WTI (Dec) $90.0 +$1.63, Brent (Jan) $96.16 +$1.51, Diff -$6.16 -12c.
USNG (Dec) $6.26 +55c, UKNG (Dec) 325.01p +25.01p, TTF (Dec) €137.0 +€13.74.
Another good day for oil, a weak dollar initially helped but after the Fed’s comments about the economy it firmed a bit. Also Opec+ are still producing some 1.3m less than quotas which won’t get easier.
The EIA inventory stats showed a big draw in crude of some 3.115m barrels, gasoline drew 1.257m and distillates added 427/-, no surprise at this time of the year. Indeed, diesel prices in October in New York were at $4.36 per gallon the 2nd highest month on record and crack spreads are at a record high.
Genel has issued the following trading and operations update in respect of the third quarter and first nine months of 2022.
- Margin of $36/bbl in the first three quarters of 2022 (2021: $24/bbl), with Brent averaging $105/bbl (2021: $71/bbl)
- Capital expenditure of $109 million, of which $55 million was spent at Tawke, and $38 million at Sarta
- Free cash flow of $175 million up to 30 September 2022
- This does not include proceeds for June production, totalling $59 million, received in October
- In relation to the nominal $120 million for unpaid sales made from November 2019 to February 2020, and the suspended override from March 2020 to December 2020 that would have earned $38 million, since January 2021:
- Cash of $117 million has been received
- Offsets of $9 million have been made
- Cash of $447 million at 30 September 2022 ($412 million at 30 June 2022)
- Net cash under IFRS of $181 million at 30 September 2022 ($141 million at 30 June 2022)
- Total debt of $274 million at 30 September 2022 ($280 million at 30 June 2022), following the opportunistic acquisition of $6 million of bonds at a price that provided an attractive level of return
- Net production of 30,350 bopd in the first nine months of 2022, and 30,200 bopd in Q3, in line with guidance
- Tawke PSC (25% working interest)
- Gross production averaged 107,300 bopd in the first nine months of 2022, and 108,500 bopd in Q3
- Sarta (30% working interest and operator)
- Gross production averaged 4,900 bopd in the first nine months of 2022, and 3,960 bopd in Q3
- Production continues from existing well stock as we continue to work on the field to seek to optimise production from various zones, ranging from the pilot production tests of the newly discovered Butmah and Najmah resources through to the initial stacked Mus & Adaiyah reservoir intervals
- Rigless testing at Sarta-6 is now underway, with the initial appraisal programme expected to be complete by the end of year
- Taq Taq PSC (44% working interest and joint operator)
- Gross production averaged 4,660 bopd in the first nine months of 2022, and 4,280 bopd in Q3
- Taq Taq continues to perform in line with expectations, with positive results from the recent well intervention programme
- Drilling is set to resume with an infill production well expected to spud around the end of 2022
- Following the successful farm-out in December 2021, preparation continues for the drilling of a well on the highly prospective SL10B13 block (51% working interest and operator)
- The Toosan prospect contains stacked Mesozoic reservoir objectives, with multiple individual prospective resource estimates each ranging from 100 to 200 MMbbls
- The geotechnical survey will begin this month, supporting the plan for the construction of the well pad. Environmental and social impact assessments will begin before the end of 2022, and tendering has commenced for the rig and well services, ahead of a targeted spud date around the end of 2023/early 2024
- Having undertaken a combination of water and food relief programmes earlier in the year, in reaction to the ongoing drought in Somaliland Genel is working with ANPPCAN to deliver a food relief programme to c.4,000 families
- A Petroleum Agreement and Association Contract is expected to be signed with ONHYM regarding the Lagzira block (75% working interest and operator), with a farm-out programme now underway
- The Lagzira block is a large offshore licence, in water depths of 200-1,200 metres, with a proven petroleum system following Genel’s 2014 well which recovered oil from Upper and Middle Jurassic reservoirs
- Subsequent to this drilling, high quality 3D (broadband multi-azimuth) seismic was acquired in 2018, and new plays identified, with 18 prospects and leads, and material resource potential
- Qara Dagh (40% working interest and operator)
- We continue to evaluate the QD-2 well and its results, and a decision on licence next steps will be taken shortly. Should no further action be taken then the licence will expire in January 2023
- The London-seated international arbitration regarding Genel’s claim for substantial compensation from the KRG following the termination of the Miran and Bina Bawi PSCs is progressing. Written submissions have been made to the tribunal and the trial has now been scheduled for February 2024
- Zero lost time incidents in 2022, with three million hours worked since the last incident
- Following the Annual General Meeting (‘AGM’) on 12 May 2022 the Company announced that resolutions 4 and 16 had over 20% of votes cast against them. In accordance with Provision 4 of the UK Corporate Governance Code 2018, the Company is required to provide an update on the views received from shareholders and actions taken in respect of these resolutions
- In light of the votes received against the resolutions, the Company has engaged with major shareholders to understand their views. Noting that proxy agencies were all in favour of the above resolutions, and following discussions with shareholders, the Board considers the votes cast against the resolutions to primarily reflect differing opinions held by the Company’s major shareholders in relation to a number of matters. As a consequence, the Company does not believe it is necessary or appropriate to take any additional action
OUTLOOK AND GUIDANCE
- Production guidance of 30-31,000 bopd reiterated for 2022
- 2022 capital expenditure guidance of between $150 million to $170 million reiterated
- Genel expects to end 2022 with over $500 million of cash on the balance sheet
- Genel continues to actively screen and work up opportunities to put our cash to work in order to extend the line of sight on cash flows that support our dividend programme into the long-term
- Appraisal at Sarta is ongoing, with results of the Sarta-6 well expected around the end of the year
- Genel has an established and committed dividend programme, currently paying $50 million per annum
- We have recently taken opportunistic steps to buy back a limited number of bonds at a price that provides an attractive return on investment. We may make further opportunistic purchases so long as the capital need does not reduce our ability to successfully acquire assets that we are targeting
Paul Weir, Chief Executive of Genel, said:
“I am pleased that we remain on track to generate around $250 million of free cash flow this year, building towards a significant cash balance of over $500 million by the end of the year. We are focused on putting this cash to work to purchase new assets, grow the business, and increase shareholder returns. It is business as usual on an operational level in Kurdistan, while we continue to work with the KRG on the challenges that the sector faces. Our existing predictable production business outlook supports our established dividend of $50 million, and our committed dividend programme has paid $178 million of cash to shareholders since its inception in 2019.”
Genel has in this trading and operational update confirmed that current production is in line with guidance and still throwing off cash, this not only pays for the current dividend programme but also, with some $500m of cash accumulated by the year end, gives a decent fund available for an acquisition of reasonable size.
The company are, in an interesting note made in the webcast this morning, think that an acquisition will be more valuable than even more cash being distributed via dividends, regular or special. Also it should be remembered that the company have ambitious plans for drilling in Somaliland and Morocco which could provide substantial exploration upside.
PetroTal has announced the successful testing results of well 13H, the Company’s thirteenth producing well.
Well 13H highlights
· Well 13H has successfully tested at approximately 8,000 barrels of oil per day over its first week of production, placing it in the top horizontal producers drilled by the Company, with the November 2, 2022 rate at 7,825 bopd;
· To optimize operations, well 13H was drilled ahead of well 12H to save time and cost related to skidding the rig to the corresponding cellar;
· The well was drilled to a total measured depth of 4,864 meters, including a 1,152 meter lateral section making it the longest reach horizontal well the Company has drilled;
· The total cost of the well was $14.4 million, within budget and completed on time without any operational issues;
· Well 13H was successfully completed on October 13, 2022, however, it could not be fully tested until October 27, 2022 when internal storage capacity became available. Barging logistics continue to improve with the Company now expecting to raise production levels by mid-November;
· Current field production capacity is over 20,000 bopd; and,
· Well 13H encountered the target producing formation approximately three meters higher than prognosis and approximately five meters higher at the end of the horizontal section which could have a positive impact on the oil-in-place estimates and reserves.
PetroTal continues its active drilling program to further increase its low cost, high margin production at Bretana. On October 16, 2022, the Company commenced drilling well 12H with an approximate cost of $14.0 million and an estimated completion in mid-December 2022.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“We are pleased to announce the successful and productive 13H oil well, our longest horizontal well to date. We look forward to seeing the 12H well deliver similar results. We will continue to operate and develop our assets with prudent and safe operational practices that deliver best in class productivity for employees and shareholders.”
Another exceptional piece of operational news for PTAL who go from strength to strength, successful testing of this well led to a flow rate of some 8,000 b/d which is now settled at 7,825 b/d. Meanwhile the 12 well is drilling ahead and the CEO (above) appears confident of another success.
Following this well the current field production capacity is over 20,000 bopd; and I would expect to see decent increases in both the oil in place numbers and the reserves as indicated above. With other operations such as barging logistics still improving I see no reason why production numbers cannot increase further before the year-end.
Accordingly my target price for PetroTal remains at 150p and whilst that seems somewhat of an exacting task I see no reason why the company cannot fulfill the benchmarks that such a price would indicate.
Longboat has announced a gas condensate discovery in the OMV operated Oswig exploration well 30/5-4S and sidetrack 30/5-4A (Company 20%).
The Oswig sidetrack (30/5-4A) was drilled to a depth of 4,726 metres TVDSS to conduct a drill stem test in the Upper Tarbert Formation. The average production rate from the DST was approximately 2.1 mmscfd of gas and 280 bpd of condensate (approximately 650 boepd in aggregate) through a 10/64-inch choke.
The DST has successfully proved the ability of Oswig to flow hydrocarbons from poor quality reservoir and support a potential development via nearby infrastructure in the Northern North Sea. The partnership will now work towards integrating the DST results into its understanding of the field and evaluate possible well configurations with the objective of maximising flow rates in a future potential development.
Oswig exploration well highlights
· Preliminary estimate of recoverable resources in Oswig of between 10 and 42 million boe (gross) based on in-place volumes of 100 to 215 million boe and a condensate/gas ratio of 110-130 bbl/mmscf.
· Average production of approximately 650 boepd during the DST period consisting of 2.1 mmscfd of gas and 280 bpd of condensate.
· Successful ‘mini-frac’ carried out as part of well test programme to optimise evaluation and design of potential future production wells.
· Lean gas condensate with excellent quality gas (0.74 Specific Gravity and only 5% of non-hydrocarbon components), and a condensate with 45-47 API gravity.
· A gross gas/condensate column of about 100 metres encountered in the Jurassic Tarbert Formation with no gas-water contact encountered.
· Significant upside identified in a potential southern extension to the Oswig discovery not included in the preliminary resource estimates.
Helge Hammer, Chief Executive of Longboat, commented:
“Longboat is pleased to have made a discovery at the Oswig well, albeit at the lower end of pre-drill expectations. The thick gas column is within the Tarbert Formation in a well-defined structure with excellent quality gas and high condensate content.
“The Oswig fault block drilled has substantial volume potential and is located close to existing infrastructure. In addition, there is a possible large extension towards the south in the same fault block. Longboat looks forward to working with the partnership to define an appraisal programme and optimal well configuration for maximising flow rates from future potential development wells.”
There is no doubt that the extent of the share price fall this morning has been substantial, of course one the one side the well has failed to deliver pre-drill estimates in terms of size but it should be borne in mind that this is not a dry hole.
As I understand it the argument falls between two theses, one the one hand in place volumes are quite high but against that at this stage, recovery rates are low. Speaking to the CEO this morning I feel that a number of actions could be taken to make this a better looking result starting with analysis of the substantial amount of data that the operator has gathered in the well.
Also there may be potentially large volumes in the south, obviously not in these numbers but just might double the discovered amount of hydrocarbons and more importantly substantially increase the recovery factor.
The Longboat management, and they are amongst the best in the business, are now going to be working flat out over the next few months to firstly sort out this Oswig process and also to maybe come up with some portfolio activity to either raise money or get some production into the mix. If that happens then today’s 27p should be a thing of the past, the company hasnt become a bad one overnight…
Harbour has provided the following unaudited Trading and Operations Update for the nine months to 30 September 2022.
§ Production of 207 kboepd, an increase of 27 per cent on the corresponding prior period; full year production now expected to be in the upper half of 200-210 kboepd guidance
§ Unit operating costs of $14/boe, a decrease of 18 per cent on the corresponding prior period; forecast 2022 operating costs reduced to c.$14/boe (versus previous guidance of the lower end of $15-16/boe)
§ Improved safety record with total recordable injury rate of 0.78 per million hours worked
§ Successful drilling at J-Area and Catcher (UK) and Natuna Sea Block A (Indonesia) supporting production; eight rigs currently active including at J-Area and Beryl (UK) and Chim Sao (Vietnam)
§ International projects progressed
– Mexico: Zama Unit development plan well-advanced
– Indonesia: Initial plan of development for the Tuna field submitted; planning underway for further drilling across the Andaman Sea acreage following the material Timpan gas discovery
§ Increased momentum on UK CCS projects including new Viking CCS partnerships with West Burton Energy and Associated British Ports
§ Revenue of $4.1 billion with realised post-hedging oil and UK gas prices of $80/bbl and 86 pence/therm versus the average Brent price of $105/bbl and NBP gas price of 209 pence/therm
§ 2022 total capex guidance reduced to c.$1.0 billion from c.$1.2 billion, primarily driven by the late arrival of drilling rigs and the weaker pound sterling to US dollar exchange rate
§ 2022 total UK tax liability expected to be c.$900 million, of which c.$400 million relates to the recently enacted UK Energy Profits Levy
§ Forecast 2022 free cash flow increased to $2-2.2 billion1 (after c.$700 million of total cash tax payments)
§ Net debt of $1.1 billion as at period end; continue to expect to be net debt free in 2023
§ Shareholder distributions of $500 million completed year to date, including c.$100 million interim dividend paid on 19 October; new $100 million buyback programme approved
Linda Z Cook, Chief Executive Officer, commented:
“Harbour is delivering operationally with higher production volumes and lower costs, supported by improved efficiency and our capital investment programme. We also remain focused on reducing our own greenhouse gas emissions and advancing our two UK CCS opportunities, Harbour-led Viking CCS in England and Acorn in Scotland. Our company is proud to be the UK’s largest oil and gas producer and, through the combination of these activities, contributing meaningfully to domestic energy security while at the same time working to help realise a shared ambition of UK leadership in CO2 capture and storage.
However, the recently enacted UK Energy Profits Levy (EPL) and speculation about further fiscal changes have created uncertainty for independent oil and gas companies like Harbour. As a result, evaluating expected returns from long term investments has become more difficult and investors are advocating for geographic diversification.
While we fully recognise the significant challenge in the UK to put public finances on a sustainable footing, we urge the government to carefully consider the consequences of any increase in or extension of the EPL. At a time when oil and gas producers are being asked to invest more to help ensure the UK’s energy security and are considering longer term, material investments in CCS, additional taxes would run the risk of undermining our ability to do either.”
A good update from Harbour whose production is good and the debt falling which was the problem from its predecessor the buy-back also fits the bill. Rather than grumble about the Looney tax maybe it should utilise the investment relief and put some money down….
I commented briefly yesterday on Sound who are continuing to fight off a legal process in Morocco which seems to have little or no common sense to it. I am reminded that the subsidiary being investigated is the dormant company of sound that hasn’t traded in many years and is unlikely to have any recourse to the Group or parent.
So, it’s all process rather than substance and hopefully tax authority will realise this legal process is doing Morocco no favours, after all there are many companies and projects which actually will provide both revenue in-country and ease the considerable energy shortage in an area which is desperately short.
In the T20 Washout World Cup in soggy Aus more matches fell victim to the weather. Today Pakistan beat Group leaders South Africa so the calculators will be out..
In the other Group tomorrow at 0400 hrs Ireland play New Zealand and at 0800 Australia play Afghanistan…
Last night Chelsea beat Dinamo Zagreb 2-1, Real Madrid beat Celtic 5-1 and the Noisy Neighbours beat Sevilla 3-1 at the Emptihad…
Tonight in the Boropa Cup the Gooners host Zurich and the Red Devils are at Real Sociedad. In the Plate the Hammers are at FCSB…