Oil price, Zephyr, Touchstone, Hurricane, Premier. And finally…

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WTI $48.36 +54c, Brent $51.50 +42c, Diff -$3.14 -12c, NG $2.64 -4c


Oil price


Oil is on track for another up week as various positive factors impact the crude market. Firstly the dollar continues to weaken and shows no sign of recovering that, it looks like there will be a watered down $900m spending package soon. Secondly we have seen some signs of stock draw, more difficult to read right now with the bad weather and the Christmas break but positive nonetheless.


Finally we have further good new on the vaccine front as the FDA committee has approved the Moderna jab for emergency use and the full approval should follow within hours. Add to that figures that show strong refinery utilisation in India, economic growth in China and even better figures from the German economy this morning.


Zephyr Energy


Zephyr has announced the spudding of the State 16-2 well in the Paradox Basin, Utah this morning ahead of the year end target date. The primary objective is to drill a mildly deviated well to C. 9,815 feet to acquire up to 100 ft of continuous core.


The company also want to run a comprehensive well log suite from the Cane Creek reservoir and will also log the entire Paradox formation and at least five other potential reservoir zones. After TD the well will be temporarily plugged back to 6,450 ft and then quite possibly create an opportunity to drill a horizontal well, by using the vertical section of the well costs of the next well can be reduced from some $6m to $3m. This would also have the effect of triggering the final payment from the DOE of $600,000 out of the $2m grant.


Colin Harrington, Zephyr’s Chief Executive, said “The commencement of drilling the State 16-2 well is a watershed moment for the Company as we begin to unlock the considerable value from our Paradox project.


“There has been significant time, money and effort expended by many people over many years to get to this point – from the original leasing program to the considerable investment in modern 3D seismic to the detailed technical work we’ve undertaken in conjunction with our world-class project partners. All of this work has been funded by the Company’s Shareholders, and – from my vantage point on site at the State 16-2 well – I am delighted to be able to personally witness the tangible results of this historical effort and investment.


“Once again, I would like to thank our partners and contractors, and especially the project team, for their commitment to help Zephyr achieve its ambitious timeline of spudding prior to the end of the year – especially in such difficult conditions. We are now 100% focused on achieving our operational goals in the safest and most effective manner possible. I look forward to keeping the market updated on our progress.”


This is indeed a watershed moment for Zephyr and its shareholders and whilst it is only a well spud I am very hopeful that this is the start of something big and from a tiny market cap there is meaningful money to be made here. Colin Harrington and his impressive management team have impressive long term plans for Zephyr so it’s not all about the Paradox Basin either.


I managed to get hold of Colin Harrington who is on the rig in Utah at the moment but the interview, with link below, should give an idea of his excitement for Zephyr…


Core Finance CEO interview: Colin Harrington of Zephyr Energy


Touchstone Exploration


Touchstone has entered into a natural gas sales agreement with NGC in Trinidad & Tobago for all future production from the Ortoire block.


Paul Baay CEO of Touchstone commented: “This agreement provides a stable, multi-decade revenue stream for Touchstone to fully develop the world-class asset at Ortoire. This transforms the company from being an exploration company to one that is a full cycle energy provider. The structure of the agreement provides the shareholders of Touchstone with a predictable cash flow and earnings stream for years to come while minimising the capital required to maximise the resource.”


Hurricane Energy


Its a good news, bad news day for Hurricane with more potential downside than upside as the new management give an operational and corporate update. The Lancaster field is producing at a restricted 12,000 b/d at which level is free cash flow positive at $50 Brent.


That’s the good news as the company report that to increase that number could require a side-track or water injection, both expensive options. As such, the company will start ‘a period of stakeholder engagement’ in order to gauge potential support for such plans.


With regard to this, the company has appointed CP, financial and legal advisors which is very telling. The sting in this announcement is most definitely in the tail with the company saying the following.


“It should be noted that there is a risk of dilution to existing shareholders from a possible restructuring and/or partial equitisation of the convertible bonds. Furthermore, if no agreement can be reached with the Company’s stakeholders on additional investment, further development activity at Lancaster might not be possible. In such a scenario, Lancaster could continue to produce from existing wells before reaching the economic limit, the timing of which would depend on oil prices, actual production levels delivered and the level of cost savings achievable. The field may then be decommissioned, with potentially limited or no value returned to shareholders. Notwithstanding these risks, the Company will endeavour to secure the best possible outcome for all stakeholders”.


Premier Oil


I listened to the webcast and conference call yesterday at the denouement of Premier Consolidated Oilfields was formally executed. The good news is that all the good operational work done by the company over the last few years is going to now be free of the debt burden and within the new structure should make for a really exciting outfit.


With the approval a formality in Q1 2021 it will become Harbour Energy Plc in the new year with new management led by Linda Cook as CEO and Phil Kirk as President and CEO Europe. Currently, with Tony Durrant having ‘stepped down’ it is ironic that Richard Rose is at the controls and with the CFO role yet to be filled who knows what might happen?


And finally…


News from F1 is that Ineos has taken a 30% stake in Mercedes F1, signed Toto Wolf to a three year contract as team boss and CEO and hope to keep Lewis on board.


The traditional Christmas curtain raiser in jumps racing happens tomorrow at Ascot where the feature is the long Walk Hurdle.


Last night in the Prem Villa and Burnley played out a goalless draw in the claret and blue derby whilst yet again the Red Devils came back from behind to beat the Blades 2-3.


This weekend there are also some tasty fixtures, Saturday sees the Eagles hosting Liverpool which used to be a fun fixture, the Noisy Neighbours go to the Saints, the Magpies host the Cottagers and the Toffees will fancy their chances at home to the Gooners.


On Sunday the standout fixture is Leeds visiting the Theatre of Dreams where traditionally supporters are the worst of enemies. There is also the small matter of the Midlands derby as Villa visit the Baggies, also the Seagulls host the Blades and the Foxes are at White Hart Lane.


Finally there are a couple of decent rugby fixtures in the European Champions Cup as Leinster host the Saints and Racing 92 go to the Stoop.

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