WTI (Apr) $77.58 -$2.88, Brent (May) $83.29 -$2.89, Diff -$5.71 -79c.
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Oil tanked yesterday after Jay Powell in his testimony said that interest rates would need to go higher and faster than expected to get inflation down. This hit markets across the board, the DJ fell 1.7% and the dollar grew against all other currencies. The API noted that crude drew 3.8m barrels whilst gasoline added 1.8m and distillates were up by 1.9m b’s.
Chariot-Full steam ahead…
Chariot has announced that it has now completed the Front-End Engineering and Design (“FEED”) on the key components of its flagship Anchois gas development project, offshore Morocco. The Anchois gas field is located within the Lixus Offshore licence area, in which Chariot holds a 75% interest and operatorship, alongside ONHYM which holds a 25% interest.
· The FEED for the Anchois development was initiated in June 2022. In conjunction with the subsurface development studies, this work confirms the individual components of the initial development, which includes:
o Three initial subsea producer wells, including the Anchois-2 well drilled by Chariot in 2022, with multi zone completions to enable gas recovery across multiple stacked sands;
o Subsea infrastructure (“SURF” and “SPS”) capable of delivering produced hydrocarbons from the wells to the onshore facilities via a subsea flowline and controlling the wells via an umbilical, with future expansion capabilities to tie-back additional wells;
o Onshore central processing facility to process the hydrocarbons and to deliver treated gas and condensate to market, with an initial capacity of 105 mmscfd; and
o Onshore gas pipeline to deliver the gas to the anchor gas offtakers via the Maghreb Europe Gas Pipeline (“GME”), for which a tie-in agreement has already been signed.
· Engineering, Procurement and Construction commercial proposals have now been requested.
· In addition to the FEED, other technical work has been progressing in parallel, in the lead up to development sanction, including:
o Environmental, Social Impact Assessment, for which onshore and offshore environmental baseline surveys have already been conducted;
o Field Development Plan is being finalised by the Lixus joint venture partnership to enable the award of the production concession;
o Development drilling planning is ongoing which can further evaluate the potential of an additional 754 Bcf of 2U prospective gas resources for minimal additional cost. The targets identified have an independently assessed geological chance of success (“Pg”) ranging from 49-61%.
Adonis Pouroulis, Chief Executive Officer, commented:
“We have made excellent progress across all aspects of our planned development for Anchois and detailed discussions on partnering, gas sales agreements and project finance continue concurrently as we move towards Final Investment Decision.
“The conclusion of the FEED stage, largely performed by the Subsea Integration Alliance, is an important step in defining the initial development plan to deliver gas to our anchor customers. In conjunction with the Field Development Plan and Environmental and Social Impact Assessment work completed to date, we have further cemented the viability and commercial potential of the development, founded upon its excellent reservoir and gas properties, favourable location with regards to existing infrastructure and the opportunity to leverage off existing, conventional technology. We remain fully focused on taking the Anchois project to first gas in a way that can continually grow the resource and project scale and help unlock the basin scale potential that we see across our licence area.”
This is very good news from Chariot and they have, as always, been very busy on Anchois and the FEED is now completed. A number of key boxes are now ticked, such as the 3 subsea wells and flowlines, the onshore CPF with its capacity of 105 mmcfd and its tie-in to the Maghreb pipeline.
Next stop the EPC and full development phase and as the CEO comments, the fact that they have now ‘cemented the viability and commercial potential of the development’ is more than encouraging.
Given that this is where Chariot have now got to, and that the management are delivering both on the project and their promise to move swiftly ahead with the FID, I consider that the shares at 15.5p are an absolute steal.
With the Morocco Summit and exhibition coming up in May the country will be in the full glare of the world and with the ability to sell into the lucrative European market combined with the country’s advantageous fiscal policies mean that Chariot are in a very strong position indeed.
Zephyr has provided an update on operations on the State 36-2 LNW-CC well and the State 16-2 LN-CC well at the Company’s flagship project in the Paradox Basin, Utah, U.S.
State 36-2 well update
As reported on 19 January 2023, the State 36-2 well intersected a major natural fracture network in the Cane Creek reservoir which led to a significant influx of hydrocarbons into the wellbore. This influx was managed and safely controlled, which subsequently allowed for the drilling of an additional 132 feet in the fractured and productive Cane Creek reservoir. The Company then elected to run production casing down to the total-depth of the well.
The Company has now finalised its planning for the completion and production testing of the well’s fractured reservoir interval. All services have been procured, with operations expected to start in the next two weeks when a service rig will be mobilised to site. Workover operations and production testing are expected to take four to six weeks to complete. The production test will be paid for from the Company’s existing cash resources and any oil and/or condensate produced during the test is expected to be sold via existing marketing partners.
Production test results from the well, along with results from the production test on the State 16-2 well, will be integrated into Zephyr’s overall reservoir model and will help define the next steps for the Paradox project development, including the sizing of related gas infrastructure and the associated capital expenditure.
State 16-2 well update
The first phase of the extended production testing on the well has now concluded within the flare consent limit set by the regulatory bodies, and the Company now plans to further test the well (subject to regulatory approval and during warmer weather months) in order to gather more data.
As previously announced, the State 16-2 well test was hampered by severe weather and surface facility commissioning issues which resulted in delays to the programme and, at times, intermittent operational activity.
During the most recent testing, the Company’s efforts were primarily focused on surface facility issues, and once these issues had been successfully resolved, the well was initially brought online at choked-back, moderate rates in order to test for flow assurance at varying levels of production. At a controlled rate of 2 million square cubic feet of gas per day and 100 barrels of oil per day (an average of 433 barrels of oil equivalent per day) the well flowed continuously and surface flow assurance efforts proved successful.
As flow rates were increased above those levels, well performance became limited by fresh water pumping capacity and was subsequently impacted by the formation of down hole salt precipitate, an issue not uncommon with this type of completion. The precipitate, which blocked and subsequently cleared multiple times, impacted the well’s flow capacity to achieve extended higher rates. The Company was in early stages of testing higher rates when its mandated flaring limits were reached.
The Company is now assessing whether the precipitate issue is a function of continued flow back of injected completion fluids or a function of normal flowing conditions. If it is a result of normal flowing conditions, a series of mitigation solutions that have been successful in the past can be applied, and the Company will likely test these solutions in the coming months (subject to regulatory approvals) in order to fully determine the potential of the reservoir.
In relation to the State 36-2 well production test, precipitate formation is not expected to pose an issue as the well is testing the natural fracture network. In addition, the well has not been hydraulically stimulated and will therefore not flow back large volumes of completion fluid (water).
Colin Harrington, Zephyr’s Chief Executive, said:
“We’re excited to production test the State 36-2 well, an operation which will commence shortly and which (due to the fact we’re testing a natural fracture) is anticipated to take significantly less time than the State 16-2 well production test, which is still in the late flow back phase to clean up all injected completion fluids.
“In respect of the State 16-2 well test, the Company deliberately limited the well from a production perspective in order to first test flow assurance and uptime at a measured set of rates. The long ramp-up ultimately demonstrated success with stable constrained flows and solid uptime, but it also resulted in the utilisation of most of our approved gas flaring allotment during the ramp up phase.
“When constraints were relaxed to test the upper bounds of production rates, flow was impacted by downhole salt precipitation, but once the root cause is diagnosed, I’m confident our team will devise appropriate mitigation measures as needed, and our plan will be to seek additional authority for continued testing as we seek a greater understanding of the potential upside of the well. It’s important to remember that the Paradox is an emerging play and one in which we are breaking new ground, and while start-up issues are not unexpected, our goal is to learn and improve with each subsequent phase of operations.
“We look forward to updating investors on the results from the State 36-2 production test and once the results from the test are analysed, we expect to be in a position to announce our plans for future drilling and infrastructure plans on the Paradox project.”
Zephyr shareholders must be concerned about the share price reaction today but they shouldn’t be, more a case of a complicated result arriving on a bad day for the market I would suggest. The weather has been ‘extraordinary’ and the facility commissioning has experienced some hurdles, I’m told that this is not unusual teething issues which are resolvable.
It won’t be long before the production test starts which should give some positive results, indeed the high end of the range is as yet untested which is ‘frustrating’. With that news and the use of other techniques which will resolve the problems, the company are confident that higher artes are very achievable.
So, this is no time to panic, I remain confident that there will be further good news and I am very happy with my 20p TP as the testing ups the game.
Challenger has updated that, further to entry into a binding term sheet with Predator Oil & Gas Holdings Plc and relevant subsidiary entities as announced on 20 December 2022 (“Transaction”), Predator has now completed all confirmatory due diligence and the Company and Predator have entered into fully-termed long-form legal documentation.
The terms remain unchanged from those previously announced on 20 December 2022, being:
· Predator will acquire 100% of the issued share capital of T-Rex Trinidad Limited (“T-Rex”), an indirectly wholly-owned subsidiary of the Company that holds the Company’s 83.8% interest in, and is the operator of, the Cory Moruga licence;
· the Company will retain the option in the future to repurchase 25% of Predator’s share in T-Rex on an agreed basis;
· CEG and Predator have established a collaboration in relation to CO2 enhanced oil recovery (“EOR”) activities and projects in other areas in Trinidad; and
· the Company and Predator have agreed to a mutual settlement and discharge of all disputes and claims in relation to the Inniss-Trinity CO2 EOR pilot project.
Completion of the transaction is conditional on consent of the Trinidadian Ministry of Energy and Energy Industries (“MEEI”) to a revised work programme for the Cory Moruga licence proposed by Predator, as well as agreement of MEEI to a revision of future fees for the Cory Moruga licence and a settlement / cancellation of past claimed dues pertaining to the Cory Moruga licence. Completion of the Transaction will occur 7 days after satisfaction of this condition. The parties have agreed to work together to secure the required consents and agreements with MEEI and thus achieve completion as soon as reasonably practicable on or before 30 May 2023, with a long stop date of 31 August 2023.
Subject to completion, the Transaction will represent a gross potential value proposition to Challenger Energy of up to US$9 million (as estimated by the parties to the Transaction), comprising:
· US$2.0 million payable to the Company by Predator in cash, in instalments as follows: (i) US$1 million upon completion of the transaction, and (ii) a further US$1 million on the date that is six months after completion;
· a further US$1 million conditional cash payment, payable once the Cory Moruga field production first reaches 100 barrels of oil per day;
· the option-value embedded in the retained back-in right;
· the removal of all ongoing T-Rex financial obligations, and the elimination of all T-Rex associated liabilities from the Challenger Energy balance sheet, as well as the elimination of all contingent and potential liabilities associated with the Cory Moruga licence, whether crystalised or not;
· the settlement of any outstanding loan amounts in respect of the Inniss-Trinity CO2 EOR pilot project (recognising that absent a settlement between the parties, such amounts would be recoverable only from incremental production from the Inniss-Trinity CO2 EOR pilot project area); and
· a full and final mutual settlement in respect of all disputes and claims between the parties in relation to the Inniss-Trinity CO2 EOR pilot.
The Transaction, in addition to the transaction involving Caribbean-Rex Limited as announced on 14 February 2023, is in line with the Company’s strategy in Trinidad and Tobago of seeking to monetise assets not in the core area of operation, so as to maximise cash and offset risk and work program commitments, but at the same time retain upside exposure.
The Predator take
Predator has announced an update that, further to entry into a binding term sheet with Challenger Energy Group PLC and relevant subsidiary entities as announced on 19 December 2022, the Company has now completed all confirmatory due diligence and the Company and CEG have subsequently entered into fully termed long-form legal documentation.
The terms remain unchanged from those previously announced on 19 December 2022, being:
· The Company will acquire 100% of the issued share capital of T-Rex Trinidad Limited, an indirectly wholly owned subsidiary of CEG that holds CEG’s 83.8% interest in, and operatorship of, the Cory Moruga licence;
· CEG will retain the option in the future to repurchase 25% of Predator’s share in T-Rex on an agreed basis;
· Predator and CEG have established a collaboration in relation to CO2 EOR activities and projects in other areas in Trinidad; and
· the Company and CEG have agreed to a mutual settlement and discharge of all disputes and claims in relation to the Inniss-Trinity CO2 EOR pilot project.
Completion of the Transaction is conditional on consent of the Trinidadian Ministry of Energy and Energy Industries to a revised work programme for the Cory Moruga licence proposed by the Company, as well as agreement of MEEI to a revision of future fees for the Cory Moruga licence and a settlement / cancellation of past claimed dues pertaining to the Cory Moruga licence. Completion will occur 7 days after satisfaction of this condition. The parties have agreed to work together to secure the required consents and agreements with MEEI and thus achieve completion as soon as reasonably practicable on or before 30 May 2023, with a long stop date of 31 August 2023.
Paul Griffiths, Executive Chairman of Predator Oil & Gas Holdings Plc commented:
“We are delighted to have had the opportunity to evaluate the Cory Moruga technical database and are extremely upbeat about the opportunity for unrealised potential in Cory Moruga, both for conventional appraisal and production and for the application of our CO2 EOR expertise. Cory Moruga is a near-virgin field unlike many of Trinidad’s onshore oil fields. As a result it is an excellent candidate for miscible CO2 EOR projects.
Completion of this deal looks to be a rare, good news for both sides deal.
Angus has announced that the second compressor is now fully commissioned and processing gas for export. Well completion continues on the sidetrack well SF7V with clean-up work awaiting coiled tubing due late March. The intervening time window offers a useful opportunity to perform regular maintenance on the first compressor.
Chelsea got up and beat Borussia Dortmund last night in the Champions League last 16, tonight Spurs host AC Milan.
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