WTI $118.87 +$2.00, Brent $119.72 +$2.11, Diff -85c +11c

USNG $8.52 +4c, UKNG 153.97p -20.788p, TTF €85.20 +€1.644

Oil price

The oil market was better again last week even after Opec+ added up to 648/- b/d for July and August which they stand very little chance of producing it being another 216/- b/d. Elsewhere the EIA inventory stats helped the tightness in the market and the rig count was unchanged overall and in oil so no help there.

Genel Energy

Genel has announced that all payments have now been received from the Kurdistan Regional Government (‘KRG’) relating to oil sales during February 2022.

Genel’s share of those payments is as follows:

(all figures $ million)Payment
Tawke18.0
Tawke override11.2
Taq Taq2.1
Sarta2.6
Receivable recovery8.5
Total42.4

 

Following the receipt of the receivable recovery payment, Genel is now owed $82 million from the KRG for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

So all in line with expectations as Genel report payments from the KRG. The shares have picked up a little in recent days but are still some 30p off the top from last month, I would expect that the shares should return to the 200p level if not higher before long. 

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter in Africa, is pleased to announce that the Company’s 80% indirectly owned subsidiary, Accugas Limited, has entered into a new gas sales agreement (“GSA”) with TransAfam Power Limited (“TAPL”) in relation to the provision of gas for use at its power plants in Rivers State, Nigeria.

TAPL is a licensed power generation company in Nigeria and is the core investor in the Afam Power Plc and Afam Three Fast Power plants located in Okoloma, Rivers State, Nigeria with installed capacity of 966MW.

Accugas has entered a GSA with TAPL to supply up to 35 MMscfpd of gas on an interruptible basis for an initial term of three months, with the option to extend for a mutually agreed period.  The plant is connected to the Accugas network via the Nigerian Gas Company pipeline from Ikot Abasi and no further tie-in or capital expenditure is required by Accugas to deliver gas to TAPL.

Andrew Knott, CEO of Savannah Energy, said:

“I am delighted to add TAPL as a new customer of Accugas. This represents the second new GSA we have signed this year, bringing our total number of gas customers to seven, as we deliver on our objective to be the gas supplier of choice to the power sector in Nigeria.”

Vincent Ozoude, MD/CEO of TransAfam Power Limited said:

 “We are excited to start this journey with Accugas Limited which supports our core purpose of improving lives and transforming Nigeria. This relationship with Accugas should go a long way in boosting our plant capacity recovery programme and improved power generation to the country.”

This is excellent news from Savannah, adding a new customer to add to the portfolio and with no significant costs required to bring on the sales. The initial term is for three months but it would not surprise me if that were to be extended. 

Longboat Energy

Longboat has announced that the Cambozola exploration well in licence PL1049 offshore Norway (Company 25%) was dry and will now be plugged and abandoned.

Exploration well 34/9-1S operated by Equinor Energy AS, was targeting Lower Cretaceous turbidite sand lobes in the Northern North Sea and had the potential to be a play opener. The well was drilled to a total vertical depth of 4,393 metres below sea level. Background gas readings were recorded throughout the overlying section, but the well failed to encounter any effective reservoir. Analysis of the data collected remains ongoing to understand the observed bright seismic amplitude anomaly and any remaining Lower Cretaceous prospectivity in the area.

The drilling operations were carried out within the time schedule and below budget.  

Helge Hammer, Chief Executive of Longboat, commented:

Naturally, we are disappointed that the Cambozola well was not a success but we look forward to continuing our fully-funded, gas-focused exploration programme with the large Oswig and Copernicus wells both anticipated to spud during the summer.”

As part of its exploration well programme it was always likely that some of the higher risk wells would be dry and this was certainly one of those, a ‘play opening’ opportunity. The programme continues and  I remain confident that Helge and the team will continue to build a substantial company at Longboat. 

Jadestone Energy

Jadestone reports today its audited consolidated financial statements, as at and for the financial year ended 31 December 2021, and announces a recommended final dividend of USȼ1.34 per share.

Operational and financial summary

 Full year production increased by 10% to 12,545 boe/d (2020: 11,438 bbls/d), in line with expectations and the guidance range.  The increase year-on-year was due to:

¡    The acquisition of the Peninsular Malaysia assets (“PenMal Assets”) which contributed 2,539 boe/d (based on five month’s production from closing on 1 August 2021 averaged over the full year);

¡    Stag production being broadly flat year-on-year at 2,359 bbls/d in 2021 (2020: 2,394 bbls/d); and

¡    Montara production declining to 7,647 bbls/d (2020: 9,045 bbls/d), as natural field decline, downtime during the 2021 activity programme and an unplanned shutdown to replace critical defective valves offset the initial contribution from the successful H6 infill well;

 Revenue increased 56% to US$340.2 million (2020: US$217.9 million), a Group record, due to a 66% increase in realised prices and a 10% increase in lifted volumes; 

 Jadestone’s average realised price in 2021 was US$74.34/bbl (2020: US$44.79/bbl), a 66% increase year-on-year.  Average realised prices included an average premium over benchmark Dated Brent of US$3.39/bbl (2020: US$4.17/bbl);

Total lifted volumes for 2021 were aligned with production and increased 10% to 4.6 mmboe (2020: 4.2 mmbbls).  A total of 17 liftings (2020: 10) were achieved, including seven liftings for a total of 0.6 mmbbls and an additional 612 mcf of gas (equivalent to 0.1 mmboe) from the PenMal Assets;

 Total production costs of US$206.5 million, significantly higher from US$105.3 million in 2020, in large part due to the contribution of the PenMal Assets of US$24.5 million, plus, the exceptional Skua well workovers programme of US$47.2 million, normal well workovers at Stag and Montara of US$19.8 million (2020: US$21.7 million) and increased repairs and maintenance (“R&M”) following Project Clover of US$40.1 million (2020: US$22.5 million);

 Adjusted annualised unit operating costs5 for 2021 were US$26.22/boe, within the guidance range, but up 14% from US$23.10/bbl in 2020, primarily due to higher routine R&M and lower production at Montara;

 Adjusted EBITDAX improved 152% to US$157.9 million compared to US$62.6 million in 2020, predominately due to higher average realised prices in 2021 and the contributions from PenMal Assets since 1 August 2021;

 Net loss after tax of US$13.7 million (2020: US$60.2 million loss after tax), reflecting the Skua workover costs at Montara and higher R&M expenses at both Stag and Montara.  During 2020, the net loss was due to lower realised prices and the US$50.5 million impairment of the SC56 licence offshore Philippines;

 Despite the Skua workovers, operating cash flow generation in 2021 was strong at US$96.6 million, before movements in working capital, up 11% compared to 2020 of US$86.9 million;

 Capital expenditure of US$56.0 million (2020: US$24.1 million) up 133% year-on-year, primarily due to the drilling of the H6 infill well at Montara;

 Total 2021 major spending (capital expenditure and the Skua-10 & 11 workovers), of US$103.2 million, within the guidance range;

 Cash balances of US$117.9 million at 2021-year end, 32% higher compared to 2020 at US$89.4 million, benefitting from favourable realised prices in the second half of the year.  Jadestone has been debt free following the final scheduled repayment of the Group’s senior debt facility in Q1 2021;

 Proven and probable reserves at year-end 2021 totalled 44.7 mmboe, a 20% increase on the end-2020 figure of 37.1 mmbbls, reflecting the addition of the PenMal Assets offset by production during the year; and

 Recommended final dividend of USȼ1.34/share, equivalent to a distribution of US$6.3 million.  This results in total dividends of US$9.0 million in respect of 2021.

Business development 

 Completion of the acquisition of PenMal Assets from SapuraOMV on 1 August 2021, for a total cash consideration of US$20.0 million, comprising a headline price of US$9.0 million plus adjustments of US$11.0 million.  With an economic effective date of 1 January 2021, and taking into account cash received on completion, the Group received a cash amount of US$9.2 million at closing, net of the US$20.0 million due to SapuraOMV.  In January 2022, a further US$3.0 million was paid in recognition of a contingent payment triggered by Dated Brent averaging above US$65/bbl for 2021;

 On 24 November 2021, the Group executed a settlement and transfer agreement with DP Hexindo Gemilang Jaya to acquire the remaining 10% interest in the Lemang PSC, for US$0.5 million and a waiver of unpaid amounts related to the PSC.  The transfer is subject to customary approvals and is expected to complete in the third quarter of 2022;

 Jadestone’s internal reorganisation completed on 23 April 2021, with Jadestone Energy plc becoming the parent company of the Group; and

 Work continued to try to close the Maari acquisition in parallel with the New Zealand Government’s legislative changes to the Crown Minerals Act.  Both the seller and Jadestone remain fully committed in trying to close the transaction as soon as possible.

2022 GUIDANCE

 Announced a commitment to Net Zero Scope 1 and 2 greenhouse gas (“GHG”) emissions from Jadestone’s operated assets by 2040;

 Production guidance of 15,500-18,500 boe/d maintained, which excludes any contribution from the pending Maari acquisition.  The outcome will be determined by work to address current gas handling constraints at Montara, the timing of return of the Malaysia non-operated assets which have been offline since earlier this year, and the impact of the Stag infill programme in the second half of the year;

 2022 guidance for unit operating costs (US$23.00 – 28.00/boe) and capital expenditures (US$90.0 – 105.0 million) maintained;

 Further inorganic growth opportunities in the Asia-Pacific region under active evaluation;

 Intention to return up to US$100.0 million of cash to shareholders over the next 12 months, in the form of ordinary dividends (including the final recommended 2021 dividend announced today), share buybacks and/or tender offers.  The actual level of shareholder returns will be influenced primarily by future oil pricing and premiums, operational performance and business development activity over this period.

Paul Blakeley, President and CEO commented:

 “In a little over five years, we have transformed Jadestone from an exploration-led business into a leading independent Asia-Pacific upstream company with a significant production base, and material organic growth potential.  We delivered 10% production growth in 2021, exiting the year at much higher rates, and have guided to a further 36% increase in the current year.  This was on the back of a successful Montara activity programme and five months of initial contribution from the Peninsular Malaysia assets acquired during the year.

Our decision to remain unhedged has resulted in direct exposure to increasing oil prices and premiums, which are largely a consequence of structural under-investment in upstream capacity, although the distressing events in Ukraine this year are also having a clear impact.  Our year-end 2021 cash position of c.US$118 million has continued to grow in the first half of 2022, with pro-forma cash balances of US$180 million at end-May 2022, which includes the proceeds for barrels lifted in May but not yet received.  This cash position, and our forecast cash generation, places us in a strong position to execute our 2022 capital programme, take advantage of any high-quality additional M&A opportunities that we identify, and also to significantly increase shareholder returns. We are recommending a final dividend of US$6.25 million, a 25% increase on the second 2020 dividend, and we intend to return up to US$100 million of cash to shareholders over the next 12 months. This will be in the form of higher ordinary dividends, share buybacks and/or tender offers, starting with the recommended final 2021 dividend starting today. The actual level of shareholder returns will be influenced primarily by future oil pricing and premiums, as well as operational performance and business development activity, both organic and inorganic, over this period.

I’m very pleased to report that we have taken final investment decision on the Akatara gas field development onshore Indonesia, following necessary approvals by the Indonesian upstream regulator, with first gas on track for H1 2024.  We have also seen positive signs of progress on Nam Du / U Minh in Vietnam, with potential end users of gas production from the fields being directed by the government to enter into commercial discussions with Jadestone.  Progress towards completion of the Maari deal remains slow, however the New Zealand upstream regulator has confirmed that it has recommenced processing our application and we continue to respond promptly to any information requests, while working cooperatively with OMV, the seller.

Production in the first five months of 2022 has been impacted by the previously announced unplanned compressor outage at Montara and a temporary shut-in of the non-operated assets in Malaysia due to class recertification issues with the leased FPSO.  As a result, production in the first part of this year has averaged c. 15,700 boe/d, although in May we have seen production rates return closer to 17,000 boe/d.  We therefore still expect 2022 average production to be within the 15,500 – 18,500 boe/d guidance range, with the final outcome being influenced by ongoing activity to handle increased gas volumes at Montara (which longer-term may result in the installation of additional compression on the FPSO), the timing for production re-start from the non-operated Malaysia assets, and the outcome of the Stag infill drilling programme later this year.  It is worth noting that as we continue to look for ways to further improve Montara performance, installing additional compression will not only increase oil production, but also allow for more gas to be reinjected into the Montara field, thereby reducing the amount being flared.  Our unit operating expense and capital expenditure guidance are also unchanged at US$23.00-28.00/boe and US$90-105 million respectively.

We aim to marry further growth in our business with a focus on addressing our greenhouse gas profile.  In early June 2022 we announced a commitment to Net Zero Scope 1 and 2 greenhouse gas emissions from our operated assets by 2040.  Further detail on our asset decarbonisation pathways, with interim milestones, will be a key aspect of 2023 workstreams and we will release more news on this in due course.   We believe that our corporate strategy is well-suited to the energy transition, delivering essential energy from existing discovered and producing fields, and as a responsible operator with a demonstrable track record of delivering asset performance to the highest standards, providing confidence to sellers and host governments alike.  

2021 finals in June are thankfully a rare sighting indeed and apparently just a Covid aberration. To counter that the results are given in some considerable detail as are comments from CEO Paul Blakeley. For brevity sake I will therefore keep my own comments to a minimum. 

Last year was another good one in which Jadestone made guidance, created a very strong balance sheet which has continued into this year with 2022 guidance of 15,500-18,000 boe/d. In addition they guide to opex of $23-28 boe/d and capex of $90-105m and remind us that they get a very strong price premium to Brent crude. This year has also seen the FID on the Akatara gas field which is scheduled to deliver first gas by H1 2024.

The result of all this is that Jadestone have been building cash, by the end of last month it was some $180m which means that the historic rhetoric on dividends is now deliverable. So, they have said that they will return $100m of cash to shareholders over the next 12 months either via dividends, share buy-backs or tender offers which has started with a20% hike in the 2021 final. 

As always Jadestone are ahead of the game on ESG and following last week’s separate document have committed to net zero by 2040. I expect the company to be further involved in the M&A markets which the company see to be affected by the Woodside/BHP and Santos/Oil Search mergers which should throw off bite-sized chunks for waiting sharks. 

Jadestone shares are up 60+% on the year but have drifted today, maybe after the 1H disappointment on production but they are amongst the best run in the sector and nearly six months on from the last Bucket List they will be right at the top of the list to remain on it. 

Serica Energy

Serica has provided a corporate update covering operational and financial performance and the recently announced Energy Profits Levy.

Operational and Financial Performance

Operational performance in May 2022 continued to be strong and Serica’s net production for the month   averaged in excess of 28,000 boe/d with average net production YTD in excess of 26,000 boe/d. 2022 production is benefitting from the investments made in our portfolio, including the R3 well and the Columbus development, which were executed in a period of much lower gas prices.

Over 85% of Serica’s production is gas, a fundamental part of the UK’s energy transition plans and Serica’s operated North Sea assets provide more than 5% of the UK’s gas production. Gas prices have remained strong, with YTD market prices averaging 186p/therm. Prices dipped briefly in early May but have since recovered to average more than 88p/therm for the month and are now back over 100p/therm. Oil prices have also been strong, averaging over US$110/bbl in May 2022 and over US$100 YTD.

As a result, our financial position is strong, and we continue to grow our cash balances. At the end of May, cash and deposits had risen to £246 million with a further £150 million lodged as security giving a combined total of £396 million. The Company still has no debt and limited decommissioning liabilities.

Portfolio Investment

In a continuation of our established track record of investing through the cycle in our portfolio of assets, planning for the high impact North Eigg exploration well is at an advanced stage. The well is scheduled to be spudded early in Q3 2022. It is being drilled 100% by Serica and is targeting over 60 million boe of P50 unrisked recoverable prospective resources. The results are expected to be available by early October.

The first phase of the previously announced Light Well Intervention Campaign (LWIV) has commenced with operations on the Bruce M1 well. This campaign is aimed at adding reserves and prolonging production from several subsea wells.

Energy Profits Levy

The Board notes the significant fall in the Company’s share price in the run up to and particularly following the UK Government’s announcement on 26 May 2022 of an Energy Profits Levy.

The Levy is applicable to profits arising on or after 26 May and so Serica’s profit prior to that date is unaffected.

Although fiscal instability is unwelcome in an industry with long lead times for capital expenditure, this new Levy is part of a package that includes significant investment incentives designed to encourage companies like Serica to continue to reinvest profits. Serica already has an ongoing investment programme including the LWIV campaign and the North Eigg exploration well in 2022. Based on our current understanding of the Levy, this programme will qualify to benefit from these incentives with each £1 invested by Serica offering an overall tax saving of up to 91.25 pence. Our planned 2022 expenditure on the North Eigg well and the LWIV campaign is around £60 million which we expect to be eligible towards this tax saving. This will offset a large element of the Energy Profits Levy that would otherwise be payable on Serica’s profits this year.  

Moreover, we are evaluating additional candidate projects designed to increase the productivity of the Bruce hub. Our strong cash balances with no borrowings, 100% of cash flows from our shares of the BKR assets and now enhanced investment incentives puts Serica in a strong position to continue to prosper as it adapts its strategy to changing circumstances.

Mitch Flegg, Chief Executive of Serica Energy, commented:

“Our established strategy of investing in our portfolio to enhance production and create greater value means that Serica is well placed to take advantage of the investment incentives included in the Levy. We have built a strong cash position and balance sheet and this, combined with strong cash flows and being a current taxpayer, gives us the leverage and resources to do so.

Although Serica has financial strength, our industry operates within unusually long investment horizons against a backdrop of often highly volatile commodity markets and business cycles. We therefore encourage policy makers to consider the importance of fiscal stability in enabling government and industry to meet the mutually set objectives of sustaining investment in the UKCS at a level capable of ensuring security of oil and gas supply in volatile markets and delivering energy transition targets.

Serica will maintain its focus on delivering vital hydrocarbons to the UK and doing so in an environmentally sensitive manner, whilst continuing to build value for stakeholders.”

This will be short and sharp, the share price fall has been ludicrously overdone and whilst the industry had a little wobble when assessing the Looney tax it seems that Serica will be able to use the incentives set out by the Chancellor. 

The company has a substantial cash pile, a strong balance sheet and a plan to drill the North Eigg exploration well and has also started the LWIV at the Bruce well to give added upside. What is not to like, support the outstanding management led by Mitch Flegg and buy this outrageous dip. 

Prospex Energy

Prospex has announced that Po Valley Energy Limited (ASX:PVE) (‘Po Valley’ or the ‘Operator’) has received the penultimate approval for production at the Podere Maiar gas field located in onshore northern Italy, which lies within the Selva Malvezzi Production Concession (‘Selva’).  Prospex holds a 37% working interest in the Podere Gallina Exploration Permit with the Operator holding the remaining 63%.

 Highlights

·          Emilia Romagna Regional Council approves INTESA (local government production agreement) for the Podere Maiar gas field at Selva

·          INTESA is a prerequisite for Italy’s Ecological Transition Ministry (‘MiTE’) to grant a Final Production Concession at Podere Maiar

·          Final Production Concession will allow Po Valley to install gas plant and a 1km pipeline – contract negotiations are underway to complete this

·          The Company expects first gas from Podere Maiar in the first half of 2023, subject to final approval

 Mark Routh, Prospex’s CEO, commented:

“We are extremely pleased that the regional authorities have approved the INTESA having received no objections from the local authorities to proceed with the gas development.  This marks an important step in progressing Podere Maiar towards production.

“This approval from the Emilia Romagna regional council has taken some time to achieve and we are pleased to now be moving towards the Final Production Concession alongside our partners, Po Valley, so that we can stay on track for our goal of first gas from Podere Maiar next year.”

Further good news from Prospex but proof of the cassata will be in the eating and given my historic mistrust of setting dates for production I think I will wait and see…

And finally…

England pulled a win out of the bag at Lords as Joe Rooooot scored a hundred when it looked like they were on the back foot again.

Wales beat the Ukraine and will now join England’s Group in November’s World Cup in Qatar.

And Rafa won the French Open against all odds.

The Golden State Warriors beat the Boston Celtics  to take the NBA finals to 1-1.