WTI (July)* $71.99 +44c, Brent (July) $75.99 +41c, Diff -$4.00 -3c. *June WTI Expiry

USNG (June) $2.40 -18c, UKNG (June) 65.05p -0.75p, TTF June) €28.87 -€0.5.

Oil price

Debt talks continue and are ‘productive’ according to parties but they just haven’t told Janet Yellen yet as she is saying that it is ‘highly likely’ that default will happen on June 1st. Retail gasoline is steady ahead of the Memorial weekend and Chevron have confirmed the deal mentioned here a few weeks ago to buy PDC for EV of $7.8bn.

The only other point of interest is that the Saudi Energy Minister has warned speculators to ‘watch out’ in case they find themselves in trouble in the market. Stay short at your peril I suppose…

Kistos

Kistos has announced the completion of the acquisition of all of the outstanding shares of Mime Petroleum A.S.  from Mime Petroleum S.a.r.l.

Completion of the acquisition marks Kistos’ entry into the Norwegian Continental Shelf and adds 24 MMboe of 2P reserves (operator estimate) plus 30 MMboe of 2C resources, increasing total Group reserves plus resources to approximately 80 MMboe. The acquisition will also add over 2,000 boe/d of production immediately and help to boost Group output to in excess of 15,000 boe/d in 2025 once the Jotun FPSO is on production..

The terms of the transaction are unchanged from the announcement made on 19 April 2023 and represent an adjusted consideration of US$111MM (excluding contingent amounts).

Highlights

·    Through its wholly owned subsidiary Kistos plc, Kistos has acquired 100% of the issued and to be issued share capital of Mime from the Vendor.

·    The consideration is US$1 plus the issue of up to 6 million warrants exercisable into new Kistos ordinary shares at a price of 385p each.

·    Mime will repay US$75MM of its debt, and the enlarged Group will assume the remaining US$225MM. A payment to Mime’s bondholders of up to US$45MM in 2025 is contingent on certain operational milestones being achieved.

·    The Mime debt being retained by Kistos or retired by Mime, less Mime’s cash balances at 31 March 2023 and less a tax refund due in December 2023, equates to approximately US$111MM.

·    Based on operator estimates, 2P reserves at Balder and Ringhorne were 24 MMboe net to Mime at the end of 2022. In addition, Kistos estimates Mime has net 2C resources of 30 MMboe, largely comprised of additional upside in Balder and Ringhorne plus the 2021 King oil discovery. Following the acquisition of Mime, total Group resources are approximately 80 MMboe.

·    Excluding contingent amounts payable, Kistos estimates that on a pro forma basis at 31 March 2023, the enlarged Group would have had net cash of €5MM, comprising cash of €293MM and outstanding Nordic Bonds of €288MM (€0.92 to US$1.00).

Andrew Austin, Executive Chairman of Kistos, said:

“Our entry into Norway signifies our commitment to securing sustainable growth opportunities across the North Sea Basin and positions us as an influential independent producer across three jurisdictions. Mime’s assets give us visibility on a rising production profile over the next few years whilst enabling us to maintain our industry-leading Scope 1 and Scope 2 CO emissions in the medium-term.

“The focus now will be on immediately integrating Mime into Kistos. We look forward to working with Mime’s experienced management team and leveraging their valuable knowledge of the assets and basin to achieve our shared objectives for the Group, while maintaining the responsible energy production at the heart of our operations.”

This is a great deal and whilst I have already commented about it it grows on me, the fantastic amount of upside giving the company huge cash flows reminds me somewhat of RockRose in its early days. This could be the game-changer and with another, more fiscally stable country to operate in means that shareholders can relax and wait for the flow of dividends, on a total rate of return basis, Kistos shares should be significantly higher.

For those who need a reminder this interview with AA was done just after the deal was announced.

Core Finance Chairman interview: Andrew Austin, Kistos

Southern Energy

Southern has announced that it has entered into a definitive agreement with PetroTX Energy, LLC to acquire the remaining producing acreage in the Gwinville Field not already owned by the Company, in Jefferson Davis County, Mississippi for a cash purchase price of $3.2 million.

The Assets are currently producing approximately 400 boe/d (99% natural gas) of high working interest production at less than 8% projected annual decline from over 8,500 acres of held-by-production acreage and include significant redevelopment opportunities in the Selma Chalk formation. The Company recently initiated a field redevelopment program in Gwinville by employing modern horizontal drilling and multi-stage stimulation techniques on 10 operated wells drilled to date. The Assets are expected to increase well inventory in Gwinville by as much as 20%. The Transaction will allow Southern to design the surface and bottomhole field development plan more efficiently and cost-effectively. 

The operational synergies that are expected to be realised by integrating the Assets with the Company’s existing operations are alone significant enough for the Company to achieve strong financial returns on the Transaction, before any incremental cash flow from the Assets. The Company anticipates that the Asset’s operating cost savings of more than 30% are expected to be realized almost immediately after completing the Transaction, primarily driven by the consolidation of infrastructure, staff and services in the Gwinville Field. The Transaction is consistent with the Company’s strategy to consolidate stable, low decline, cash flowing assets that have been historically capitalised at highly attractive and accretive metrics.

Transaction Highlights (1):

·    PDP PV10 value of $7.7 million, including operations synergies, representing a PDP PV34 valuation or a nearly 60% discount to PDP PV10

 This includes expected operational synergies with a PV10 value of more than $5 million

·    Next twelve months cash flow of $0.9 million, representing a 3.6x cash flow multiple; 2022 cash flow of $3.7 million, representing a 0.9x cash flow multiple

·    Flowing Production (WI) addition per boe/d acquired of $7,800 ($1,300/Mcfe/d), on an annual basis

·    1.8 MMboe PDP Reserves (WI) addition at implied price of $1.76/boe

·    Potential 2P Reserves (WI) addition of 14.5 MMboe; 20+ net Selma Chalk drilling locations identified

·    Projected 7% increase to sales gas volumes through fuel gas reduction

·    Estimated operating cost savings of more than 30% expected to be achieved through synergies with our current Gwinville acreage

·    239 total / 204 producing (net) wells with low future plugging liability associated with the assets

PDP reserves, 2P reserves and PV10 in respect of the Assets have been internally estimated by the Company’s Internal Qualified Reserve Evaluator (“QRE”) and prepared in accordance with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the most recent publication of the Canadian Oil and Gas Evaluation Handbook (“COGEH”). “Internally estimated” means an estimate that is derived by the Company’s internal QRE and prepared in accordance with NI 51-101. All internal estimates contained in this press release have been prepared effective as of June 1, 2023. Reserves values are based on working interest reserves of the Assets before deduction of royalties and without including any of royalty interest reserves.

The cash consideration payable under the Transaction of $3.2 million will be funded through existing capacity from the senior secured term loan (the “Credit Facility”) with Southern’s current lender, who is highly supportive of the Transaction. The effective date and proposed closing date of the Transaction is June 1, 2023. The Transaction is highly accretive to Southern from an operating and financial perspective as it will be funded through the current Credit Facility while still maintaining healthy debt to cash flow levels. Southern expects to have approximately $14.5 million of capacity remaining on the Credit Facility after closing the Transaction, which provides ample funds to complete the four drilled but uncompleted wells from the Gwinville drilling program when natural gas prices are supportive.

Pursuant to the terms of the Agreement, the Company has also agreed to grant PetroTX minor overriding royalties over two of the Asset’s wells, which currently are not producing and would require remedial work to re-commence production, but were each previously producing approximately 400 Mcf/d.

Hannam & Partners acting as financial advisor to the Company in relation to the Transaction.

Ian Atkinson, President and CEO of Southern, commented:

“We are very excited to consolidate the Gwinville Field under one operator at an accretive price for our shareholders. This will be the first time this has been done in over 30 years since Selma Chalk and City Bank early exploration and development started in the 1990s. Our team will seek to incorporate these operations with our own, achieving substantial synergies and cost savings that will help drive a very quick return of capital even at current natural gas pricing. The Finding, Development and Acquisition (FD&A) metrics of the Assets are outstanding and will add over 20 Selma Chalk drilling locations to our already deep inventory in the Gwinville Field. The Transaction demonstrates our ability to execute our high value inorganic growth strategy at low cost during periods of weaker natural gas pricing to add accretive, high quality assets to the portfolio that we will eventually grow organically when commodity prices are more supportive.”      

This is near perfect deal that Southern has announced today and I will write much more in due course, I have only just have had my call with the company at 1730 hrs UK time. This deal which SOUC has been chasing for two years has been possible partly due to vendor distress at recent low natural gas prices and partly due to the incredible synergies that Southern has managed to wring out of the deal. 

Indeed, with synergies being some $5m, more than the $3.2m purchase price, and into the bargain done at May 1st strip, close to the recent lows, the outlook is more than promising. It has partly been possible due to the digital database which has been able to compare positions, costs and common acreage. There is much land held by production, no expiry issues and a miniscule exposure to environmental liabilities. 

Some of the acquired wells are able to be drilled across boundaries and there are many drill-able PUD locations which across the acquisition will deliver significant reserves growth and with some 7% of increases in sales gas volumes the economics are a complete no-brainer. I will redo my numbers shortly but they will not go down and the deal is significantly accretive and the company is more profitable than ever before. Forecasting the gas price is foolish but I for one am incredibly positive and this move has indelibly stamped the high quality management and I am sure that there will be more deals like this to come. SOUC is a keeper and will increase in value a great deal from here…

Gulf Keystone Petroleum

Gulf Keystone has provided an update on operational and corporate activity and the Company’s upcoming 2023 Annual General Meeting.

Operational & Corporate Update

Following the shut-in of the Iraq-Turkey pipeline on 25 March 2023, production from the Shaikan Field remains shut-in. The suspension of exports has resulted in a gross production deferment to date of around 2.9 million barrels, or approximately 8,000 bopd on a full-year basis.

While no official timeline to restart pipeline operations has been publicly announced, the Company continues to believe that the suspension of exports will be temporary. We are encouraged by the announcement from the Kurdistan Regional Government (“KRG”) on 11 May 2023 that it has reached an agreement with the Iraqi government on measures to allow the resumption of oil exports through Turkey and that Iraq’s State Oil Marketing Organisation  has officially requested Turkish authorities to allow the Kurdistan Region’s oil exports via the country’s Ceyhan port. The Company remains ready to resume production immediately.

The Company continues to seek clarity from the KRG on when consistent monthly oil sales payments will resume and when the current overdue receivables for the months of October 2022 to February 2023, totalling $128 million net on the basis of the KBT pricing mechanism, will be paid.

The Company remains focussed on preserving liquidity and continues to reduce capital expenditures and costs across the business, while maintaining a strong focus on safety and long-term asset reliability.

As previously announced, the Board has been considering the proposed final 2022 ordinary annual dividend of $25 million and, while the importance of distributions to shareholders is recognised, it believes that it is prudent to cancel the dividend. Once regular payments from the KRG resume, the Board will consider the reinstatement of dividends in line with its financial framework, which includes an assessment of the Company’s expected liquidity, cash flow generation and investment needs.

GKP will provide further updates to the market, as appropriate.

The market is buzzing with potential news with regards the pipeline but with the Turkish elections still yet to be decided I suspect that big decisions such as re-opening may be on the back burner. But with little doubt as to the outcome it is only a matter of time that it reopens and with that the associated cash flow. But and it is a big but, the decision whether to cancel the dividend had to be taken and prudence won the day and so the divvi goes. Sod’s law says

And finally…

The Bar Coders and the Foxes played out a 0-0 draw yesterday which ensures Champions League footy at St James’s Mosque next year and for the Foxes it looks pretty bleak ahead of the last day’s fixtures on Sunday.