WTI (June) $68.60 -$3.06, Brent (July) $72.33 -$2.99, Diff -$3.73 +7c. 

USNG (May) $2.17 -4c, UKNG (June)* 82.55p -2.34p, TTF (June) €36.5 -€0.22. * May Expiry. 

Oil price

Another bad day for oil as the Fed increased rates by another 25 bp’s, making 500 in total with the tentative hint that the ‘current tightening cycle is at an end’. Although that is promising it comes at a time where a number of banks are in trouble and at the moment both Pacwest and Western Alliance are crashing despite managements attempts at appeasement.

In Asia markets were soft, they saw Chinese data showing weak factory activity with some contracting but overall in China its about tightening. So it’s pivot time, rates should be near or at the peak and so the very substantial short position in crude is feeding itself, when that turns round the short closing will be like a tsunami.

Technically Russia is selling nearer nearer 4m b/d than the promised 3m b/d making up for the lack of oil coming from Kurdistan but the EIA inventory stats were better than the whisper as crude drew 1.281m b/d. This recent fall is understandable but only makes for a bigger, sharper rise when the fundamentals kick in.

Sound Energy

Sound Energy, the transition energy company, announces its audited final results for the year ended 31 December 2022.

HIGHLIGHTS

Development of the Moroccan Tendrara Production Concession

·      Phase 1 Micro LNG project

 Signing of the Notice to Proceed in February 2022

 Drawdown of the Loan Note subscription with Afriquia Gaz commenced in February 2022

 Site preparation activities at the Tendrara TE-5 Horst commenced in March 2022

 Main civil work (LNG tank foundations) done and checked in early 2023

 Despite the disruptive events occurred in 2022 which delayed the activities, engineering and manufacturing are both progressing

 Phase 1 LNG delivery scheduled to commence in 2024

·      Phase 2 Gas (pipeline) development

 Announced Gazudoc-Mahgreb Europe (”GME”) pipeline interconnection agreement with ONHYM in March 2022

Project financing

·      Appointed Attijariwafa Bank, Morocco’s largest bank, as exclusive lead arranger for the senior debt financing, in June 2022

·      The Company launched a process to seek a funding partner in both the Tendrara Production Concession and in the underexplored but prospective surrounding exploration permits in the Tendrara basin.

·      Indications of interest from several parties were received by year end and the Company is continuing negotiations.

Exploration

·      Extension of Sidi Moktar and Anoual exploration permits by a further year (subject to ministerial approval)

·      Entry into the first complementary period on the Grand Tendrara exploration permits (subject to ministerial approval)

·      Identification and high grading of three potential near term subsalt drilling opportunities where, importantly, any future discoveries have the potential to be commercialised through the planned infrastructure of Phase 2

Corporate

·      Successful equity raise of £4 million (before expenses) in June 2022

·      Post period end, the Company has entered into a full and final settlement of its tax disputes with the Moroccan tax authorities, subject to the Court agreeing that all cases be withdrawn

Graham Lyon, Executive Chairman said:

2022 was a year of real tangible progress for Sound Energy, with the micro-LNG development at Tendrara contracted to deliver maiden revenues in early 2024. I am pleased that, as we move further into construction activities, the Company continues to uphold all our ESG values and deliver our work in a manner commensurate with our principles. We are pleased to have settled our outstanding tax matters such that we can optimise our resources on field development. We have enjoyed a supportive working relationship with ONHYM, the Ministry and our various contractors in Morocco, and, most importantly, we continue to benefit from the hard work and dedication of our own staff. We will continue to work diligently to deliver value and progress for all our stakeholders during 2023 and beyond as we target to deliver material developments.

Historic figures yes, and nothing unexpected here except that a solid year of progress by Sound is not new but the settlement of their outstanding tax cases in what looks like a very sensible and dare I say, good outcome for Sound is important.

Settling a modest amount over six years backended (we can only assume this means majority in last three years) seems like a result for the two Sound companies in court. This should remove one of the potential blockers to those looking at business in Morocco and for Sound to get the funding they need for their second phase of the Tendrara development.

I bet Graham and team have put this unnecessary issue behind them now after almost three years of wasteful and irritating wrangling and the news will give further impetus to the current share price growth. Indeed at the key 2p level the shares have significantly more than doubled year to date and my own thought is that with 2023 looking like a milestone year for Sound, substantial upside in the share price from here can be expected. 

Union Jack Oil

Union Jack has announced the disposal of its 2.5% interest in the Claymore Area Royalty Agreement.

David Bramhill, Executive Chairman of Union Jack Oil, commented:

“The Company is pleased with the price and terms and conditions of the sale, which has generated an above average return on our original investment.

“Union Jack remains committed to becoming a mid-tier producer, with Wressle being the first step on that journey. The upcoming appraisal well at West Newton, planned drilling at Keddington and the other opportunities currently under evaluation all evidence significant progress towards our goal.”

This is, I am confidently assured, a very good piece of business and whilst some commentators who should know better, have complained about the lack of detail of the investment, full disclosure is sometimes simply not possible, I’m sure that history will treat it very favourably. 

Knowing David Bramhill as I do, I know that the deal would not be described as being ‘an above average return on our original investment’ if it was not just that, ie the investment proved to be one of the best in recent years. Accordingly I remain supremely bullish about the prospects for UJO and with its enormously well financed portfolio has pretty much the biggest potential upside in the sector. 

Arrow Exploration Corp

Arrow has announced that it has spud the Carrizales Norte-1 (“CN-1”) well on the Tapir Block in the Llanos Basin of Colombia using the contracted Petroworks rig.

The well is targeting a large, three-way fault-bounded structure with multiple high-quality reservoir objectives. The well will be drilled to a measured depth of 9205 feet (8,555 feet True Vertical Depth).  

Marshall Abbott, CEO of Arrow commented,

“we’re extremely pleased to have spud the first well at Carrizales Norte on the Tapir Block. The success of this well could result in additional production, additional reserves and a new core area for Arrow. Should CN-1 prove to be commercially successful, the rig will immediately move to drill CN-2, which is expected to spud in early-June.”

Drilling of the CN-1 well is expected to reach target depth in the middle of May, followed by completion and testing.  Testing is expected to take approximately five days per zone.

The Company will continue to provide additional updates on the CN-1 well as appropriate.

There is little to add to how the company describe the structure above and my comments regarding Arrow on Tuesday with the results. I think that should this three well programme be successful the upside for Arrow would be meaningful within what is already a bulging portfolio.

As CEO Marshall Abbott suggested, ‘the Carrizales Norte could have a significant impact on the Company in both production and reserves as well as establishing a new core area’. 

Gran Tierra Energy Inc

Gran Tierra yesterday announced the Company’s financial and operating results for the quarter ended March 31, 2023. All dollar amounts are in United States dollars, and production amounts are on an average working interest before royalties basis unless otherwise indicated. Per barrel and bbl per day amounts are based on WI sales before royalties. For per bbl amounts based on net after royalty production, see Gran Tierra’s Quarterly Report on Form 10-Q filed May 2, 2023.

Key Highlights of the Quarter:

  • Production:
    • Gran Tierra’s total average production for the Quarter was 31,611 BOPD, up 8% from first quarter 2022  and decreased by 3% compared to fourth quarter 2022.
    • The Company’s second quarter-to-date(1) 2023 total average production has been approximately 32,400 BOPD.
  • Oil Price: The Brent oil price averaged $82.10 per bbl, down 16% from one year ago, and down 7% from the Prior Quarter.
  • Quality and Transportation Discounts: The Company’s quality and transportation discount narrowed to $18.45 per bbl, down from $19.74 per bbl in the Prior Quarter and was up from $12.56 per bbl one year ago. The Castilla oil differential increased to $15.17 per bbl from $6.38 per bbl one year ago (Castilla is the benchmark for the Company’s Middle Magdalena Valley Basin oil production). The Vasconia differential increased to $7.87 per bbl from $3.60 per bbl one year ago (Vasconia is the benchmark for the Company’s Putumayo Basin oil production). Differentials narrowed in March 2023 and continued to narrow in April 2023. The current(1) Castilla differential is approximately $11.30 per bbl and the Vasconia differential is approximately $6.30 per bbl.
  • Net Income: Gran Tierra incurred a net loss of $10 million, compared to net income of $14 million one year ago, and net income of $33 million in the Prior Quarter. The Company’s net income over the last 12 months was $115 million.
  • Basic and Diluted Earnings Per Share: Gran Tierra incurred a net loss of $0.03 per share, compared to net income of $0.09 per share in the Prior Quarter and $0.04 per share one year ago.
  • Adjusted EBITDA(2): Adjusted EBITDA(2) was $89 million compared to $119 million one year ago, and $109 million in the Prior Quarter. The Company’s trailing twelve-month Adjusted EBITDA(2) was $459 million, resulting in an annualized net debt(2) to Adjusted EBITDA(2) ratio of 1.0 times.
  • Funds Flow from Operations(2): Funds flow from operations(2) was $60 million, down 31% from one year ago and down 26% from the Prior Quarter. Over the last 12 months, Gran Tierra’s funds flow from operations(2) was $339 million.
  • Free Cash Flow(2): Gran Tierra generated free cash flow(2) of $73 million over the last twelve months. During the Quarter the Company’s capital expenditures exceeded funds flow from operations by approximately $11 million as a result of the Company’s front-end loaded 2023 development program which saw the drilling of 14 development wells in the Quarter, out of the total 2023 budgeted plan for 18-23 development wells.
  • Share Buybacks:
    • Share Buybacks: During the Quarter, pursuant to Gran Tierra’s current normal course issuer bid, Gran Tierra purchased approximately 13.1 million shares, for a total purchase price of $10.7 million, at a weighted average price of approximately $0.82 per share. Since the commencement of the NCIB on September 1, 2022, Gran Tierra has purchased 35.8 million shares, representing approximately 9.7% of Gran Tierra’s outstanding shares as of June 30, 2022.
  • Bond Buybacks:
    • As part of Gran Tierra’s ongoing commitment to reduce its net debt(2), during the Quarter, the Company bought back $8.0 million in face value of Gran Tierra’s 6.25% senior notes due February 2025. The cost of the 2025 bonds’ buyback was approximately $6.8 million, representing a discount of about 15% to the face value of the 2025 bonds.
  • Cash and Net Debt:
    • As of March 31, 2023, the Company had a cash balance of $106 million and net debt(2) of $466 million (net of the buyback of 2025 bonds described above).
    • Gran Tierra’s credit facility, with a capacity of up to $150 million, remains undrawn.
  • Additional Key Financial Metrics:
    • Capital Expenditures: Capital expenditures of $71 million were lower than the Prior Quarter’s level of $73 million and up from $41 million compared to a year ago. During the Quarter, Gran Tierra drilled 14 development wells in Colombia.
    • Oil Sales: Gran Tierra generated oil sales of $144 million, down 17% from one year ago and down 11% from the Prior Quarter. The changes in oil sales were driven primarily by the decrease in Brent oil price and widening of quality and transportation discounts over the same time periods.
    • Operating Netback(2)(3): The Company’s operating netback(2)(3) was $35.18 per bbl, down 33% from one year ago and down 9% from the Prior Quarter. As with oil sales, changes in operating netback were largely driven by the decrease in Brent oil price and widening of quality and transportation discounts over the same time periods.
    • Operating Expenses: Compared to the Prior Quarter, Gran Tierra’s operating expenses decreased 7% to $14.59 per bbl, down from $15.61 per bbl, primarily due to lower workover activities in the Quarter. Compared to one year ago, operating expenses increased by 9% on a per bbl basis, due to higher lifting costs mainly attributed to equipment rentals costs related to operations in Ecuador.
    • General and Administrative (“G&A”) Expenses: G&A expenses before stock-based compensation were $3.95 per bbl, up from $2.71 per bbl in the Prior Quarter.
    • Cash Netback: Cash netback per bbl was $21.16, compared to $27.54 in the Prior Quarter as a result of a decrease in Brent price of $6.53 per bbl. Compared to one year ago, cash netback per bbl only decreased $12.20 from $33.36, despite a $15.80 per bbl decrease in the Brent oil price over the same period.

Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented:

“During the Quarter, Gran Tierra completed a significant portion of its development campaign with the drilling of 14 development wells in three of our major fields which have been producing oil at rates in line with our expectations. The drilling of these wells is a testament to our team’s commitment to operational excellence and their ability to execute our capital program efficiently. By completing the majority of our development program in the first three months of 2023, we expect to benefit from higher oil production rates for the remainder of the year with the goal of maximizing our production and cash flow. We continued to see positive results from our ongoing waterfloods across our operations primarily in Suroriente and Acordionero and are beginning to see positive results in our polymer flood in Acordionero.

We are very pleased with our recently announced agreement with Ecopetrol, the national oil company of Colombia, by which Gran Tierra and Ecopetrol renegotiated the agreement for the Suroriente Block in the Putumayo Basin, which was scheduled to end in mid-2024. This agreement provides an opportunity to add significant value, as well as economic life, to Suroriente by continuing its duration for 20 years. The additional term of the agreement allows long-term investment in infrastructure and work programs to enhance oil recovery efficiency in existing fields, and appraisal drilling to potentially prolong the life of the fields. We are also excited to recommence exploration drilling during second half 2023.”

I suspect this will be the last time I write about GTE, I really like the company and in particular its portfolio is in areas that I am very keen on as readers are very much aware of. But I have a rule that I can’t write about a company unless I have met the senior management team and this just hasn’t happened, even given some slack for when Covid stopped face to face meetings, no excuses left now. 

If they arrange a visit or should they have meetings over here, and I get invited(!) then I will be back on the case, in the meantime I will watch from the sidelines, as I say with such a good portfolio such as the Putumayo Basin and elsewhere there should be very decent money to be made out of Gran  Sierra. 

For the time being I will just confirm that it is, as far as I can tell, a good quality management team and operate very well in a high quality portfolio in tough but rewarding geographies. The shares have fallen in recent months but no more than any other in the sector and I think it will continue to beat most of its peer group. 

Operations Update:

  • Colombia Development Campaign:
    • Acordionero:
      • Development drilling resumed in January 2023 with a 10-well program. Eight of the wells were drilled by the end of the Quarter with 5 on production, two on injection and one in progress.
      • As a result of the program and continued good performance of the field’s enhanced oil recovery via waterflood, Acordionero has averaged approximately 19,000 BOPD during second quarter-to-date 2023(1), which is the highest level since May 2019.
      • During the Quarter, Gran Tierra achieved a new water injection record of approximately 65,000 bbl of water injected per day up from 59,894 bwipd in first quarter 2022.
      • The polymer flood pilot was expanded with the start up of a second polymer injection well during the Quarter, with a third polymer injection well planned for second quarter 2023. Acordionero’s polymer flood pilot is expected to increase the field’s ultimate oil recovery.
    • Costayaco:
      • Four wells were drilled in Costayaco during the Quarter: Two producers are currently being completed with tie-in expected in early May 2023 and two water injection wells are completed and expected to begin injection during second quarter 2023. Two additional producers and one additional injector remain to be drilled as part of the Costayaco development plan for 2023. Completion and stimulation of the producing wells and waterflood optimization through additional injection are expected to continue to grow production in Costayaco throughout the year.
      • Costayaco-53 set a new record low for the amount of time to drill in Costayaco, coming in at just over 9 days from spud to rig release.
    • Moqueta:
      • Two wells were drilled in Moqueta during the Quarter and both are on production and awaiting stimulation. Two additional development wells are planned in 2023 along with two conversions to injector wells that are expected to grow production and optimize waterflood in Moqueta.
    • Suroriente:
      • On April 11, 2023 the Company announced it had entered into an agreement with Ecopetrol S.A. the national oil company of Colombia, by which the parties renegotiated the agreement for the Suroriente Block  in the Department of Putumayo, which was scheduled to end in mid-2024.
      • The Agreement provides an opportunity to add significant value, as well as economic life, to Suroriente by continuing its duration for 20 years from the Agreement’s effective date. The additional term of the contract allows long-term investment in infrastructure and work programs to enhance oil recovery efficiency in existing fields, and appraisal drilling to potentially prolong the life of the fields. Gran Tierra will continue to be the operator of Suroriente and is committing to a capital investment program of $123 million over a three-year period from the Agreement’s effective date, expected to be funded by Gran Tierra’s internal cash flow.
      • The Agreement is subject to certain conditions precedent including regulatory approval by the Superintendence of Industry and Commerce of Colombia. The satisfaction of such conditions precedent will determine the Agreements’ effective date.
  • Exploration Campaign:
    • Gran Tierra plans to drill four wells in Ecuador, three in the Charapa Block to appraise the discovery in the Hollin Formation and one in the Chanangue Block during the second half of 2023.
    • Gran Tierra has completed the selection process and secured a drilling rig, which the Company plans to mobilize from Colombia to Ecuador.
    • Gran Tierra expects to drill between 4 to 6 exploration wells in 2023 in Colombia and Ecuador combined.

Financial and Operational Highlights (all amounts in $000s, except per share and bbl amounts)

 Three Months Ended March 31, Three Months Ended December 31,
  2023  2022   2022 
     
Net (Loss) Income$(9,700)$14,119  $33,275 
Per Share – Basic and Diluted$(0.03)$0.04  $0.09 
     
Oil Sales$144,190 $174,569  $162,637 
Operating Expenses (41,369) (34,935)  (46,119)
Transportation Expenses (3,066) (2,834)  (2,433)
Operating Netback(2)(3)$99,755 $136,800  $114,085 
     
G&A Expenses Before Stock-Based Compensation$11,196 $7,779  $7,998 
G&A Stock-Based Compensation Expense 1,500  4,557   2,673 
G&A Expenses, Including Stock Based Compensation$12,696 $12,336  $10,671 
     
Adjusted EBITDA(2)$88,677 $119,378  $108,828 
     
EBITDA(2)$86,740 $106,750  $101,772 
     
Net Cash Provided by Operating Activities$49,253 $103,825  $71,865 
     
Funds Flow from Operations(2)$60,016 $87,310  $81,343 
     
Capital Expenditures$71,062 $41,483  $72,887 
     
Free Cash Flow(2)$(11,046)$45,827  $8,456 
     
Average Daily Volumes (BOPD)    
WI Production Before Royalties 31,611  29,362   32,595 
Royalties (6,085) (6,529)  (6,880)
Production NAR 25,526  22,833   25,715 
Decrease (Increase) in Inventory (355) (103)  (53)
Sales 25,171  22,730   25,662 
Royalties, % of WI Production Before Royalties 19% 22%  21%
     
Per bbl    
Brent$82.10 $97.90  $88.63 
Quality and Transportation Discount (18.45) (12.56)  (19.74)
Royalties (12.80) (18.67)  (13.83)
Average Realized Price 50.85  66.67   55.06 
Transportation Expenses (1.08) (1.08)  (0.82)
Average Realized Price Net of Transportation Expenses 49.77  65.59   54.24 
Operating Expenses (14.59) (13.34)  (15.61)
Operating Netback(2)(3) 35.18  52.25   38.63 
G&A Expenses Before Stock-Based Compensation (3.95) (2.97)  (2.71)
Realized Foreign Exchange (Loss) / Gain (0.42) (0.43)  0.68 
Cash Settlements on Derivative Instruments   (3.28)   
Interest Expense, Excluding Amortization of Debt Issuance Costs (3.90) (4.29)  (3.38)
Interest Income 0.27     0.15 
Net Lease Payments 0.19  0.03   0.09 
Current Income Tax Expense (6.21) (7.95)  (5.92)
Cash Netback(2)$21.16 $33.36  $27.54 
     
Share Information (000s)    
Common Stock Outstanding, End of Period 333,069  368,421   346,151 
Weighted Average Number of Common and Outstanding Stock – Basic 344,514  367,387   354,667 
Weighted Average Number of Common and Outstanding Stock – Diluted 344,514  372,375   358,401 

(1) Gran Tierra’s second quarter-to-date 2023 is from April 1 to May 1, 2023.
(2) Funds flow from operations, operating netback, net debt, cash netback, earnings before interest, taxes and depletion, depreciation and accretion (“DD&A”) (“EBITDA”) and EBITDA adjusted for non-cash lease expense, lease payments, unrealized foreign exchange gains or losses, stock-based compensation expense, unrealized derivative instruments gains or losses, inventory impairment, gain on re-purchase of Senior Notes and other financial instruments gains or losses (“Adjusted EBITDA”), cash flow, free cash flow and net debt are non-GAAP measures and do not have standardized meanings under generally accepted accounting principles in the United States of America (“GAAP”). Cash flow refers to funds flow from operations. Free cash flow refers to funds flow from operations less capital expenditures. Refer to “Non-GAAP Measures” in this press release for descriptions of these non-GAAP measures and, where applicable, reconciliations to the most directly comparable measures calculated and presented in accordance with GAAP.
(3) Operating netback as presented is defined as oil sales less operating and transportation expenses. See the table titled Financial and Operational Highlights above for the components of consolidated operating netback and corresponding reconciliation.

And finally…

Last night in the Prem Liverpool beat the Cottagers 1-0 and the Hammers went to the Emptihad and lost 3-0. Tonight the Red Devils go to the Seagulls,  a very tricky game at the best of times…