WTI $118.50 -37c, Brent $119.51 -21c, Diff -$1.01 +16c.

USNG $9.32 +80c, UKNG 145.2p -8.77p, TTF €80.105 -€2.453

Oil price

A slight fall yesterday following announcements that Eni and Repsol had been authorised to ship Venezuelan crude to Europe and Libya announcing the opening up of production which didn’t last long. Also as mentioned here some weeks ago a number of Indian refiners have signed up with Gazprombank for Ruble accounts in order to buy yet more Russian crude. People will remember acts like this I suspect when aid and handouts are being asked for in the future…

Zephyr Energy

Zephyr has provided an update on recent activity at its project in the Paradox Basin, Utah, U.S.

Highlights

  • Following the completion of a successful well test on the State 16-2LN-CC well in December 2021, and after a detailed evaluation of the various natural gas sales and export options, the Board has elected to recommence production from the State 16-2LN-CC well in conjunction with the completion of a Zephyr owned crypto-currency mining facility now under development.
    • Liquid volumes produced from the well will be trucked and sold to refineries in Utah, and produced gas volumes will be sold to fuel onsite power generators which in turn will provide electricity for the co-located crypto-mining facility.
  • The Company plans to fund the initial investment required to launch the initial 1 megawatt (“MW”) crypto-mining facility (capital expenditure forecast to be less than US$2 million) from existing cash resources or via third party investment, with facility capital payback expected in under two years at current crypto-currency prices.
  • The Board has taken steps to fast-track equipment procurement, and it is expected that the crypto-mine will be operational in as little as eight to 12 weeks.  Well work will also be conducted over the same timeframe, at which point production from the State 16-2LN-CC well is expected to recommence.
  • Over the longer-term, the Company expects to tie its gas production into the nearby gas export infrastructure recently purchased by Dominion Energy, Inc. (“Dominion”) a Fortune 500 Company which currently services over seven million customers in the U.S.  Dominion has made public its plans to refurbish and expand the natural gas infrastructure running across Zephyr’s acreage, and is expected to be available to accept gas volumes from Zephyr’s wells in 2023.
  • In parallel with the work on the State 16-2LN-CC well, the Company is also at an advanced stage of planning for a three well drill programme on the Paradox project expected to commence in the second half of this year. Well design has been completed, all permit applications have been submitted and negotiations continue with rig vendors.

 Colin Harrington, Zephyr’s Chief Executive, said: “We are hugely excited to embark on the next steps to open up the Paradox Basin resource play.  The completion of our highly successful initial well test gave the Zephyr team the comfort to proceed with detailed evaluations of both near and long-term off-take solutions for the gas volumes from the State 16-2LN-CC well.  The plan announced today allows us to both accelerate near-term production and benefit from long term gas sales optionality should the economic returns from the co-located crypto-mining facility meet internal expectations.

“While the Dominion infrastructure is envisioned to be the long-term solution for the majority of our gas production from the Paradox project, the construction of the co-located crypto-mining facility is an excellent interim step. We believe it has potential to be a profitable opportunity for Zephyr and we hope to have production from the State 16-2LN-CC well and the crypto-facility online in as little as eight to 12 weeks.

“Over the last twelve months, a growing number of U.S. upstream oil and gas operators (including an immediately adjacent Paradox Basin oil and gas operator) have chosen to co-locate crypto-mining facilities at well sites in order to benefit from the growing demand for natural gas to fuel dedicated sources of power generation.

“Our planned crypto-mining facility will enable Zephyr to meet its near-term objectives – it will allow us to accelerate revenues from the State 16-2LN-CC well, to earn additional revenues from the crypto-mine infrastructure, and to enable a long-term test which will provide valuable information about the well’s production profile.

“The coming months will be a period of intense activity on the Paradox project. In addition to the re-start of State 16-2LN-CC well production and launch of crypto-mining operations, we are in detailed planning for our forthcoming three well drill programme. We look forward to providing regular updates as we prepare to commence drilling in the upcoming months.

“As we embark on another busy period for the Company, I’d like to reiterate that our mission, as always, is to be responsible stewards of investors’ capital while also being responsible stewards of the environment.”

This looks like another very smart move by Zephyr management who continue to exhibit a strong lead in all aspects of portfolio management. In this case it is in order to maximise the income from the Paradox Basin in the short and longer term and in ways that most companies have previously thought of. 

Zephyr is another stock that I look at that has recently significantly underperformed without any particular reason, indeed with $120 oil and an exciting drilling programme in H2 the shares are unbelievably cheap. On any timescale I think that Zephyr are as attractive as any in the sector and like others recently mentioned here will considerably reward investment.

Challenger Energy Group

Challenger has provided the following update in relation to the work program for its assets in Trinidad and Tobago and Suriname for the balance of 2022, and preparatory work for 2023.

·    The Company’s focus in regards to its operations in Trinidad and Tobago is to deliver near-term production growth, sufficient to both offset natural reservoir decline and to reach approximately 550-600 bopd average production rate by the end of 2022. This outcome would enable the Company as a whole to operate on a cashflow positive basis (assuming prevailing oil prices).

·    In support of achieving this outcome, the Company’s work program for the balance of 2022 will comprise a very specific, fully-funded range of activities across its Trinidadian asset portfolio, including:

·    recompletions of 10-15 existing wells, to open up different reservoir units, halt or reduce water production, and/or to inhibit sand influx, and thereby increasing oil production from those recompleted wells. Recompletions are planned in each of the Goudron, Inniss-Trinity and Bonasse fields, with work expected to be completed by October 2022. This expanded program of recompletions follows on from the successful recompletion program undertaken by the Company in March/ April 2022;

·    the reactivation of 10-12 wells currently not on production, in both the Goudron and Inniss-Trinity fields. This program of work is also expected to be completed by October 2022;

·    an extensive, continuous in-house swabbing program, across all of the Company’s fields. A considerable number of wells across all fields have seen fluid levels rise in the wellbore to the extent these wells no longer flow, with swabbing being a low cost means of reducing/removing these fluid levels, thus allowing the well to produce again; and

·    a single pattern water injection enhanced oil recovery (EOR) programme at the Goudron field, which is planned to commence in November 2022.

·     Additionally, ongoing investment is planned in essential equipment purchases, including a swabbing rig, vacuum tankers and other production-related items, as well as upgrades and refurbishments to equipment and facilities across the portfolio. This investment is expected to improve operational efficiency, increase facilities uptime, reduce individual wells downtime and increase workover rigs productivity, resulting in production delivery / cashflow improvements and cost savings.

·    Mr Sohan Ojah-Maharaj, as both Trinidad Country Manager and an experienced petroleum engineer, led a comprehensive review of the well stock, reservoir performance and models, and field management structure in formulating the work program, and will now lead delivery of that work program for the balance of 2022 and into 2023.

·    The Company notes the planned work programme for the balance of 2022 represents a decision to undertake a diverse range of production-enhancing activities and gain associated information from those activities before moving to new well drilling. This is because, as compared to new well drilling, the planned activities are lower-risk, spread risk across multiple wells and fields, are expected to provide a more rapid production response, and are in aggregate more cost effective than new well drilling.

·    In support of a drilling program in 2023, the Company is evaluating up to nine potential new well opportunities across the Trinidadian asset portfolio, offering the possibility of significant production uplifts consistent with the Company’s longer-term production goal of 1,000 bopd. During the balance of 2022 the Company will also be evaluating an appropriate funding strategy for new wells, with a view to reducing the capital burden and risk to the Company of drilling activities. This includes risk sharing opportunities with contractors and partners.

·    The Company has applied for an extension of the initial period for undertaking an extended well test in the Weg Naar Zee field, Suriname. This extension request recognises delays arising from the pandemic, and will facilitate a technical reassessment of the drilling strategy for that project, and in particular to consider the applicability of horizontal drilling as well as steam injection enhance oil recovery programme, both as a means of improving recoverability and enhancing project economics. On successful application, it is expected that drilling will now occur during 2023. In parallel, the Company is also considering potential partnership opportunities for this licence.

·    In relation to enhanced oil recovery programmes generally, and as noted above, the work program for the balance of 2022 includes a single waterflood pattern at the Goudron field, and steam injection is being considered for the Weg Naar Zee project in Suriname. Further waterfloods at the Goudron field will be considered for 2023, based on the technical outcomes of the initial work in 2022. A proposed CO2 injection enhanced oil recovery programme for the Inniss-Trinity field is undergoing a detailed technical review for potential execution in 2023.

Eytan Uliel, Chief Executive Officer of Challenger Energy, said:

“Over the past six months, we have worked hard to redefine Challenger Energy’s operations around a simple strategic focus: to build cashflow from our production base in Trinidad, and to reach a point where as a group we operate on a cashflow positive basis. In the process we have re-evaluated every single aspect of the Trinidad operations, to see how best we can clear legacy items, drive efficiencies, and deploy precious capital in the most effective, production-growth oriented manner. The work program for the balance of 2022 reflects the outcome of this work.

In particular, across our five producing fields we have a significant inventory of wells, and the focus of the work planned for 2022 is on working that existing well stock, through a wide range of individual actions, as well as on upgrading production-critical field infrastructure. We expect this work to deliver the near-term production growth we are targeting in the surest, lowest risk way possible and, if successful, provide a solid basis on which to approach the execution and funding of a drilling campaign in 2023. It will be a busy second half of 2022 for Challenger Energy. I look forward to updating on our progress as the year progresses.”

Things are changing at CEG as CEO Eytan Uliel gets to grip with the underlying portfolio and does the simple things better, for example recompletions, swabbing and workovers. As cashflow picks up and delivery from the existing asset base makes itself felt then time can be spent on a drilling campaign next year. 

Savannah Energy

Savannah Energy PLC, the British independent energy company focused around the delivery of Projects that Matter in Africa, will be publishing its Full Year 2021 Results post-market close today, following which the Company will host a Retail Investor Webinar at 18:00 (BST). CEO Andrew Knott will be presenting, as well as hosting a Q&A.

If you are a shareholder and wish to register for the webinar and/or submit a question, please click this link and complete the form https://www.savannah-energy.com/investors/gm/register/

Registration and questions must be submitted by 15:00 (BST) today. Once registered, a link will be sent to you via email shortly before the scheduled start time of the webinar.

Just putting this in as investors will be able to chat to CEO Andrew Knott following the results. 

Predator Oil  & Gas

Predator has provided, arising from a series of positive meetings in Trinidad held with stakeholders during the period 31 May to 3 June 2022,  the following update on the Company’s position with regard to the loan receivable  from FRAM Exploration Trinidad Ltd, a wholly owned subsidiary of Challenger Energy Group Plc, in respect of the Inniss-Trinity CO2 EOR Project. The CO2 EOR Project was prematurely and unilaterally terminated by Challenger on 1 August 2021.

Following the delivery by the Company of correspondence to FRAM on 23 March 2022 relating to the repayment of the Fram Loan and the settlement of other outstanding contractual matters under the Inniss-Trinity Well Participation Agreement, the Company has failed to receive from either FRAM or Challenger any firm proposals to allow an amicable settlement to be reached.

Regretfully therefore the Company has decided to initiate a litigation process following the consultation trip made by the executive directors to Trinidad during last week. The first physical trip following the relaxation of COVID restrictions.

The scope of the litigation process will involve three areas where the Company is seeking to be recompensed as a result of the premature termination of the CO2 EOR Project by Challenger.

1.     The FRAM Loan outstanding to the Company is £591,065 as of 31 December 2021.

The FRAM Loan is reported as a receivable in the Company’s audited Financial Statements for 2020 and identified as a contingent liability in Challenger’s 2020 Financial Statements. 

On 20 April 2022 FRAM and Challenger refused in writing to comply with a request for information from the Company via its auditors that was necessary for its financial reporting of the FRAM Loan.

2.     The Company is seeking full repayment of its project costs invested in the CO2 EOR Project under the terms of the WPA, which remains in place.

Under the WPA the Company has invested the minimum required commitment of US$1,500,000 (inclusive of the outstanding FRAM Loan).

 The WPA provides for repayment of the Project Costs from 100% of the profits of enhanced oil production until repaid.

The Company has demonstrated enhanced oil production due to CO2 injection at Inniss-Trinity to a number of competent stakeholders in Trinidad on the basis of which new CO2 EOR projects have been initiated with the Company.

The WPA and its amendments together with the Inniss-Trinity CO2 EOR Project Proposal PRD25092019, which was reviewed and approved by all stakeholders and regulatory authorities, defined the duration of the Inniss-Trinity CO2 EOR Project.

Phase 3 of the CO2 EOR Project was entered into and approved by all stakeholders with the approval of the regulatory authorities in April 2021, on the basis of which the Company continued to invest.

Phase 3 facilitated up to 275 days of continuous CO2  injection with enhanced oil production through which the Company was confident of recovering its Project Costs within the near-term.

Unilateral termination of the CO2 EOR Project by Challenger without consultation with stakeholders and regulatory authorities deprived the Company of the mechanism to recover its Project Costs.

Accordingly the Company seeks redress for breach of the terms of the WPA.

3.     The Company is seeking substantial consequential losses from Challenger under the WPA and arising from Challenger’s failure to facilitate the execution of Phase 3 of the CO2 EOR Project as defined in the approved Inniss-Trinity CO2 EOR Project Proposal PRD25092019. The Company’s pivotal role in executing the Inniss-Trinity CO2 EOR project has been widely recognised and accepted by stakeholders and regulatory authorities. The Company therefore was best-placed to make operational recommendations regarding the direction of the CO2 EOR Project. Challenger chose to unilaterally shut down operations without consultation and contrary to best industry HSE practice and without providing any technical justification.

As a result the Company lost its ability to potentially recover 853,000 barrels of oil from the AT-4 Block through expansion of the CO2 EOR Project. These oil resources were calculated in an independent reservoir engineering study made available to the regulatory authorities and previously announced by the Company.

Based on operating and capital investment costs established by the Company for the CO2 EOR operations at Inniss-Trinity, the utilisation of unused tax losses, and an average WTI spot price of US$100, the Company is attributing an undiscounted value to these potential resources of US$30/barrel after deduction of all taxes, royalties and operating costs, inclusive of CO2 supply. The Company therefore determines that the potential claim for estimated consequential losses against Challenger, based on 50% of net profits under the WPA, could be up to US$12,800,000 but may be revised upwards depending on forward oil price projections.

Phase 4 of the approved Inniss-Trinity CO2 EOR Project Proposal PRD25092019 allows for the application of the CO2 EOR Pilot learnings to be applied within new areas of the Inniss-Trinity field for upscaling CO2 EOR.

The SLR Consulting Ireland Ltd independent Competent Persons Report for the Inniss-Trinity field published 19 February 2020 gives Best Estimate recoverable CO2 EOR resources for the entire Inniss-Trinity field of 6.8 million barrels.

Based on 50% of net profits under the WPA this would amount potentially to estimated undiscounted consequential losses of up to US$102 million but may be revised upwards depending on forward oil price projections.

Paul Griffiths, Executive Chairman of Predator Oil & Gas Holdings Plc commented:

“We are disappointed not to have resolved our dispute amicably with Challenger. We believe that 10 months should have been sufficient time to reach a mutually attractive settlement. In view of the scale of the opportunity lost to the Company at Inniss-Trinity shareholders will understand why we were left with no alternative but to begin a process of litigation. Even more significantly it is important to stifle misinformation that could potentially delay the accelerated roll-out of new CO2 EOR projects in Trinidad.

To this end we are delighted with the outcome of our first physical trip to Trinidad since the outbreak of the Covid pandemic. Secondary to moving the resolution of the dispute with Challenger forward, the Company was involved in discussions with our trusted stakeholders to roll out up to six new CO2 EOR projects onshore Trinidad including the potential for a miscible CO2 flood.

Important very preliminary discussions were held regarding expanding our operations to include green hydrogen, developing markets for our potential gas products in general and sourcing non-fracked LNG for the Mag Mell project in Ireland. These are exciting developments only made possible by a physical visit with our stakeholders and the “Proof of Concept” established at Inniss-Trinity for CO2 EOR operations. Our next step is to explore further the potential to develop a carbon credits trading platform.

From the above it will be obvious that the Company will not allow a former junior partner to detract from the Company’s primary objective of building an integrated energy business in Trinidad aligned with the Energy Transition. Frankly we have been far too patient until now and that is a lesson that management has accepted responsibility for.”

Wow, this is one hell of a bombshell as PRD take to the law to get redress and into the bargain some 13 million big ones in compensation which is more that the CEG market cap.  I have to say that I never saw this coming and I’m not really sure quite how it is going to be resolved.