WTI (Nov) $83.49 +55c, Brent (Nov) $90.46 +63c, Diff -$6.97 +8c.

USNG (Oct) $7.08 -69c, UKNG (Oct) 288.0p -8.0p, TTF (Oct) €187.0 -€1.44.

Oil price

Oil was up on the day but well off the highs of the day which had started with Putin’s speech. Iran is also back in the spotlight as the Morality Police were seen up to no good after a woman died in suspicious circumstances. Doesn’t bode well for the talks…

The rest was as I wrote yesterday, all about interest rates, the UK has a  mini budget today and Italy goes to the polls on Sunday.

Union Jack Oil/Reabold Resources

Reabold and Union Jack have jointly noted that Rathlin Energy (UK) Limited, the Operator of PEDL183 and the West Newton Field, has today published an update to residents regarding ongoing plans for the West Newton project, following a meeting with the West Newton Community Liaison Group.

The results of a CPR compiled by industry consultants RPS is planned to be published the week commencing 26 September 2022.

“Engineering Update

Over the last number of months, data collected during the course of drilling the West Newton wells, which include core and oil and gas samples, wireline log and well test data, have been analysed by third party laboratories, CoreLab and Applied Petroleum Technology (UK) Ltd (“APT”) and an engineering firm RPS Group Limited (“RPS”). The results from these analyses, in conjunction with internal evaluations, have been very helpful in informing Rathlin’s upcoming programme of work.

Laboratory analyses have determined that the formation is very sensitive to aqueous fluids and that previous drilling of the West Newton wells with water-based mud has created near wellbore damage in the Kirkham Abbey reservoir, through the creation of very fine rock fragments while drilling that potentially plug up the natural porosity and permeability of the reservoir and have a detrimental effect on its ability to flow. Further analyses have determined that the use of dilute water-based acids during well testing will also have adversely affected the flow characteristics of the Kirkham Abbey reservoir.

These same tests demonstrate that by drilling the Kirkham Abbey reservoir with an oil-based drilling fluid, damage to the oil and gas reservoir can be minimised.

To that end, Rathlin has made applications to the Environment Agency for use of oil-based drilling fluids within the oil and gas bearing Permian section, for both the West Newton A and B sites. Oil based drilling fluids are included in the Standard Rules permit, which has been applied for at West Newton B site, whereas the current variation to the West Newton A site permit has been adapted to include oil-based muds in the same manner as in the Standard Rules permit.  Determination of these permits are pending.

Analyses by ATP, of numerous oil and gas samples recovered from the West Newton wells during testing to date, along with evaluation of mud gases measured during drilling, utilising a proprietary software package, indicates that the Kirkham Abbey reservoir is predominately gas (primarily methane 90% + ethane 5%) with associated light oil (condensate).

The significance of this finding is that the requirement for trucking during production may be greatly reduced.

Following on from the laboratory analyses, Rathlin engaged engineering consultants RPS to undertake a detailed reservoir and completion programme study, based on the CoreLab and ATP results. RPS determined that by drilling with an oil-based mud system and extending the length of reservoir section penetrated by a well, the productive capability of each well will be enhanced.

RPS has modelled wells extending up to 1500 metres horizontally through the Kirkham Abbey reservoir. The modelled horizontal wells will also have a much greater likelihood of encountering significant sections of the reservoir with open natural fractures, which will also enhance the productive capability of the Kirkham Abbey reservoir.

Work programme

Rathlin’s and our partners’ technical teams are currently working to determine the optimum orientation for a horizontal well, which may be drilled from either the A or B sites.

Given the challenges with the global supply chain, long lead items such as steel casing for a horizontal well has already been ordered. The availability of drilling rigs capable of drilling a 1500 metre horizontal well is also being determined.

Field Development

The significance of the laboratory and engineering findings has important benefits in terms of the West Newton field development.

From a local resident perspective, a development with more gas and less oil will significantly reduce the volume of traffic associated with production and allow for the installation of a pipeline to deliver natural gas directly to the National Grid.

Domestically produced natural gas is, and will remain, a much-needed part of the energy mix as the UK seeks to reduce its reliance on foreign gas, whether delivered by pipeline or as Liquefied Natural Gas (“LNG”) in ocean-going tankers.

The North Sea Transition Authority indicates that domestic UK gas production has less than half of the Emission Intensity of imported LNG. This is particularly important, as the UK seeks to reach its Net Zero 2050 targets.

Commercial production from West Newton could start as early as 2026, provided regulatory approvals are expedited and supply chain delays con be managed.

The anticipated recoverable gas resource at West Newton will have the potential to meet the daily gas demands of over 380,000 homes in the UK for many years to come. Based on OFGEM data indicating that an average 3-bedroom UK home consumes 7.9 Kwh/day of electricity and 32.9 Kwh/day of natural gas.”

Executive Chairman of Union Jack, David Bramhill commented:

“The content of the West Newton and Additional Prospects PEDL183 Onshore UK Competent Person’s Report (“CPR”) being Compiled by RPS is expected to be published during the week commencing 26 September 2022.”

There is no point in my commenting on a CPR that will be out next week so will keep my powder dry until then. One thing I will say is that quite how markets can decide before seeing the CPR that this is a bearish announcement that requires a 10% + fall in the share prices is beyond my ken. 

Indeed what we do know is that West Newton is going to be a flagship project and enormously valuable to both companies not to mention the value added to the UK energy balance sheet. With gas being better than oil and production likely to be by 2026 if not before, I can’t believe that this is just a shortsighted view to a market that wants returns by yesterday...

Rockhopper Exploration

Rockhopper has announced that, further to the signing of definitive documentation as announced on 19 April 2022, the transaction enabling Harbour Energy plc  to exit and Navitas Petroleum LP through its UK subsidiary  to enter the North Falkland Basin with a 65% stake in, and operatorship of, all of Rockhopper’s North Falkland Basin licences, has completed. 

Licence ownership post Transaction completion

The table below shows the revised licence ownership post completion of the Transaction:

North Falkland Basin

Licence

Rockhopper

Navitas as Operator

PL003

35%

65%

PL004

35%

65%

PL005

35%

65%

PL0032

35%

65%

PL0033

35%

65%

 

South Falkland Basin

 

Licence

 

Rockhopper   as Operator 

PL011

100%

PL012

100%

PL014

100%

 

Samuel Moody, CEO, commented:

“We are delighted to welcome Navitas to the North Falkland Basin as Operator of the Sea Lion development and wider acreage with all of its associated upside. We also thank both the Falkland Islands Government and Harbour for their work on this Transaction and look forward to working with Navitas to bring Sea Lion to fruition.

Sea Lion alone is capable of producing at over 120,000 barrels of oil per day with significant upside.

The proven oil and gas in the Falklands has the potential to form a material part of wider UK energy supply in a relatively short time frame, bringing with it huge potential security of supply and financial benefits for all stakeholders.”

This is confirmation that Navitas, who have been stalking a bigger stake and operatorship of Sea Lion have joined Rockhopper in what has always been in my view a world class asset and highly profitable at these oil price economics.

Longboat Energy

Longboat has announced that hydrocarbons have been encountered in the OMV operated exploration well 30/5-4S (Company 20%) and that a decision has been taken to drill a sidetrack well and perform a drill stem test.

The well was drilled to a depth of 5,003 metres TVDSS targeting the Tarbert and Ness formations. Extensive coring and logging data have been acquired and the preliminary analysis of the data indicates:

·    excellent correlation with the nearby Tune field;

·    presence of gas-condensate in the Tarbert formation;

·    presence of hydrocarbons in the deeper Ness formation inconclusive at this well location; and

·   preliminary gas in-place volumes (GIIP) in the Tarbert formation higher than the overall pre-drill expectations.

Based on the positive indications to-date and challenges collecting a full suite of downhole dynamic data from the existing well-bore, a decision has been taken by the joint venture to drill a sidetrack well and perform a DST. The key objectives of the DST is to establish reservoir productivity, detailed fluid properties and determine the range of recoverable resources.

The further operations are expected to take between six and eight weeks to complete and remain subject to the granting of the associated regulatory approvals.  A further announcement will be made at the completion of well operations, including an assessment of the potential range of recoverable resources, once the additional data from the DST has been evaluated and assessed.

Oswig consists of a high pressure, high temperature Jurassic rotated fault block near to the Equinor operated producing Tune and Oseberg fields. Oswig had a pre-drill gross unrisked mean resource of 93 mmboe making it one of the largest gas prospects being tested in Norway this year. Several additional fault blocks have been identified on-block which could contain further gross unrisked mean resources of 80 mmboe which would be significantly derisked by a successful DST. The nearby analogue Tune field has produced circa 140 mmboe since production commenced in 2002.

Helge Hammer, Chief Executive of Longboat, commented:

“We are very pleased to have encountered hydrocarbons in the Oswig exploration well, the first of two wells we farmed-into from OMV. We now look forward to working with the operator on the sidetrack and DST and to making the final well result announcement in due course.”

Whilst we must be aware that there is still a great deal of work to be done at Oswig and that although volumes were higher than pre-drill estimates there has been no production test, hence the need for a side-track and DST. 

Having said that I am very confident having had a long call with Helge Hammer this morning that the technical data is very optimistic. The reservoir correlates with the one at Tune and the condensate is richer and in a high pressure over-balanced well a side-track will be cleaner, provide a better hole to conclude a production test and give a recovery factor. 

It is worth noting the costs of the extra work, some £8.5m for the side-track and £5.6m for the test which are understandable given that there is still 6-8 weeks work but given the Norwegian tax regime those numbers net out at £2.4 and £1.6m respectively.

Having said all that I am delighted that the team at Longboat have likely brought in Oswig which will hopefully be confirmed before Christmas. If confirmed it will give the company renewed flexibility in its portfolio which as always given the management’s history will be highly proactive.

IGas Energy

IGas welcomes the Government’s support and commitment to the timely development of domestic gas as laid out in the Written Ministerial Statement released today from the Department of Business, Energy and Industrial Strategy.

We particularly welcome the commitment to “more exploratory sites in order to gather better data and improve the evidence base”. IGas looks forward to assisting with this process and will gladly provide the government with its detailed proposals for accelerated development.

As we have said before, the development of this strategic natural resource, which we believe is imperative in helping with the ongoing energy and cost-of-living crises, can only be achieved through further streamlining of the regulatory process.  We look forward to further engagement with the Government as policy evolves.

Commenting Chris Hopkinson, IGas Interim Executive Chairman said:

“This is a significant statement from Government and we welcome the commitment to pursue secure and affordable supplies of domestic energy.

The development of IGas’ shale gas assets  has the potential to provide secure and affordable energy for the UK in the near term, helping to decouple the UK from volatile and competitive international gas markets.  Aside from the clear benefits in job creation and balance of payments through producing indigenous natural gas, we will support local communities with a comprehensive benefit package.”

Egdon Resources

The directors of Egdon Resources plc, a UK focused energy company, welcome the Written Ministerial Statement  from the Rt Hon Jacob Rees-Mogg MP, Secretary of State for the Department of Business, Energy and Industrial Strategy in which he confirmed the lifting of the moratorium on shale gas extraction and the Government’s commitment to reviewing shale gas policy.

Commenting, Mark Abbott, Managing Director of Egdon Resources plc, said:

“The WMS is an important first step by the Government in delivering this nationally important resource.  We look forward to working positively with Government to develop the right regulatory environment to realise the potential of indigenous shale gas, which in contrast to a growing reliance on imports, could have a positive impact on the UK’s energy security whilst delivering environmental, fiscal and community benefits and thousands of well paid, skilled jobs.”

Both IGas and Egdon have much to gain should the UK shale gas industry grow substantially as a result of these moves. Accordingly they have made these comments and although IGas is less geared to shale due to the placing of so many chips on the geothermal bet…

And finally…

Pakistan showed England that T20 wasn’t their manor and gave us a hiding by 10 wickets yesterday, 1-1 out of 7 and with game 3 at 1530 this afternoon all is to play for. Game 4 is on Sunday at 1530.

Surrey CC won the County Championship – Division 1 yesterday with a day and a game in hand by beating the Yorkies, it doesn’t get better than that…

Plenty of rugby this weekend, tomorrow starts with the All Blacks v the Wallabies at 0805 and the Springboks play the Pumas at 1605.

In the Prem, tonight sees Bath v Wasps tomorrow sees Bristol v London Irish, the Saints host the Tigers, the Cherries are at the Saints and the Warriors host the Falcons. Sunday sees the Chiefs hosting the Quins.