Energy Industries. Contemporaneously, Trinity has agreed new and improved commercial terms with its partner on the Block, Heritage Petroleum Company Limited.

 Highlights/Improved Commercial Terms include a new 25 year Licence commencing 14 July 2021 (initial six year term with 19 year extension in accordance with the Petroleum Act) covering an area of 19,280 acres (7,802 hectares) with significantly reduced minimum work obligations and performance guarantees.

Heritage’s 35% working interest across the Galeota Licence has been converted to an overriding royalty whereas previously Trinity held a 100% working interest only over the Trintes producing area and a 65% WI across the wider Block.

Trinity now has a 100% WI over the entire Block and can therefore recognise 100% of the reserves and resources across the entire Galeota Licence. As a consequence, management’s estimate of the Group’s Net 2C contingent resources are now 31.06 mmbbls (previously 23.25 mmbbls). Management’s estimate of the Group’s Net 2P reserves (as at the end of 2020) remains 19.55 mmbbls and so the Group’s overall Net 2P plus 2C volumes are therefore 50.61 mmbbls (previously 42.80 mmbbls). 

The conversion also results in a material reduction in ORR rates across both the producing Trintes field and the wider Block, moving to a 100% WI will also enable Trinity to apply the bulk of its substantial tax losses across the entire Galeota Licence, enabling them to be utilised more quickly.

Bruce Dingwall CBE, Executive Chairman of Trinity, commented:

 “Today’s announcement marks the start of the next phase of the Galeota Block development. The Galeota Block, which includes the current Trintes Field production, the Echo Field Development and the Foxtrot and Golf appraisal areas is a core asset of the Group. We are extremely pleased with the outcome of our constructive negotiations with the MEEI and Heritage. The improvements in the Licence and JOA terms support a return to sustained investment across the Block, to the mutual benefit of Trinity, Heritage and the Government of the Republic of Trinidad and Tobago (“GORTT”).

 “The significantly improved ORR terms and new COSA provide Trinity and prospective funding partners with attractive commercial terms and the requisite visibility to bring on new low carbon development projects such as Echo, incentivising maximum resource extraction at a time of high oil prices and a transition towards lower carbon energy supplies.

“We appreciate the commitment of both the leadership team at Heritage and the proactive approach and support that we have received from the MEEI and we look forward to working with all stakeholders to optimise the significant mutual benefits of these new arrangements.”

And finally…

Ahead of next week’s first test the Lions won well enough against The Stormers on Saturday, quite some competition for places not least for Marcus Smith who had, as they say, a stormer on Saturday.

Collin Morikawa won the open Golf Championship cruising through with what seemed very little trouble.

And Lewis won the British GP at Silverstone not without some cause for debate but the Stewards ultimately made their judgement. It didnt stop Max being a touch unnecessary on the Twitter machine…

And England won the 2nd T20 game against Pakistan quite easily, the final of the three games is tomorrow night.