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Oil price

China. That’s it, China, it’s all about Covid, the knock on effect of it on on the economy and oil demand.

Elsewhere retail gasoline prices have slightly picked up in the last few days, maybe as it’s only a month to Memorial Day and the start of the driving season products might pick up. A gallon of Shell’s finest will rush you $4.107 which is up 4.1 cents w/w, down 12.4c m/m but up $1.235 y/y.

Diversified Energy Company

Diversified has announced the acquisition of certain East Texas upstream assets and related facilities from a private seller. The Acquisition builds on Diversified’s 2021 entry into the Central Region and expands its progress to replicate the Company’s proven business model with high margin, low-decline production that is geographically proximate to its existing assets.

Under the previously announced Strategic Participation Agreement, funds managed by Oaktree Capital Management, L.P. will make a non-operated working interest investment in the Acquisition and Oaktree will promote Diversified with 5% of its interest in the Acquisition. Accordingly, Diversified will obtain a 52.5% working interest in the Acquisition for contributing 50%, or $50 million (prior to customary purchase price adjustments), of the purchase price.

Acquisition Highlights – Diversified’s Interest

•     Cash consideration of $50 million funded entirely with cash on hand and borrowings on the Company’s revolving credit facility (“Purchase Price”)

◦      Represents a 1.4x multiple based on net Purchase Price and $35 million of estimated next twelve months’ (“NTM”) Adjusted EBITDA(a) before potential synergies

◦      ~10% accretive to the Company’s 2021 Hedged Adjusted EBITDA(b)

◦      Net Purchase Price approximates a >PV40 valuation at the effective date of 1 April 2022, with net Proved Developed Producing (“PDP”) reserves of 18 MMBoe (110 Bcfe) and PV10 of ~$102 million as of the effective date and based on 19 April 2022 NYMEX strip prices

◦      Current production (100% natural gas) of 3.7 MBoepd (22 MMcfepd) from 691 gross (346 net) operated PDP wells with an estimated engineered NTM PDP decline rate of ~7%

◦      High cash margins(c) of ~60% reflective of favourable realised hedged pricing and a competitive cost structure

•     Acquisition builds scale within Diversified’s Central Region footprint, expanding opportunities for synergies

◦      Represents the Company’s fifth acquisition in the Central Region within the last twelve months and demonstrates Diversified’s success sourcing high quality, attractively-priced targets that meet its defined asset profile

◦      Geographic proximity to previously acquired assets in East Texas and Northwest Louisiana from Tanos Energy Holdings III LLC and Indigo Minerals LLC; increases asset density within the operating region and enhances the potential for development of operating efficiencies

◦      The Company will implement its Smarter Asset Management program to optimise well performance, reducing labour and vendor costs, returning wells to production, optimising artificial lift systems and lowering overhead expenses

◦      Following a customary transition service period, Diversified has the opportunity to retain experienced personnel from the Seller to complement the continuity and consistency of operations and to facilitate the implementation of Smarter Asset Management opportunities

Commenting on the transaction, CEO Rusty Hutson, Jr. said:

With a compelling purchase multiple of 1.4 times net cash flow, this acquisition represents another accretive, fully cash and debt-financed acquisition that further demonstrates our status as a capable consolidator of low-decline producing assets within the Central Region. Our enlarged regional footprint complements our portfolio of high-quality assets and provides additional scale from which we can derive operational synergies as we optimise asset performance and the associated costs. We are pleased to once again partner with Oaktree to acquire assets with material upside potential available through Smarter Asset Management. Having emerged as a significant operator in the Central Region with a proven track record of execution in Appalachia and a strong balance sheet, we are well positioned to capitalise on additional opportunities.”

Another excellent add-on acquisition from DEC who as they always say are always on the lookout for opportunities like this. Again done with partner Oaktree who will promote this leaving DEC with 52.5% WI for its $50m acquisition cost. The deal adds current production of totally natural gas of 3.7 MBoepd (22 MMcfepd) from 691 gross (346 net) operated PDP wells with an estimated engineered NTM PDP decline rate of ~7%. In addition, ‘high cash margins of ~60% reflective of favourable realised hedged pricing and a competitive cost structure’.

The deal itself looks to me to be extremely competitively priced at a multiple of 1.4x net cash flow and as CEO Rusty Hutson says in his comments is ‘another accretive and fully cash and debt-financed acquisition’ and as usual adds to the synergies derived from cost savings and economies of scale. This will include the implementation of its Smarter Asset Management program to optimise well performance, itself already a highly successful group management tool.

Rest assured this will not be the last acquisition from DEC, I would expect more and probably bigger deals in the future as there is no sign of a shortage of opportunities that the team at the company are continually addressing. The shares are some 16% up in the year to date but in my view given what I am expecting in terms of appreciation via capital appreciation and current running yield, make the shares outstandingly attractive. 


Chariot has announced, following the recent successful gas drilling campaign on the Anchois gas project offshore Morocco, the appointment of Societe Generale, London Branch  to the role of financial advisor to develop debt funding options for the Anchois gas development.

Julian Maurice-Williams, CFO of Chariot, commented:

“We are very pleased to be bringing Societe Generale on board to assist with the debt project financing of our flagship gas project offshore Morocco. We had a very successful gas drilling campaign earlier in the year and are keen to progress the development of the project to cashflows as quickly as possible.”

This speaks for itself and is just what Chariot should be doing at this stage of the Anchois development. It also shows that Anchois is going ahead at a rate of knots which is encouraging for the company, its shareholders and of course those dependent on European gas being brought on in Morocco. 

Egdon Resources

Egdon has announced its unaudited results for the six months ended 31 January 2022. 

Overview and Highlights

Operational and Corporate

·      Production during the period increased by 156% to 43,420 barrels of oil equivalent  equating to 205 boe per day  (H1 2021: 16,928 boe and 92 boepd)

·      Wressle production has significantly exceeded the original 500 barrels of oil per day expectation and is currently producing at permit constrained rates of 760-800 bopd following upgrades to the production facilities

·      Egdon has assumed the operatorship, increased its equity to 40% and agreed an extension to 20 March 2024 in PEDL343 which contains the Cloughton gas discovery

·      Planning permission was refused for the drilling of a side-track well, testing and long-term production at the Biscathorpe project

Financial Performance

·      Oil and gas revenues increased by 500% during the period to £2.551 million (H1 2021: £0.424 million) as a result of significantly increased production and strengthening commodity prices

·      Profit before impairments/write backs of £0.715 million (H1 2021: loss of £0.763 million)

·      Overall profit for the period of £1.222 million including £0.507 million write-back (H1 2021: loss of £1.039 million including £0.276 million of impairments)

·      Cash and cash equivalents of £2.084 million (H1 2021: £2.422 million and 31 July 2021: £1.96 million).

·      Net current assets as at 31 January 2022 of £1.165 million, which includes UJO debt of £1.07 million and £0.417 million deferred consideration for Wressle (31 January 2021: net current liability of £0.126 million, which includes liability for £0.962 million convertible loan and £0.417 million deferred consideration for Wressle)

Subsequent Events

·      On 10 March 2022 a revised incentive package was put in place for all employees through the issue of new share options and the cancellation of all historical share options

·      On 14 March 2022, planning permission was refused to extend the existing consents to drill the North Kelsey-1 exploration well and will be appealed during H2 2022

·      On 5 April 2022 the Government announced that it had commissioned the British Geological Survey to advise on the latest scientific evidence around shale gas extraction 

·      An appeal against the refusal of planning for the Biscathorpe project was submitted on 12 April 2022

·      During April 2022, Shell advised Egdon and the North Sea Transition Authority  of its intention to withdraw from licences P1929 and P2304, containing the Resolution and Endeavour gas discoveries.  Egdon is considering its options, including its ongoing commitment to the licences and will discuss these options with the NSTA.


·      Post-period end production and revenues have continued to be strong with February and March revenues of £0.480 million and £0.953 million respectively

·      The Company is funded for all near-term committed activity including the loan repayment of £1.07 million due in May 2022

Our key operational focus for the coming period will be:

·      Continuing to optimise oil and gas production from the Ashover Grit reservoir at Wressle, building on the strong performance to date

·      Progressing gas monetisation at Wressle

·      Finalising plans for development of the material Contingent Resources in the Penistone Flags at Wressle

·      Progressing drilling plans to target incremental oil production / near field exploration opportunities at the Keddington oil field and the field redevelopment at Waddock Cross

·      Securing planning consent via appeal for the Biscathorpe and North Kelsey projects

·      Further developing the Company’s energy transition opportunities including repurposing of the Dukes Wood-1 well for geothermal heat

These historic figures are just that but the highlight is of course the Wressle production number but Shell withdrawing from its partnership is extremely disappointing but no great surprise. The shares have fallen sharply on these figures which is probably overdone. 

What I don’t get is that there is no comment from the executive MD at the interims but there is from the Non-Executive Chairman who according to the website ‘retired from the city in 2002 after nearly 40 years working in UK Corporate Finance for various financial institutions’. If I held the shares I would really want to know what Mark Abbott thought about the results and the Shell situation…

Union Jack Oil

Union Jack notes that the Operator, Egdon Resources U.K. Limited has provided an update on their projects as part of its Interim Results, published today, for the six months ended 31 January 2022.

Union Jack is pleased to highlight the relevant comment on projects in which interests are held by the Company.

Wressle PEDL180 and PEDL182 (Union Jack 40%)


·    Revised Field Development Plan submitted to the North Sea Transition Authority (“NSTA”) during April 2022

·    Production currently at 760 to 800 barrels of oil per day (“bopd”) gross (304 to 320 bopd net to Union Jack)

·    Instantaneous flow rates of over 1,000 bopd have been achieved

·    Likely gas monetisation approach will be to export gas via a short, approximately 600 metre pipeline from the Wressle site into the gas distribution network

·    Completion of gas monetisation expected by winter 2022

·    Advancement of the development plan and consent process to enable production from the Penistone Flags reservoir containing significant Contingent Resources

Wressle-1 quickly exceeded pre-production expectations of 500 bopd on resumption of production following the successful proppant-squeeze and coiled tubing operations executed during August 2021.

Instantaneous flow rates of over 1,000 bopd have been achieved.

Early restrictions to production have been successfully addressed through improvements and modifications to the site facilities, including installation of a secondary separator and progressive upgrades to the gas incineration unit.

Production is currently controlled by the 10 tonnes per day gas incineration boundary, regulated by the Environmental Agency (“EA”) Permit, to between 760 to 800 bopd gross (304 to 320 bopd net to Union Jack).

Once the gas monetisation development is complete this production limitation will be eliminated and the production rate is expected to increase significantly.

Independent pressure test analysis has indicated potential flow rates for Wressle-1 of between approximately 1,200 to 1,500 bopd.

Since production commenced at Wressle-1 in January 2021, the cumulative oil production has exceeded 150,000 barrels of oil with zero formation water produced to date.

A revised Field Development Plan was submitted to the North Sea Transition Authority (“NSTA”), formerly known as the Oil and Gas Authority during April 2022.

The likely gas monetisation approach will be to export gas via a short pipeline of approximately 600 metres from the Wressle site into the local gas distribution network.  This will require regulatory Planning and EA consents.

This work is likely to be completed towards the end of 2022, in time for gas sales in the coming winter.

This export route will also be available in the longer term for the development of the Penistone Flags reservoir where detailed work is underway to produce the gross Mid-case Contingent Resources of 1.53 million barrels of oil and 2 billion cubic feet of gas.

Environmental monitoring throughout the operations has shown no measurable impact on surface or groundwater quality, no related seismicity and that noise levels have been within the permitted levels.

The Operator has stated that priorities for the coming period will be to:

·    Complete the installation of the remaining permanent production facilities

·    Progress planning, permitting and implementation of the gas monetisation plan, reduce gas incineration and eliminate limitations on oil production

·    Advance the development plan and consent process to enable production from the Penistone Flags reservoir

Operational Focus at Wressle

·    Continue to optimise oil and gas production from the Ashover Grit reservoir, building on the strong performance to date

·    Progress gas monetisation

·    Finalise plans for the development of the material Contingent Resources in the Penistone Flags

Keddington PEDL005(R) (Union Jack 55%)

Keddington continues to contribute tangible revenues, especially during this time of high oil prices.

A subsurface review of the field has highlighted a viable drilling location in the east of the field targeting up to 180,000 barrels of oil of incremental production.

With planning consent already in place, this presents an opportunity to increase production via a development side-track from one of the existing wells.

In addition, a near-field exploration opportunity exists at Keddington South (Mean Prospective Resources of 635,000 barrels of oil) and the Louth Prospect (Mean Prospective Resources of 600,000 barrels of oil).

Fiskerton Airfield EXL294 (Union Jack 20%)

Fiskerton Airfield continued production during the period.  Focus remains on maximising oil production from the existing wells and managing costs.

Longer term, there is potential for the site to be used to manage any produced water from other operated sites through the existing water injection well and also for possible geothermal repurposing.

Biscathorpe PEDL253 (Union Jack 45%)

On 1 November 2021, planning consent was refused for the drilling of a side-track well, testing and long-term production at Biscathorpe.

The application had been recommended for approval by Lincolnshire County Council planning officers.

On 12 April 2022, the Operator submitted a comprehensive statement of case in support of its appeal against the decision.  Shareholders will be updated as the appeal process progresses.

According to the Operator`s estimates the proposed side-track would target gross Mean Prospective Resources of 6.5 million barrels of oil.

North Kelsey PEDL241 (Union Jack 50%)

The application to extend the existing planning permission to drill the North Kelsey-1 exploration well was refused by the LCC planning committee on 14 March 2022.

The decision was disappointing given the compelling case presented and the positive recommendation of LCC’s Planning Officer.  Given this, the Operator will bring forward an appeal against this decision during H2 2022.

The North Kelsey Prospect is considered an analogue to the Wressle field and according to the Operator has gross Mean Prospective Resources of 6.47 million barrels in multiple reservoirs.

Energy Transition at Dukes Wood PEDL118 (Union Jack 16.67%)

A programme to plug and abandon the existing Dukes Wood-1 oil well and to recomplete for geothermal heat production has been developed and submitted to the NSTA.

Anticipation is that, subject to regulatory approval this work, which is a proof of concept, will commence during 2022.

Outlook for Other Projects and Forward Plan

·    Progress drilling plans to target incremental oil production and near field exploration opportunities at the Keddington oilfield

·    Securing planning consent via appeal for the Biscathorpe and North Kelsey projects

·    Further develop the energy transition opportunity for repurposing the Dukes Wood-1 well for geothermal heat

Executive Chairman of Union Jack, David Bramhill commented:

“The Extended Well Testing programme at Wressle has been nothing short of a spectacular success and another important milestone has been achieved in the submission of the Wressle Field Development Plan to the Regulators.  Full credit must be offered to the Operator and its Joint Venture partners in achieving this.

“We have learned much about the behaviour of this well over the past year and the results to date have confirmed that our material 40% interest in this major project is only just beginning to show its true potential.

“I have no doubt that Wressle will be a major producer of onshore hydrocarbons for many years to come.

“In addition, our multi-discovery conventional onshore project at West Newton is also making significant progress and our expectations of success, remain, as always, extremely high.

“To sum-up, Wressle has effectively transformed the financial position of Union Jack and, coupled with the exceptional opportunities we believe are offered by our other projects, the Company is now covered for all operational and contracted or planned CAPEX costs, including drilling, which augers well for the future of the Company and its shareholders.”

Not much to add to yesterday’s highly bullish statement on the ‘material’ revenues from Wressle as operator Egdon lays out more detail of things to come. Elsewhere UJO adds good news on potential drilling at Keddington and that Fiskerton may become a long term venue for water injection. 

The Biscathorpe appeal continues and an appeal is being prepared at North Kelsey, add to that West Newton is ‘making significant progress’ where expectations of success ‘remain high’. Accordingly Union Jack which has risen modestly on this news is clearly making substantial progress and there is a great deal of upside in the shares. 

Zephyr Energy

Zephyr has announced the results from an updated Competent Person’s Report on its assets in the Paradox Basin, Utah, U.S.

The CPR was compiled by Sproule International Limited, a leading independent global energy consulting and advisory firm.  The previous CPR on the Paradox project was completed in 2018 by Gaffney Cline & Associates, the results of which were announced on 22 June 2018.

An interview with the Company’s Chief Executive Officer, Colin Harrington, discussing the results of the CPR can be found on the Company’s website www.zephyrplc.com or can be accessed through the following link https://www.zephyrplc.com/cpr26-4.  A supporting slide presentation may be found on the Company’s website at https://www.zephyrplc.com/slides26-4.


  • 2P Reserves: First Paradox Basin Proved Reserves booked, based on the State 16-2 LN-CC well drilling success:
    • 2.1 million net barrels of oil equivalent – an increase from zero boe from 2018 CPR
  • 2C Resources: Significant increase to resource estimate across the Cane Creek Reservoir:
    • 27 million net boe –more than double the 12.3 million boe from 2018 CPR
  • Prospective resources from overlying reservoirs:
    • 203 million net unrisked boe (68 million boe risked with a weighted-average 33% chance of success (“CoS”))
Paradox BasinNet Attributable to Zephyr
Developed and Undeveloped Reserves (boe) – Cane Creek Reservoir537,0002,123,0006,811,000
Paradox BasinNet Attributable to Zephyr
Contingent Resources (boe) – Cane Creek Reservoir26,870,00081,130,000
NPV-10$ 148,028,000$894,112,000
Paradox BasinNet Attributable to Zephyr
Net Unrisked Prospective Resources (boe) – Overlying Reservoirs *57,500,000203,000,000419,000,000
Net Risked Prospective Resources (boe) – Overlying Reservoirs*23,000,00068,000,000112,000,000
*Net present value economics at a discount rate of 10 per cent (“NPV-10”) were not evaluated for Prospective Resources in the Sproule report.
*Risked Chance of Success avg. 33%


Combined with Zephyr’s Williston Basin non-operated portfolio, Zephyr’s total 2P Proved Reserves now have an estimated net present value at a ten per cent discount rate (“NPV-10”) of over US$111 million (up from zero value ascribed in 2018) with substantial multiples of additional upside potential from success cases related to its contingent and prospective resources.  The Company plans to drill three wells in the second half of 2022 to further delineate and increase value from the Paradox asset base.

In determining the NPV-10 for the reserves and resources, Sproule utilised its March 31, 2022 price forecast for both oil and gas which includes a West Texas Intermediate  oil price forecast of US$93/barrel  in 2022, US$83/bbl in 2023, and US$73/bbl in 2024, with a further US$5.00 per barrel deduction for price differential.  For the gas price forecast, Sproule used a Henry Hub gas price of US$5.00/per million British thermal units  in 2022, US$4.25/mmbtu in 2023, and US$3.25/mmbtu, with a further gas price differential of US$1.25 per million standard cubic feet reduction from Henry Hub, a heating value of 1000 btu per mscf and a shrinkage of 5% for losses due to surface facilities.  Prices and costs are escalated at 2.0% per annum until the price doubles, and are then held flat.

Sproule’s study took place across 30,700 acres of Zephyr’s Utah assets, with an additional 6,500 acres of Zephyr’s leaseholding not yet evaluated. Sproule’s recoverable estimates display a broader range and more significant upside than previously published Management guidance, which had utilised a post-drill assessment of 1 billion boe of hydrocarbons initially in place (“HCIIP”) and a 5-15% recovery factor.

Colin Harrington, Chief Executive of Zephyr, said:

“We are delighted with the conclusions drawn by Sproule, which both demonstrate the impact of our recent drilling success and which further highlight the substantial potential scale and profitability of the Paradox project.  Over the last twelve months Zephyr created over US$111 million NPV-10 in 2P proved reserves in two discrete basins, through opportunistic acquisitions and success with the drill bit – and the Contingent and Prospective Resource estimates demonstrate the potential for many multiples of additional value growth beyond.

“Today’s announcement of the results of the CPR is a key milestone for the Company, outlining the value potential in our portfolio.  Thanks to the State 16-2 LN-CC well and our acquisition of proved reserves around the Cane Creek field, we’ve been able to book Proved Reserves on the Paradox project for the first time.  Further, we are on track to unlock even greater value as we prepare for the fully funded Cane Creek three well drilling campaign in 2022. By drilling additional delineation and exploration wells, our goal is to significantly advance the understanding of this play, its key risks and its potential upside.  Our hope is to fuel further increases across all reserve and resource classes by this time next year, and ultimately to unlock the next great unconventional resource play in the onshore U.S.  Our potential for funded, organic growth is significant and we look forward to executing this strategy over the remainder of 2022.

That said, we feel we are merely at the start.  The Sproule report illustrates potential contingent and prospective resources worth well in excess of a billion dollars.  While the range in values is still broad and there are a number of underlying technical and operational risks to be tested and mitigated, our team to date has demonstrated its ability to approach development in a measured and successful way.  We aim to build on that knowledge and track record to further accelerate the value growth in our existing portfolio.

“Funding for the next phase of development of the Paradox project will be provided from our non-operated production portfolio in the Williston Basin, U.S., where first quarter 2022 operational production rates averaged 1,643 boepd and nearly half of the next two years’ anticipated production is hedged at an average of $92.70 /bbl.  In addition, we look forward to generating additional production and cashflow from our previously drilled and completed State 16-2 LN-CC well in the coming months.

“Zephyr is perfectly positioned for further material growth and value creation, and the results from today’s CPR highlight the substantial potential in front of us.  I look forward to providing regular updates as our near-term drilling and operational plans progress.”

“Finally, I would like to reiterate that through this busy and exciting time our mission remains to operate as responsible stewards of investors’ capital and of the environment in which we work.”

The combined Paradox Basin and Williston total 2P proved reserves on an NPV-10 basis of over $111m is huge and given that it comes with potential for ‘many multiples of added value of potential upside’ and that the management plan to increase reserves and resources within a year their confidence is high. Indeed the fact that Sproule have given Zephyr the OK to book as proved reserves from the State 16-2 well should confirm that.

Given the time differences I havent yet had an opportunity to speak to Colin so I may add further comments in due course but there is no doubt that this is an exceptional CPR which makes it more surprising that the share price has fallen this morning.

Investors who have followed this story closely know that it is backboned by what I consider to be a very high quality management team who have put together a company based on firstly a plan for the Paradox which worked and then skilful addition of production in order to fund the drilling programme. 

The shares at today’s 7p are a steal and I must get Colin in front of a camera shortly…

And finally…

Tonight there is only one show in town and that is the Noisy Neighbours hosting Real Madrid at the Emptihad…