WTI $107.81 +$5.40, Brent $110.14 +$5.17, Diff -$2.33 -23c, NG $8.42 +47c, UKNG 165.0p +8.0p

Oil price

A big day yesterday after the EU story I mentioned did the rounds. The Fed decision was as expected as was the BoE today, Opec+ is starting shortly, I’m not expecting anything except the +432/- b/d which won’t be filled by a mile.

The EIA stats were a bit mixed, a build of 1.3m barrels of crude but gasoline drew 2.23m and a 2.34 draw in distillates saw unsurprising increase in exports. Watch out for the gasoline price next Tuesday, it is very firm in bulk markets and I’m hearing that in California and New Jersey they are preparing the forecourt signs for $6 gas, and it’s still 3 weeks until Memorial Day and the start of the driving season, be very afraid…

Petro Matad

Petro Matad has provided the following operational update.

Covid-19

The recent increase in Covid-19 related lockdowns and travel restrictions in China continue to impact Mongolia at a time when it was hoped there would have been significant relaxation. China is maintaining tight control on movement across its borders and there are currently no signs that these controls will be relaxed in the short term. This is impacting all businesses in Mongolia that rely on cross-border trade including the oil field service providers. PetroChina’s export of Mongolian oil production across the border into China is also suspended because of the Covid-19 controls and there are no Chinese oil rigs operating in Mongolia at the moment.

Block XX Exploitation Area

Petro Matad has continued to engage with local and central Government to secure all necessary permits. Local officials remain reticent to discuss applications due to lobbying on social media by a vocal minority protesting against industrial activity. This included at a recent local meeting when allegations were made about the Company’s Environmental Impact Assessment despite the fact it was prepared as per the regulations and has been approved by the Ministry of Environment.

For issues that cannot be resolved locally, Petro Matad has sought input from central government and this strategy has resulted in progress on the long-running land issue. In late April, the Cabinet of the Mongolian Government issued a resolution directing the certification of exploration and exploitation licences by the central Land Agency such that local approvals on land use are not required. We are advised by industry regulator, the Mineral Resources and Petroleum Authority of Mongolia (MRPAM), that this will allow work on all Production Sharing Contracts (PSCs) areas to progress without land access delays whilst the planned amendments to the land law that will remove the current legal ambiguities pass through parliament. We are pushing to secure the land certificates on Block XX and V as a matter of urgency. We will follow a similar strategy with the central Government if required to ensure there is no impact on our already completed environmental permitting.

With the Covid-19 situation in China causing operational delays in Mongolia, the Company continues to prioritise its efforts to get Heron 1 on stream. The contract with the chosen well completions contractor is in final form. We are seeking confirmation that equipment and crews for the completion and readying for production of Heron 1 are available as soon as we are ready to mobilise. It is our operational preference that as soon as the well is stimulated and completed it should immediately be put on production. The current suspension of all oil production and export from PetroChina’s Blocks XIX and XXI and with all on site storage full means that we need oil export to restart in order to optimise the start-up sequencing on Heron 1.

In anticipation of the situation improving, Petro Matad has placed orders for surface production equipment for the Heron 1 well and discussions with PetroChina, on the use of its production facilities are progressing well. We are also in discussion to buy or rent equipment from PetroChina Mongolia to avoid the need for, and current uncertainty of, importation.

Discussions with MRPAM on oil processing, transport and sales options were concluded with their full support and we are now in discussion with PetroChina’s Mongolian affiliate on the commercial details of sharing infrastructure and logistics.

Technical and operational cooperation, Block XX

In parallel with operational preparations for the 2022 programme, Petro Matad continues to work with DQE Drilling (DQE) on its proposal to enter into a cooperation agreement that could accelerate Heron Field development activities. Petro Matad has supplied a multi-year target work programme and this is under review in DQE’s headquarters.

Block V Exploration PSC

The Cabinet resolution on land access will assist in securing the necessary permits to allow the Company to work on the Raptor Trend. Having identified an in-country drilling contractor with equipment and experience in drilling to the target depth required on the Velociraptor prospect, we are now in discussion on potential rig availability and well cost.

Mike Buck, CEO of Petro Matad, said:

“China’s zero Covid-19 policy is having major impacts not only within China but also on Mongolia. Our preparations to operate are progressing well but, with uncertainty on when drilling operations in country will recommence, we are focusing as a priority on Heron 1 completion and production.

We are very pleased with the outcome of the Cabinet meeting held last week. The restoration of land use rights under the PSC is an important and necessary step, and we will continue to work with the local, district and provincial authorities to underline our intention to be a partner whose activities can continue to bring benefits to the communities in which we operate.

I would also like to personally thank our shareholders for their continued patience and support while we work to get Heron 1 on stream and implement our broader 2022 work programme.”

You couldn’t make it up, the bad luck that has rained on Mike Buck and his team at MATD recently but at least is is surely transitory and that the company is doing everything they possibly can to be ready to move fast to ensure that Heron 1 will be up and producing as soon as is possible.

I have written a good deal about China’s current woes in recent blogs but in the oil price section as the lockdowns in Shanghai and more recently Beijing have concerned markets with regard to Chinese economic growth. Now we have evidence of more micro problems and to add to the Covid problems they now have social media warriors getting involved. 

Despite all this I remain confident that Mike and team will overcome the problems and backed by the Government will before long get Heron 1 on stream and get the longer term programme up and running, this is no time for faint hearts…

Petrofac

Petrofac, a leading provider of services to the global energy industry, and Promethean Decommissioning Company (PDC), a pure-play Decommissioning Operator, have formed an Alliance to decommission the South Pass 60, South Pass 6 and East Breaks 165 fields, offshore Gulf of Mexico.

The legacy offshore fields and assets include nine platforms, 200 wells and 32 pipeline segments. The scope includes the safe, efficient, and assured decommissioning of the fields.

PDC takes on the role of Decommissioning Operator and is responsible for fulfilling the field Decommissioning Orders received from the U.S. Department of the Interior’s Bureau of Safety and Environmental Enforcement in February 2022.

Petrofac has been appointed by PDC as the Decommissioning Services Provider in a contract valued at around US$200m in line with the BSSE (Department of Biosystems Science and Engineering’s) estimated decommissioning cost.

With over two decades of large-scale project execution experience and in-house well engineering capability, Petrofac will use its proven decommissioning programme management systems, tools, and processes to deliver the programme. Its integrated local team, working closely with its wider global decommissioning organisation and supply chain partners, have plugged and abandoned more than 600 wells and decommissioned over 100 facilities.

PDC is an Operator, focused solely on field decommissioning, and led by an industry experienced specialists with strong safety, regulatory, management and governance track records, and a mission to deliver cost-efficient and environmentally optimised decommissioning.

The Alliance has selected Danos, a leading Gulf of Mexico offshore services provider, for over 75 years to support field operations and the decommissioning programme.  With nearly 2,500 employees, Danos has a proven history of operational excellence and safe operations. Their longstanding relationships in the Gulf of Mexico and comprehensive range of services positions them to provide the expertise needed for the programme.

The project will be led from Houston, with the integrated Alliance team using the latest digital software, including Petrofac’s proprietary project management tool Turus™, to deliver the decommissioning project with comprehensive dashboards, transparency and assurance.

Nick Shorten, Chief Operating Officer for Petrofac’s Asset Solutions business, said:

“This significant contract recognises our industry-leading decommissioning programme management experience and our unique in-house capability to manage all well and asset decommissioning phases. It’s been more than four decades since Petrofac first began in Texas and in that time we have expanded our offshore capabilities across the globe. This expertise will be applied to the project, complemented by our already strong onshore presence in Texas.

“We look forward to working with PDC as part of our Alliance to deliver a new approach to large-scale decommissioning programmes in the Gulf of Mexico.”

Aditya Singh, Founder and CEO, Promethean Energy Corporation said:

“Promethean is an oil and gas operator with an integrated approach to the development, production, and decommissioning of mature resources. We are pleased to offer our new outsourced ‘Decommissioning Operator’ service to the industry and to commence activity on this major decommissioning project. We are fully aligned with all our stakeholders to improve environmental performance through the safe and efficient decommissioning of end-of-life assets. We accomplish this with a dedicated, fit-for-purpose entity, PDC, via an integrated operating service model and focused programme management. I am particularly pleased that the PDC and Petrofac Alliance has been selected, leveraging the complementary strengths of both companies.”

This is another great contract win by Petrofac who are without doubt very much on the way back. With the avalanche of longer term bids which I’m sure will significantly reinforce revenue and profits for ’23 and onwards this is very much making this year a respectable one. 

Petrofac shares are taking their time to adjust to the global re-emergence of the world energy industry and it would not take much for it to regain high margin market share and get back to somewhere near previous ratings, if I’m right the shares will triple…

The Consilience Energy Advisory Group

Revenue Analysis, Apportionment and Hedging (RAAH)

The Consilience Energy Advisory Group has launched a new software tool that does the heavy lifting for oil producers, oil asset traders and analysts investigating the revenue stream in oil project economics.

The Revenue Analysis, Apportionment and Hedging (RAAH) package is not based on any one specific country’s petroleum legislation but includes the components of the production sharing contracts that are encountered repeatedly around the world- royalty paid in cash or in kind, cost recovery, profit sharing with the government or NOC, petroleum tax and corporation/profit tax. RAAH allows the user to tailor the analysis to its own situation by inputting appropriate assumptions for each project and highlights the consequences if these assumptions turn out to be wrong.

Liz Bossley, the CEO of Consilience said: “Small E&P companies tend to focus on costs where they feel they have more control, than the revenue stream, where they often feel they are price takers at the mercy of the market. At best the E&P companies may be missing a trick; at worst, they can end up with inappropriate hedges that do not match their retained revenue stream once royalty, cost recovery, government profit share and tax are taken into account.

When financiers insist that the forecast revenue stream is hedged to underwrite debt repayments, the amount of hedging that is appropriate is often under-analysed.

RAAH works out how the user’s input assumptions fit together to determine the right amount of hedging that has to be undertaken to protect its retained revenue stream and underwrite loan financing. It calculates the consequences if the state’s official selling price (OSP) diverges from the joint venture partners’ actual sales price. It determines the scaling factor that has to be applied to forecast production when there is unequal tax treatment of physical sales and hedge gains and losses, by adjusting the volume of hedging that has to be undertaken.”

According to Consilience, RAAH generates almost 500 tables and over 250 charts instantaneously when the user inputs data for up to 20 fields over a 20-year period. It also allows users to import data from Microsoft Excel to permit rapid input of large blocks of data and to export the resulting outputs to Microsoft Excel to permit the user to incorporate RAAH results into other applications, such as the company’s economic model.

Further details are available at https://ceag.org/shop/web-apps/oil-field-production-and-revenue/

I have known CEAG and its team for many years and Liz Bossley is one of the most highly respected executives in the industry. I’m sure that if any reader of the blog has any interest in RAAH then she or one of the team will take it down into a lot more detail.

And finally…

Well, it wasn’t to be, after a  rip-roaring first leg the second leg between Real Madrid and the Noisy Neighbours was even more exciting. Not that that helped any blues fans who were 1 minute away from the final but lost 3-1 on the night and 6-5 after extra time. Liverpool are now only 5-1 to win the quadruple…

Tonight sees the Hammers at Eintracht Frankfurt, 2-1 down from the first leg they have plenty to do. Rangers are at home to RB Leipzig after losing 0-1 in the first leg.

The Foxes are in the Plate and are in Roma 1-1 from the first leg.