WTI $102.75 +19c, Brent $106.80 -45c, Diff -$4.05 -64c, NG $6.94 -24c, UKNG 178.5p +3.5p

Oil price

Nothing much doing as WTI for April went off the board and the only other piece of news was the EIA inventory stats where crude drew a big 8m barrels, gasoline fell 761/- and distillates dropped by 2.66m to show a mainly positive mix.

Zephyr Energy

Zephyr has announced the implementation of a hedging programme related to 328,000 barrels of oil production from its non-operated asset portfolio in the Williston Basin over the next two years.   The Programme is designed to ensure over US$30 million of forecast revenue during this two-year period and has been implemented with BP Energy Company, one of the world’s leading energy trading houses, as the hedge counterparty.

Under the terms of the Programme, Zephyr entered into crude oil commodity swap agreements, which settle on a monthly basis, at the following prices:

  • Q2 2022:  64,000 bbls at US$100.80/bbl
  • Q3 2022:  57,000 bbls at US$98.00 /bbl
  • Q4 2022:  50,000 bbls at US$94.55 /bbl
  • 1H 2023:  69,000 bbls at US$90.05 /bbl
  • 2H 2023:  61,000 bbls at US$85.40 /bbl
  • 1H 2024:  27,000 bbls at US$82.20 / bbl

The Programme has been structured to provide cashflow surety related to the Company’s senior debt obligations, as well as to materially derisk funding requirements for the proposed upcoming drilling campaign at the Company’s flagship Paradox Basin project.  The Programme announced today accounts for less than 50% of the Company’s total forecast production from all reserve categories on its non-operated portfolio over the next two years, leaving considerable additional exposure to commodity price fluctuations.  Zephyr’s Board of Directors will continue to monitor commodity prices on a regular basis and may layer on additional hedges if and when it deems appropriate.

The Company estimates that the cash operating cost per barrel from its Williston Basin production will average approximately US$16 per barrel over the next 24 months, which implies strong profit margins for barrels hedged under the Programme. Further, when Sproule International completed its Competent Persons Report (“CPR”) on Zephyr’s non-operated portfolio in November 2021 (announced on 22 November 2021), it used an oil price per barrel of oil of US$71 for 2022, US$68 for 2023 and US$66 in 2024 for its valuation. The current implied valuation of Zephyr’s non-operated portfolio has therefore increased materially as a result of the Programme and prevailing commodity prices.

Colin Harrington, Chief Executive of Zephyr, said: “Zephyr successfully completed five acquisitions of producing non-operated assets in the Williston Basin over the last twelve months.  The recent and substantial increase in global oil prices has now resulted in prices well above levels expected when we closed those acquisitions, so I’m delighted to be able to announce the implementation of our inaugural hedge programme at this time.  The Programme will both protect our balance sheet and provide certainty to enable us to deliver on our key objectives over the next twelve months. We expect all our forecast capital commitments, for at least the next twelve months to be fully funded through a combination of existing cash resources and cash flow from production.

“While balance sheet and capital expenditure protection are the driving forces behind our hedging strategy, it’s important to point out that the majority of our forecast non-operated production, and 100% of our produced natural gas volumes, retain exposure to future changes in commodity prices, and that 100% of our oil and gas production until the end of March 2022 was unhedged and benefited from the strong recent pricing environment.

“I would like to take this opportunity to thank BP, our hedge counterparty, and First International Bank & Trust, our senior lender, for working so diligently to enable us to implement the Programme.

“2022 is shaping up to be another exciting year for the Company with a significant amount of corporate and operational activity in the pipeline – including the release of the key findings of the CPR on the Paradox project which is expected early next week. Planning for the drilling of three additional wells on the Paradox project in the second half of this year is well underway.

“Above all, I would like to reiterate that our mission remains to operate as responsible stewards of investors’ capital and of the environment in which we work.  With a substantial portion of our forecast production cashflow now locked in at excellent pricing, we very much look forward to efficiently redeploying that capital over the coming months.”

As predicted at the time of the acquisition, Zephyr has implemented a hedging programme of some 328/- barrels of its oil production over the next two years, which ‘ensures over $30m of forecast revenue over the period’. It also gives cash flow surety for its senior debt obligations and ‘materially de-risks funding requirements for drilling at the Paradox Basin’ and is less than 50% of production over the period.

Whilst readers know that I am not a big fan of hedging per se, in this case it is more than appropriate. With cash flow and debt obligations effectively ring fenced investors should feel comfortable but without feeling that the upside has been traded away. I still see significant room for share price appreciation from here and Zephyr remains a jewel in the crown of the Bucket List. 

Serica Energy

Serica has today announced its audited financial results for the year ended 31 December 2021.

2021 Summary

·      Group gross profit of £386.8 million (2020: loss of £2.9 million) and cash flow from operations of £157.6 million (2020: £44.1 million).

·      Average net production of 22,200 boe per day (2020: 23,800 boe per day) after extended 2021 maintenance programmes.

·      Completion of Rhum R3 and Columbus well programmes bringing increased production starting in August and November 2021 respectively.

·      2P reserves increased to 62.2 million boe (2020: 61.0 million boe) with Group 2021 production more than replaced.


·      Average 2021 sales price of approx. US$93 per boe (2020: US$20 per boe) before hedging losses.

·      Average operating cost of US$16.47 per boe (2020: US$14.12 per boe) reflecting increased workscope following COVID restrictions during 2020.

·      Operating profit of £246.1 million (2020: loss of £18.7 million) after:

o  realised losses of £56.6 million on 2021 gas price hedging (2020: gains of £12.3 million); plus

o  unrealised losses of £74.6 million based on valuation of 2022/2023 gas price hedging (2020: loss of £16.6 million).

·      Cash flow from operations of £157.6 million (2020: £44.1 million) after payment during the year of £113.6 million of temporary cash security lodged with hedge counterparties (2020: £1.8 million).

·      Closing cash at 31 December 2021 of £103.0 million (2020: £89.3 million) plus a further £115.4 million of temporary cash security (2020: £1.8 million) after:

o  £52.2 million of capital investment (2020: £26.6 million), and

o  £9.4 million of dividends paid (2020: £8.0 million).

·      Profit before tax of £135.1 million (2020: £12.5 million) after final charges of £110.5 million for BKR fair value of net cash flow sharing and Rhum deferred consideration (2020: gains of £31.3 million).

·      Profit after tax of £79.3 million (2020: £7.8 million) after current tax charges of £15.8 million (2020: nil) and a non-cash deferred tax provision of £40.0 million (2020: £4.8 million).


·      Updated independent audit of field reserves reported Serica’s share of estimated remaining 2P reserves as 62.2 million boe as at 1 January 2022

o  approximate 14% increase over the 61.0 million boe reported as at 1 January 2021, after adjustment for 2021 production

o  result of outcome of R3 operations, general well performance and improved forward commodity prices.

·      Rhum R3 well, brought into production in August after overcoming series of challenges arising from the original drill programme in 2006.

·      Columbus development well completed in mid-year and brought into production in late November once Arran-Shearwater pipeline and associated Shearwater facilities available.

·      Bruce, Keith and Rhum fields produced approx. 20,300 boe per day net to Serica for 2021 compared to 21,500 boe per day for 2020 after extended summer maintenance programme.

·      Erskine field production averaged 1,650 boe per day net to Serica during 2021 (2020: 2,300 boe per day) after three-month summer shut-in to upgrade production module.


·      Continued focus on flaring resulted in a 16% reduction in flare volumes compared to 2020.

·      Scope 1 CO2 emissions of approx. 208,900 tonnes were within approx. 2% of 2020 (204,650 tonnes) and approx. 13% lower compared to 2019 (241,500 tonnes).

·      Delivery of ESG targets for flaring, emissions and waste incorporated into incentivisation schemes for all staff.

·      Demonstrating our commitment to ESG transparency by providing a greater scope of information and reporting in line with the most up to date reporting standards. An updated ESG report will be available on the Serica website www.serica-energy.com concurrent with the publication of the full 2021 Annual Report.


·      New production from the Rhum R3 and Columbus wells benefitting from strong commodity prices and the retention of 100% of our BKR net cash flows effective from 1 January 2022.

·      Production guidance range for 2022 narrowed and slightly reduced from 27,100-33,600 boe/d to 26,000 boe/d-30,000 boe/d reflecting lower Columbus production rates and current supply chain limitations causing 2022 programme delays.

·      North Eigg exploration well is due to spud in early Q3 2022 with the prospect of a rapid route to development in the event of a discovery – P50 recoverable resources estimated at 60 mmboe unrisked.

·      Light Well Intervention Vessel campaign to enhance production on BKR wells planned for the summer.

·      Ongoing commitment to reduce our emissions through engineering projects, improved working practices and collaboration with supply chain.

·      Subject to shareholder approval at the AGM, a dividend of 9 pence per share will be payable on 22 July 2022 to shareholders registered on 1 July 2022 with an ex-dividend date of 30 June 2022.

·      Shareholder approval will also be sought at the AGM to enable repurchases of Serica shares of up to 10% of the Company’s share capital though we have no current plans to utilise this.

·      With strong operating, ESG and financial credentials Serica is well-placed to grow through developing the potential of its existing assets as well as building on new opportunities to diversify risk, provide new growth prospects and achieve economies of scale.

Commenting on the results, Mitch Flegg, Serica’s CEO stated:

“2021 was an outstanding year of progress for Serica, which demonstrated the value of our through-cycle investment strategy resulting in the R3 and Columbus projects reaching first production. This increases Serica’s gas output to over 85% of our total production, further increasing our contribution to the provision of vital lower carbon gas to the UK’s energy market.

Our latest Competent Persons Report has again indicated a significant increase in Serica’s remaining 2P Reserves which stand at 62.2 million boe at 1 January 2022, an increase during the year despite allowing for 2021 production.

We will continue to pursue our investment-led strategy this year with a planned well intervention programme on the Bruce, Keith and Rhum fields in addition to our exploration well at North Eigg. As always, we continue to look for acquisition opportunities that fit our criteria and will add value for our stakeholders.” 

This as we all expected is a fantastic set of results but as CEO Mitch Flegg said in the meeting, it’s last year’s story. Indeed but things are still going very well indeed for Serica even if you take a cautious view on the gas price which surely won’t happen any time soon. 

The best thing about Serica is that in the CPR 2P reserves increased despite last years production. In itself Rhum was very good and beat expectations whereas Columbus slightly disappointed but not a great deal in the production mix. They even have an out and out exploration well coming up later this year at North Eigg which if it were to come in would be deliciously close to BKR infrastructure.

Cash flow speaks for itself especially allowing for cash lodged during hedging and allowed a huge increase in the divvi to maintain the yield, a buy back can’t be ruled out either. 

The company maintains a ‘relentless’ focus on ESG and are a poster boy in the industry even winning awards with a full report coming with the Annual Report. A lot of people regularly ask me when is the time to take profits in Serica, they will have been selling all the way up, there is much more to go for here in this fantastically well managed Bucket List company so hold on very tight please…

SDX Energy

SDX has announced the spudding of the SD-12 East appraisal well (SDX WI 75%), targeting additional reserves to the east of the SD-12X discovery well on the Sobhi field located in the Ibn Yunus North development lease. SD-12 East spudded on 16 April 2022 and is expected to reach TD in approximately three weeks.  The primary target, which has already been encountered in the Ibn Yunus and Sobhi reservoirs, is the basal Kafr El Sheikh sand at around 6,480 ft TVDSS. The well is targeting an estimated gross unrisked P50 EUR of 7 Bcf and has a 80% chance of success.  In a success case, SD-12 East will be tied-in to the CPF via the existing SD-12X flow-line and is expected to be on production by mid-July 2022.

SD-12 East is the second of three wells to be drilled in the South Disouq area during 2022. The third well in the campaign will be the MA-1X well (Mohsen) targeting an estimated gross unrisked P50 EUR of 21 Bcf. The Mohsen well is planned to spud mid-to-late May.

Mark Reid, CEO of SDX, commented:

“I am pleased to announce the spudding of SD-12 East, the second well in the South Disouq drilling campaign. This campaign is further exploring the potential in the South Disouq area and, with the recent success of the SD-5X discovery well, it has already enabled us to plan for an increase in our production guidance in the coming months. So far in 2022, SDX has had three discoveries from three wells drilled and I look forward to updating the market further as our very busy drilling campaign progresses throughout the year.”

Another well spudded for SDX in the relentless drilling campaign which remains successful and whilst they add value to the company I still worry about the commitment by the major shareholder. As long as this is the case then such corporate factors will continue to weigh down the operational success from the management team.  

And finally…

The Noisy Neighbours beat the Seagulls 3-0 and regained top spot in the Prem, the Gooners did their Champions League prospects no harm beating Chelsea 2-4 at the Bridge.

The Red Devils have finally hired Erik ten Hag as their new manager, he has quite some job on his hands…