WTI (May) $80.83 -$1.69, Brent (June) $84.76 -$1.55, Diff -$3.93 +14c.

USNG (May) $2.27 +16c, UKNG (May) 99.50p -0.5p, TTF (May) €41.53 +€0.41

Oil price

Oil fell yesterday, partly as the dollar rose along with thoughts of a Fed rate rise returned as well as further rumours of a deal with regards to the Iraq/Turkey pipeline reopening. A further rapprochement between Iran and The Kingdom of Saudi Arabia also appeared to catch the market by surprise.

This morning the 1Q GDP figures from China were out, at 4.5% they were a good half a point above the whisper and leading banks are already pencilling in 6% for the year as retail sales were up some 10.6% in March. Retail gasoline continues to motor, so to speak, at $3.663 per gallon on average, that’s up another 6.7% w/w, up a whacking 24 cents m/m but still 40.3 cents below this time last year.

IOG

IOG has provided an update on the drilling of the Blythe H2 well. Having spudded on 5th March, the Company estimated that the H2 well was expected to take approximately three months to drill, complete and hook-up, subject to the usual operational risks.

The H2 well is being drilled by the Shelf Perseverance jack-up drilling rig under IOG’s contract with Shelf Drilling (UK) Ltd (“Shelf”) signed in 2020. Petrofac is the Well Operator, as with all previous Saturn Banks development wells.

The H2 well was successfully drilled to the Basal Zechstein sequence. However, while drilling through the Hauptdolomit formation within the Zechstein, an abnormally pressured gas and oil influx was encountered, with associated drilling fluid losses. The risk of such a well control challenge was identified during planning and is being safely managed by Petrofac and Shelf, in collaboration with the IOG team. However, this now looks likely to impact the expected well duration, potentially by up to four weeks, while the associated cost impact will depend largely on the speed of resolution.

The influx from the Hauptdolomit has been determined to contain non-commercial quantities of oil and gas and is not related to the target Rotliegendes gas reservoir which is over 500 ft deeper and isolated from the Hauptdolomit. The well has been displaced to a mud weight above the formation pressure.      Options to progress include isolation of the influx zone with cement and, if necessary, side tracking of the well.

Rupert Newall, CEO of IOG, commented:

“Encountering a gas and oil influx while drilling through the overburden above the reservoir is a known risk in the Southern North Sea. Associated drilling fluid losses present an additional challenge, however this is being actively and safely managed by Petrofac, the Well Operator, and Shelf, the drilling contractor, working closely with the IOG team, to ensure that drilling ahead can be safely resumed.”

This is, as they say, a risk that sometimes can be predicted to run into when identifying pre-drill challenges and it is being handled by Petrofac and Shelf  with close support from the IOG team so that safe continued drilling can be assured. It reminds us that all these wells present differing problems and that Petrofac and Shelf are preparing for moving on before long.

Southern Energy

Southern has announced the release of its fourth quarter and year end December 31, 2022, financial and operating results. Selected financial and operational information is outlined below and should be read in conjunction with the Company’s audited consolidated financial statements  and related management’s discussion and analysis (the “MD&A”) for the three months and year ended December 31, 2022 and annual information form (“AIF”) for the year ended December 31, 2022, which are available on the Company’s website at www.southernenergycorp.com and have been filed on SEDAR.

All figures referred to in this news release are denominated in U.S. dollars, unless otherwise noted.

FOURTH QUARTER AND YEAR END 2022 HIGHLIGHTS

·    $3.1 million of adjusted funds flow from operations[1] in Q4 2022 ($0.02 per share basic and diluted) compared $1.4 million in Q4 2021 ($0.02 per share basic and diluted) and $17.2 million for the year ended December 31, 2022 ($0.16 per share basic and $0.14 per share diluted), an increase of 500% from the same period in 2021

·    Net earnings of $1.7 million ($0.01 per share basic and diluted) and $9.3 million ($0.09 per share basic and $0.08 per share diluted) for the three and twelve months ended December 31, 2022; as compared to net earnings of $3.3 million ($0.06 per share basic and $0.05 per share diluted) and $10.1 million ($0.24 per share basic and $0.19 per share diluted) in the same period of 2021. 2021 results included the one-time recognition of an impairment recovery and gain on debt retirement

·    Petroleum and natural gas sales were $9.8 million in Q4 2022 and $45.2 million for the full year 2022, an increase of 37% and 127% from the same periods in 2021, respectively

·    Average production of 16,084 Mcfe/d[2] (2,681 boe/d) (96% natural gas) during Q4 2022 and 15,584 Mcfe/d[3] (2,597 boe/d) (95% natural gas) for the full year 2022, an increase of 26% and 24% from the same periods in 2021, respectively

·    Average realized natural gas and oil prices for Q4 2022 of $6.35/Mcf and $81.98/bbl, respectively, reflecting the benefit of strategic access to premium-priced US sales hubs in a geographic region with strong industrial and power generation natural gas demand

·    On July 7, 2022, successfully closed a $17.5 million bought deal prospectus offering in Canada and a $13.5 million placing in the UK, raising aggregate gross proceeds of $31.0 million

·    Successfully negotiated a $25.0 million borrowing capacity increase in respect of its senior secured term loan (“Credit Facility”) to increase the total Credit Facility to $35.0 million

·    Exited Q4 2022 with positive net cash1 of $13.4 million

·    In November 2022, spud three horizontal wells from the 18-10 padsite at Gwinville which included the first City Bank appraisal well

Ian Atkinson, President and CEO of Southern, commented:

“Our Q4 and full year 2022 results have provided a preview of what Southern can and expects to achieve, with its strong underlying production base and technical ability to organically grow our assets at constructive natural gas prices. Our equity financing in July and Credit Facility expansion in September have put the Company in a position to weather the natural gas price volatility and provide flexibility and patience as we continue to work towards our goal to reach 25,000 boe/d. We’re excited to build upon the learnings from our three well appraisal program in Q2, as well as the seven wells drilled as part of the follow up program at Gwinville which will continue to translate into future drilling and cost efficiencies when the program resumes. We have positioned ourselves to re-ignite our organic growth in a more supportive natural gas price environment and will continue to seek growth opportunity to increase significant shareholder value as we continue through the year.”

Financial Highlights

 

Three months ended                  December 31,

Year ended             December 31,

(000s, except $ per share)

2022

2021

2022

2021

Petroleum and natural gas sales

$       9,830

$         7,151

$      45,217

$       19,942

Net earnings

1,749

3,311

9,299

10,093

Net earnings per share

 

 

 

   Basic

0.01

0.06

0.09

0.24

   Fully diluted

0.01

0.05

0.08

0.19

Adjusted funds flow from operations (1)

3,059

1,426

17,156

2,860

Adjusted funds flow from operations per share (1)

 

 

 

   Basic

0.02

0.02

0.16

0.07

   Fully diluted

0.02

0.02

0.14

0.05

Capital expenditures

10,218

1,755

30,434

2,562

Weighted average shares outstanding

 

 

 

   Basic

137,378

58,087

108,144

42,545

   Fully diluted

146,797

73,895

122,972

55,047

As at period end

 

 

 

Basic common shares outstanding

138,057

78,122

138,057

78,122

Total assets

97,652

46,212

97,652

46,212

Non-current liabilities

12,817

12,609

12,817

12,609

Positive net cash (net debt) (1)

$      13,437

$    (6,431)

$      13,437

$    (6,431)

Note:

(1)          See “Reader Advisories – Specified Financial Measures”.

 

Outlook

In order to be diligent in protecting the Company balance sheet and respond to the current low natural gas prices, Southern has moderated and taken a pause on the Gwinville organic growth program. Southern has left four drilled, uncompleted wells (“DUCs”) that can be quickly completed and brought online through Southern’s 100% owned equipment at higher natural gas prices. Southern currently has $23.0 million of unused capacity on its Credit Facility, which can be utilized to complete the DUCs at supportive natural gas prices or be opportunistic with counter cyclical inorganic growth opportunities.

Natural gas prices have been under pressure in 2023 coming off a mild winter in North America and increased production from the depletion of the DUC well inventory as a result of higher prices in 2022. In Q1 2023, Southern was protected from some of the volatility with a costless collar on 2,000 MMBtu/d of production with a floor price of $3.50/MMBtu. To further protect against the volatility, Southern has entered into a basis swap transaction to secure a premium to NYMEX of $0.32 per MMBtu on 1,000 MMBtu/d from April 1, 2023 to October 31, 2023. The Company continues to monitor the basis differential prices and is prepared to hedge additional basis exposure at elevated basis premiums.

Calvin Yau, Chief Financial Officer of Southern, commented:

“2022 was a record year for Southern thanks to strong production from our base assets and the Gwinville appraisal program along with the continued strength of natural gas spot and basis pricing premiums to NYMEX in Southeastern U.S., building a solid foundation for Southern as we enter 2023. While we were excited to begin our long-term drilling program, we felt it was prudent to take a pause and protect our balance sheet in order to be flexible and able to capitalize on potential opportunities or quickly resume our organic growth program at the right time. Southern is in an enviable position being able to operate in a nimble and dynamic way around our drilling program, and with a constructive outlook for the U.S. natural gas market in the short to medium term, we are confident in maximising value from our assets by sensible well management.

“The Company’s long-term strategy remains consistent, with an unwavering commitment to environmental, social and governance (“ESG”) principles that support the continued development and consolidation of prolific reservoirs that are outside of the more expensive shale basins. Cost savings and financial discipline will remain a priority through the continued enhancement of operations and the ongoing evaluation of opportunities to reduce operating and capital costs.

“Southern thanks all of its stakeholders for their ongoing support and looks forward to providing future updates on operational activities and continuing to create shareholder value.”

Operational Update

The Company continues to flow back the Gwinville 18-10 #1 City Bank well, with load fluid recovery of approximately 9%.  Based on historic vertical and early generation horizontal well completions in the City Bank reservoir in Gwinville, peak gas rates are not expected until the load fluid recovery is closer to 20%, which is expected to be towards the end of this quarter. Early gas rates are encouraging and Southern is excited to provide further operational updates in Q2 2023 as the modern generation City Bank type curve results are established. 

Remediation plans for the 18-10 #3 Upper Selma Chalk well that experienced a mechanical integrity issue with the production casing during completion operations continue to be finalized, with field execution expected in late Q2 2023.

The four wells that are awaiting completion include our first two Lower Selma Chalk laterals, along with our second City Bank lateral and one Upper Selma Chalk lateral. These four wells are some of our longest laterals to-date.  They were drilled with an average lateral length of approximately 5,400′ and were steered within the high-graded intervals for an average of 95% of the wellbore length. The two padsites can be brought on production within a matter of weeks once completion operations are resumed.      

Corporate Presentation

A new corporate presentation dated April 2023 is now available on the Company website at www.southernenergycorp.com.

This is a very detailed announcement and primarily looks to the historic figures from last year which were very much as per expectations, put together with the update that the markets had a couple of weeks ago there is little to add to news from Southern. 

But there are a number of operational items, the 18-10 #2 well is in line with expectations, the #3 well spuds late 2Q and the 18-10 #1 well is ‘encouraging’ with flow back rising with gas rates rising. The company is in a very strong position to be able to dictate its own growth which is very much assured long term. 

I particularly like the catch phrase of ‘flexibility and patience’ which exactly covers the situation that SOUC is in, a massive portfolio of assets that the management can afford to wait on higher natural gas prices, this stock is a keeper for sure and will reward tucking away for when gas prices rise which they inevitably will.

Angus Energy

Angus has announced the completion of the initial clean up of the new B7T well at Saltfleetby.  This well is producing from an approximately 185 m horizontal section in the main Westphalian reservoir at a vertical depth of 2292m.

The well first produced on the 31st March and the Company has since been cleaning up drilling fluids via a temporary production system to a flare.  This work has now concluded.  The initial clean up ended with a multi-rate flow test last week.

Based on the results we have concluded that at present, the well is capable of 4-5 mmscfd at a FWHP of 30 barg flowing into the system with the two other wells.  We are expecting the well to clean up further which is likely to raise that flow rate in the future.  Whilst producing through a temporary connection, the new well flowline will be constructed to enable full plateau production this summer.

Another update from Angus that should create more confidence from shareholders as the clean-up is completed and the well is producing in line with expectations which include short and medium term growth.

Afentra

Afentra yesterday provided the following update regarding the previously announced Angolan acquisitions.

INA Acquisition

Afentra is pleased to announce that having received the necessary approvals from the regulator and contractor group members to the formal transfer documentation ahead of the 17 April 2023 long stop date, we have agreed with INA to proceed to completion whilst we await receipt of outstanding signatures to this documentation. We look forward to updating on final completion settlement payments which we expect to occur in early May.

Sonangol Acquisition Update

Following extensive discussions between ANPG and the Block 3/05 JV partners, an updated proposal has been received from ANPG. This Licence Extension addendum (the “Addendum”) is to extend the Block 3/05 PSA from 31 December 2025 to 31 December 2040 with improved fiscal terms that strengthen the economics of the permit, as anticipated in Afentra’s Admission Document published on 10 August 2022. The Block 3/05 JV partners are currently reviewing this proposal and we anticipate, upon acceptance, that ANPG, the regulator, can begin the process of obtaining the requisite governmental decree to approve the Addendum.

In accordance with the announcement on 7 March 2023, the Company also confirms that it has extended the long-stop date from 31 March 2023 to 30 June 2023 in order to facilitate completion of the Sonangol transaction.

We look forward to providing shareholders with further updates in due course.

That Afentra has gained the necessary regulatory approvals from the regulator and their contractor group members to be able to proceed with the completion process whilst waiting for final signatures which avoids entering long stop dates and will trigger the transfer process by early May.

This will lead to final completion with the previously signalled significant inherited crude inventory and also accrued cash flow since September 2021 effective date. Over at licence 3/05 enhanced fiscal terms have been agreed ahead of Ministerial approval. 

So, in summary, Afentra now have strong momentum on both transactions and look forward to communicating their official entry into Angola in early May with the completion of the INA transaction and will continue to keep you updated on the timing of the Sonangol transaction.

United Oil & Gas

As announced on the 17th January 2023, United has entered into a binding asset purchase agreement (“APA”) with Quattro Energy Limited for the conditional sale of the UK Central North Sea Licence P2519 containing the Maria discovery in Block 15/18e.

The long stop date for the satisfaction of the APA conditions was 16th April 2023. The parties to the APA have agreed an extension of this long stop date to the 17th May 2023 to allow additional time for the APA conditions required for completion to be satisfied. A further update will be provided to the market in due course.

No comment necessary.

Hurricane Energy

Hurricane Energy plc, the UK based oil and gas company, is pleased to provide a trading and financial update for the first quarter of 2023. This information is unaudited, and subject to further review and adjustments. Also provided is an update on the recommended acquisition by Prax Exploration & Production PLC of the entire issued, and to be issued, share capital of Hurricane  to be effected by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006, which was announced by Hurricane and Prax on 16 March 2023.

Trading Update for the quarter ended 31 March 2023

·    Production and oil sales

 Production: 0.66 MMbbls (average of 7,311 bopd)

 Oil sales: 0.5 MMbbls from 1 cargo

·    Key financials

 Revenue: $39.3 million

 Average realised oil price: $78.5/bbl

 Cash production costs (excluding 8% incentive tariff): $38.6/bbl

 Quarter-end net free cash, as at 31 March 2023(1): $132 million

·    2023 Expected cash production costs(2)

 2023 Expected cash production costs (excluding 8% incentive tariff)(3): $45.5 – 54.7/bbl

1.     Unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables.

2.       The “Expected cash production costs” is based on previously announced estimates for operating costs and production guidance.

3.      Cash production costs relate to operating costs only and excludes other costs such as G&A. The cash production costs shown above also exclude the 8% incentive revenue tariff, payable to the FPSO owner. The 2023 forecast, shown as a range in US Dollars per barrel, is dependent on the number of barrels produced in the year and reflects the 2023 production guidance range as announced on 11 January 2023.

Lancaster Field Operations Update & Impact on Acquisition

As of 16 April 2023, Lancaster was producing c.7,460 bopd from the P6 well alone with an associated water cut of c.53%. As of 17 April 2023, the FPSO held c.450,000 barrels available for lifting.  The next cargo is anticipated to be lifted in late April 2023.

As per the terms of the Acquisition, if the Hurricane Directors are unable to resolve to pay the Supplementary Dividend of 1.87 pence per share (£37.2 million) in full before the Scheme Effective Date, an amount equivalent to the balance will be added to and payable as part of the Deferred Consideration Units (“DCUs”), as long as Hurricane receives, following 16 March 2023, cumulative proceeds from the sale of not less than 450,000 bbls of oil from the Lancaster Field before 1 January 2024.

At least 450,000 bbls are currently available for lifting in the FPSO, and the next lifting is scheduled for later in April. As significant delays to the lifting are only likely caused by either weather or other extreme circumstances the Hurricane Directors believe that it is highly probable that the full £37.2 million will become payable under the Acquisition, either via the Supplementary Dividend or via the DCUs.

Defined terms used but not defined in this announcement have the meaning given to them in the scheme document in respect of the Scheme and the Acquisition, which was published and made available to Hurricane Shareholders on 6 April 2023 (the “Scheme Document”).

The Scheme Document and other information relating to the Acquisition is available on the Company’s website:

https://www.hurricaneenergy.com/investors/formal-sale-process

Matched Bargain Facility Update

As announced on 16 March 2023 and detailed in the Scheme Document, Prax intends to put in place a matched bargain facility upon the Scheme becoming Effective and upon which the Deferred Consideration Units could be traded.  Progress continues to be made setting up the matched bargain facility, and Prax believes this will be in place shortly after the Scheme becoming Effective.

Antony Maris, Chief Executive Officer of Hurricane, commented:

“We remain on target, subject to the various conditions, for the completion of the sales process by June 2023. With c. 450,000 barrels now available in the FPSO for the lifting currently scheduled by the end of April, we are confident that, under the terms of the offer from Prax, the full value of the Supplementary Dividend will also be payable to shareholders, either via the Supplementary Dividend or via the DCUs.

This is great news for shareholders as we continue the process of derisking the offer from Prax, and we look forward to the opportunity to further explain the merits of the offer to all shareholders at the upcoming meeting.”

 Almost done now and under the circumstances I feel that the sale to Prax is the best possible deal available to Hurricane shareholders. I said last time that I thought it was a waste which was misconstrued by a few readers, I meant that from such a strong position with a great deal of acreage, big prospects and  potentially innovative financing how did it end like this?

Better people than me will write the obituary in years to come but various authorities, some NED’s who should have known better and going for the easier financing options all contributed. Meantime Prax have got a bargain but in the current position of the North Sea and with all the concerns about taxing again and again they should be at least congratulated for being the last man standing in the bidding room…

And finally…

Liverpool saw off Leeds at Elland Road last night giving themselves a  long-shot chance at the top four and Leeds a realistic chance of the bottom three.

Chelsea take on Real Madrid at Stamford Bridge tonight 2-0 down from the first leg.