Oil price, Genel, BPC, Block, GKP. And finally…
WTI $59.47 +$1.23*, Brent $63.30 +87c, Diff -$3.32*, NG $2.91* +4c, UKNG 41.6p -2.33p
* Last Friday’s close after President’s Day yesterday, diff calculated on this morning’s prices WTI $60.10, Brent $63.50 and NG is $3.08 this morning.
Oil is all over the place but upwardly mobile for a number of reasons. The primary reason is the freeze up in the Permian Basin and the States of Texas and Louisiana which has brought those places to a standstill. The so-called sophisticated energy market down there is a shambles as there is little power or heat and electricity prices are up 1000% in 24 hours as local utilities in the US scramble to buy power.
Today there are between 4-5m people without power in Texas, a state with a population of some 29m. Energy capital of the USA it maybe, but uncommonly incompetent to be closed down because of some snow and ice…ERCOT where were you when the fries were down?
Output of oil and natural gas is down sharply as pumps fail and pipelines freeze up and fail, over 1m b/d of oil has stopped flowing and natural gas is also badly hit. When hydrocarbons do get to a refinery over 3m b/d is down and to add insult to injury wind turbines are frozen and not able to provide power. All this has meant that the power companies are falling over each other bidding for whatever power there is in the system.
Almost a side issue was that in the US vaccinations were significantly up and cases of Covid fell dramatically…
Genel Energy (LON:GENL)
The company has updated on oil reserves and resources by D&M this morning. they assess that, at the Tawke field on the Tawke licence (Genel 25% working interest), gross year-end 2020 1P reserves stood at 173 MMbbls, compared to 176 MMbbls at year-end 2019, after adjusting for production of 21 MMbbls and an upward technical revision of 18 MMbbls. Tawke field 2P reserves stood at 245 MMbbls (261 MMbbls at end-2019) and 3P reserves at 359 MMbbls (376 MMbbls at end-2019).
The Enhanced Oil Recovery project at the Tawke field has started to deliver a positive impact on production. Pending further work on the project, the 23 MMbbls of 2P and 45 MMbbls of 3P gross reserves that DeGolyer and MacNaughton previously included in their figures continues to be maintained by Genel in 2C and 3C resources.
At Peshkabir, also on the Tawke licence (Genel 25% working interest), year-end 2020 gross 1P reserves were assessed at 61 MMbbls (51 MMbbls at end-2019), 2P reserves at 125 MMbbls (116 MMbbls at end-2019) and 3P reserves at 201 MMbbls (220 MMbbls at end-2019). The upward revision of 1P and 2P reserves by 29 MMbbls more than offsets production of 19 MMbbls, and is the result of continued outstanding field performance in 2020.
At Taq Taq (44% working interest, joint operator), 1P gross reserves stood at 18 MMbbls at year-end 2020 (20 MMbbls at end-2019), following a minor technical upward revision of 1 MMbbls and production of 4 MMbbls. Gross 2P reserves stood at 33 MMbbls (44 MMbbls at end-2019), with a downward revision of 8 MMbbls following a reduction to the number of wells planned for the future, and their associated expected productivity. McDaniel & Associates carried out the independent assessment of the Taq Taq licence.
Genel’s gross 2P reserve estimate relating to Phase 1A of the Sarta development remains unchanged at year-end 2020, standing at 34 MMbbls. There has been no change to the ERCE view on Sarta (30% working interest), with an estimated mid-case total recoverable oil resource of 593 MMbbls, of which 258 MMbbls are classified as 2C resource. Production performance in 2021, and the results of the upcoming three well campaign in 2021, will inform the quantity of conversion of these resources into reserves.
At Qara Dagh (40% working interest, operator) the QD-2 well will test the crestal portion of the prospect, which has a mean prospective resource estimated by Genel at c.400 MMbbls. Genel continues to estimate that the downdip segment tested by the QD-1 well defines a 2C resource of 47 MMbbls.
Bill Higgs, Chief Executive of Genel, said:
“The quality of our reserves is the foundation of our resilient business model, providing us with low-cost production that can generate cash for many years to come. Drilling at Sarta this year has the potential to add to our reserves, with Qara Dagh adding the possibility of opening up another field in the Kurdistan Region of Iraq, as we look to further build our cash generative portfolio for the benefit of all stakeholders.”
These are undoubtedly good numbers which validate the Genel model and as CEO Bill Higgs says above, will generate cash for many years to come. Investors in Genel should be very pleased as this is the basis of the dividend paying model as well as providing scope for delivering exploration and of course appropriate acquisitions when the time is right.
Bahamas Petroleum (LON:BPC)
BPC announce that the P#1 well ‘fulfilled its core technical objectives’ and that the company will now review the situation, already underway and consider the way forward for monetisation of its assets in the Bahamas particularly with reference to a possible farm-out.
Right now progress is being made in Trinidad and Suriname, in the former where the target is 2,500 b/d and in Suriname where the work programme is being firmed up. This includes the Saffron appraisal well, scheduled to start in Q1 2021 and subject to results would see the company ‘seek approvals for field development with up to seven production wells to follow through 2021’.
In Suriname that means an appraisal well and EWT in the Weg Naar Block also due to start in Q1 2021 whilst in Uruguay it is a case of prospect maturation.
The Company’s funding strategy is to focus on consolidating and strengthening the balance sheet, in support of directing maximum effort toward planned value-adding drilling activities in Trinidad and Tobago and Suriname during 2021.
The conditional convertible note facility has been restructured and extended along with a further £2 million drawn, a final reconciliation of the initial £7.5m tranche of the December 2020 Funding Agreement has occurred requiring no net cash payment by the Company, and the Company has issued 135 million new ordinary shares in lieu of cash settlement of a number of current financial obligations.
Simon Potter, CEO of BPC said:
“The Stena ICEMAX has just left the drilling location and is off hire. However, the pace of operations has not ceased – the post-well review has begun, as the Company charts its way forward in The Bahamas with a renewal of the farm-out process. Notwithstanding it is only a week since the completion of the Perseverance #1 well, BPC has already moved to consolidate and strengthen its balance sheet, so as to ensure all value-add options to grow productions and cash generation in Trinidad and Tobago and Suriname are maintained. Over the coming weeks the Company will fully close out the Perseverance #1 operation and set the final timetable for operations elsewhere across the portfolio.”
BPC is taking the necessary steps to continue on its way to carry on in areas other that the Bahamas whilst continuing to monitor the potential in a well that one should not forget, has not bee written off yet. It may not be 100% but there is still a chance that BPC remains one way or another exposed to this structure.
Block Energy (AIM:BLOE)
Block announces that, following Georgian Oil & Gas Corporation completing the tie-in of Bago LLC’s gas pipeline into GOGC’s main gas pipeline, gas sales from its West Rustavi field in Georgia have commenced. West Rustavi wells WR-38Z and WR-16aZ have been on continuous production since 28 January 2021 and 3 February 2021 respectively and production rates are currently 790 boepd, comprising 423 bopd and 1.9 MMcf/d of gas, representing a substantial increase when compared to the rates achieved before the wells were shut-in during April 2020.
Production across all of Block’s portfolio is currently approximately 940 boepd, resulting in estimated future revenue for the Company of approximately US$920,000 per month at current oil and gas prices. Production from the Wells is currently constrained as the Company continues its production testing programme, monitoring reservoir production and facility parameters, in order to determine the maximum flow potential and optimum production rates. The testing programme will continue into Q2 this year and, on completion, stable production rates will be communicated to the market.
Block Energy PLC’s Chief Executive Officer, Paul Haywood, said:
“The commencement of gas sales is a great achievement, as Block has managed to deliver its gas project in a safe manner, with zero LTIs, in the face of a very challenging global environment. The expected revenue from our assets now puts us in a strong position as it is expected to more than cover our operating and administrative expenditure and, therefore, we can look to deploy the surplus cash into further increasing our production rate throughout 2021. Our decision to shut in our production at the West Rustavi field in April 2020 has proven to be an astute one, as we can now sell our oil based on a Brent price above US$60/bbl. By commencing gas sales, we have started to deliver on our ESG strategy of limiting flaring and consequently reducing our carbon footprint. We look forward to updating the market further as we embark on our production enhancement plan across our mature fields and prepare for the drilling new wells soon.”
The company are calling this a ‘major milestone’ something I can’t disagree with as it starts to provide energy to Georgia. Somewhat unusually the gas goes for compression and fuel mainly for motor vehicles which should be a long term steady market.
Shareholders have been holding the board’s feet to the fire in recent months as it was most definitely needed but is now being rewarded. Whilst I would continue to urge close monitoring it cannot be doubted that this success is fully deserved.
Gulf Keystone Petroleum
Gulf Keystone Petroleum has issued a Competent Person’s Report update on the Shaikan Field in which it has an 80% working interest. The CPR, an independent third-party evaluation of the Company’s reserves and resources as at 31 December 2020, was prepared by ERC Equipoise (“ERCE”).
The CPR incorporates significant incremental information, including an updated development plan, new wells, production data and further technical analysis, since the last CPR was prepared by ERCE in 2016. Gross 2P reserves + 2C contingent resources1 of 798 MMstb2 at 31 December 2020 are consistent with volumes as at 31 December 2019, adjusted principally for 2020 production.
Gross 1P reserves increased to 240 MMstb, up 33% after adjusting for 2020 production whilst gross 2P Jurassic reserves were revised down marginally (2%) to 505 MMstb, after adjusting for 2020 production. Gross 2P Triassic and Cretaceous reserves of 47 MMstb were reclassified to gross 2C contingent resources1, while the Field Development Plan is progressed with the Ministry of Natural Resources.
Shaikan continues to deliver stable production with average gross production in January of 44,405 bopd, the highest monthly average to date from the field. The Shaikan Field has significant future production potential with a gross 1P reserves life index3 of c.15 years and a gross 2P reserves life index3 of over 31 years, assuming January 2021 production levels.
Jon Harris, Gulf Keystone’s Chief Executive Officer, said:
“The updated CPR demonstrates the continuing long-term strong performance of the Shaikan Field with gross 2P+2C reserves and resources volumes in line with the 2016 CPR, after adjusting for production over the period. Prior Company estimates are reaffirmed with gross 2P+2C reserves and resources of c.800 MMstb at 31 December 2020, including over 500 MMstb of gross 2P reserves. We have a deep understanding of the Shaikan Field that has produced over 80 MMstb to date and are pleased that the latest CPR matches our interpretation and understanding of the geological model, underlining the considerable untapped potential of the field.
We had a strong start to the year in January, which saw GKP’s highest monthly average daily gross production of 44,405 bopd. As conditions continue to improve, we look forward to resuming the 55,000 bopd expansion project and shareholder distributions.”
The CPR is consistent with recent reserves and production reports and makes encouraging reading for shareholders. It should be the platform for a good next year or two in which production has already been forecast to rise, many wells drilled and capital expended to get to the next base of 55/- b/d.
It should be remembered that in addition to that there have been higher production targets than this published and those, along with some idea of cutting a deal with the KRG is in play, (after all at the top of this note Brent is after all standing at $63.50), would be appreciated by shareholders. A good reserves report but more good news should be in the pipeline.
England took a beating in Chennai and lost by 317 runs, not all bad after losing the toss on a beach. Moeen Ali has done a runner and gone home with two tests to go, a bit like Swanny did, let’s hope it isn’t the end of a career like Swanny..
Last night in the Prem, the Hammers beat the Blades 3-0 and went 4th in the table, after that Chelski beat the Magpies 2-0 and leapfrogged them, both on 24 points are ahead of Liverpool who play RB Leipzig in the Champions League tonight.