Oil price, Kistos, Serica, Zephyr, President, Block, SDX. And finally…

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WTI $74.10 -46c, Brent $75.16 -39c, Diff -$1.06 +7c, NG $3.75 +8c, UKNG 84.73p -6.67p


Oil price


Not much to add at the moment, we have the agencies reporting this week but if I were to hazard a guess they might tighten demand numbers up a touch. Sure, lack of vaccines in some countries and the Delta strain are hitting some economies still but where jabs are getting in arms growth is strong.


It’s retail gasoline day and a gallon will rip you an average of $3.133 which is up 1.1c w/w, 6.4c m/m and 93.8c y/y. On the West Coast it will be $3.81 showing how varied the continent can be.


Kistos (AIM:KIST)


A trading and operating update from Kistos today, so far this year the company has completed the acquisition of Tulip Oil Netherlands B.V. for EUR223MM (including the assumption of EUR87MM of debt). This deal included a 60% interest in and operatorship of the producing Q10-A gas field with 2P reserves of 32.9 MMboe.


In the first half of 2021, gross production from Q10-A averaged 1.35 MM Nm3/d. This is equivalent to 48 MMcf/d or 8.6 kboe/d. After raising EUR150MM in the Nordic Bond market and approximately GBP100MM from equity investors since it was incorporated in October 2020, the Company remains well-funded. Cash balances at 30th June 2021 were EUR59.1MM.


With respect to the upcoming drilling campaign, Borr Drilling’s Prospector-1 jack-up drilling is expected to arrive on location before the end of July and to remain on contract with Kistos for approximately four months. During that time, it will conduct a drilling campaign that is part of the process of converting approximately 100 MMboe (gross) of 2C resources into 2P reserves. Planned activities include, an appraisal of the Q11-B gas discovery, which is estimated to contain 2C resources of over 170 Bcf or 30.8 MMboe (gross). If this well meets expectations, it is anticipated to lead to Q11-B coming onstream before the end of 2023.


They will then conduct a flow test of the Vlieland light oil discovery, which is located in a naturally fractured reservoir overlying the producing Q10-A field and is estimated to contain gross 2C resources of more than 70 MMbbl.


After that they will side-track the Q10-A-04 well, which is not currently onstream, to a new location in the Slochteren formation, which is the field’s primary producing reservoir and finally re-perforate the Q10-A-06 well to increase output.


The outlook for Kistos is already looking very positive, the company expects the Q10-A gas field to exit 2021 with gross production of more than 2.0 MM Nm3/d (71 MMcf/d or 12,700 boe/d) and success with the forthcoming Vlieland oil test and / or the Q11-B appraisal well could result in a further significant uplift in production by the mid-2020s.


The Company ‘continues to mature further opportunities within its existing portfolio, which is expected to lead to further drilling in the medium term’ whilst Kistos is continuing to evaluate a number of business development opportunities in the energy transition space, in line with its strategy.


Commenting, Andrew Austin, Kistos’ Interim CEO, said:


“Kistos is well placed to generate substantial value for shareholders. We have a busy schedule in the second half of 2021, which we hope and expect will result in strong organic growth in our production from 2023 onwards. In the meantime, we will seek to deploy our balance sheet strength to make further acquisitions that meet our criteria. We look forward to reporting on further progress as the year unfolds”.


It has been a good start for Kistos as Andrew Austen’s latest vehicle is amongst the deals, has plenty of work to do and has a highly supportive share price. In addition, the company has announced the recent appointments of Peter Mann as Managing Director and Richard Slape as Chief Financial Officer.


Serica Energy (AIM:SQZ)


Serica has announced successful flow test results from the Columbus development well. The well was drilled to a measured depth of 17,600ft with a horizontal section of over a mile in length in the Forties Sandstone formation. The completion equipment has been successfully installed into the well and a flow test has now been performed. A stabilised flow rate of 38.0mmscf/d of gas and 1,560bbls/d of condensate has been achieved through a 56/64ths inch choke. This rate was at the upper end of the pre-drill range of expected outcomes and was constrained by the surface well test equipment on board the Maersk Resilient Heavy-Duty Jack-Up drilling rig.


A diving support vessel will tie the subsea wellhead into the Arran Field export system directly after the rig leaves location. It is anticipated that Columbus start-up will occur in Q4 2021 once initial flow from the Arran field has reached stable conditions. Once it has been brought on stream it is anticipated that the Columbus well will produce at around 7,000boe/d (gross) of which at least 75% is expected to be gas.


Columbus was discovered by Serica in 2006, it has a 50% interest and has been the operator throughout the exploration, appraisal and field development stages and has developed the field in conjunction with its partners Waldorf Production UK Ltd. and Tailwind Energy Ltd.


Minimal subsea equipment has been installed to enable tie-in of the Columbus well to adjacent infrastructure, thus minimising environmental impact and CO2 emissions. This is consistent with Serica’s stated objective of reducing the carbon intensity (i.e. CO2 per barrel of oil equivalent) of its production operations.


Mitch Flegg, Chief Executive of Serica Energy, commented:


“We are delighted to have achieved the objectives of this challenging but ultimately very successful campaign.


This is a significant milestone for Serica, demonstrating our ability to successfully lead a development project as well as being a proven efficient production operator.


I would like to acknowledge the skill, hard-work and dedication of our operational team who have made this outcome possible. I would also like to recognise the input and support of our joint venture partners Waldorf Production UK Ltd. and Tailwind Energy Ltd.


Columbus is part of Serica’s ongoing capital investment programme which is aimed at boosting production in the second half of this year and beyond. I look forward to updating the market when we bring this Columbus well and the recently announced Rhum R3 well into production.”


Serica continues to deliver the goods, with its excellent management team and fine portfolio of mainly gas assets set very fair as the sector builds up a low carbon status. Worth every penny of its year high of 153p and potentially a great deal more, boom!


Zephyr Energy (LON:ZPHR)


Zephyr has announced the commencement of drilling operations on the State 16-2LN-CC appraisal well, ahead of the Company’s month-end target date. Over the last week, Cyclone Drilling Inc.’s Rig #34 mobilised to the well site where it was subsequently assembled and tested. In addition, all necessary ancillary service providers arrived on site to support drilling operations. Drilling is expected to take approximately 20 days and further updates will be provided in due course.


The primary objective of the State 16-2LN-CC drilling operation is to drill a safe, responsible and successful well to test the natural fracture play in the Cane Creek reservoir – with a goal to deliver the Company’s first production from the Paradox project. A second key objective is to gather additional data from the eight high-graded reservoirs overlying the Cane Creek to help determine the potential of these reservoirs, should operational conditions allow.


Over the last year, Zephyr has worked closely with a project team led by the University of Utah’s Energy & Geoscience Institute (“EGI”), in collaboration with the Utah Geological Survey (the “UGS”) and other Utah-based partners (together, the “Project Team”). The Project Team’s analysis of the Paradox Basin is sponsored by the U.S. Department of Energy and its National Energy Technology Laboratory (the “DOE”), and in 2020 the Project Team provided $2 million to assist with drilling and data acquisition costs related to Zephyr’s State 16-2 “dual-use” well which was completed in January 2021.


Today, Zephyr is pleased to announce that EGI has agreed to fund additional data acquisition efforts, specifically including the funding of Dipole Sonic logs to be deployed during the drilling operations of the State 16-2LN-CC well. This additional funding and continued collaboration will be useful to help both the Company and the Project Team further define the potential of the overlying reservoirs.


Colin Harrington, Zephyr’s Chief Executive, said:


“The commencement of drilling of the State 16-2LN-CC well is a pivotal moment in our efforts to unlock value from the Paradox project. I’d like to thank our many partners and contractors who worked tirelessly to help meet our ambitious timeline and pre-drill objectives. The focus now turns to drilling and operating in the safest, most effective manner possible – and I know this commitment is shared by everybody on the drill site.


“While our primary goal is to seek production from natural fractures across the Cane Creek reservoir, we also plan to use the drilling operation to acquire important additional data from our eight high-graded overlying reservoir targets.


“Additional data is a critical component in the effort to define and develop a viable pathway to the considerable potential upside which we believe exists in our overlying reservoirs. The same data is useful to the EGI Project Team’s efforts to improve the understanding and production of the larger emerging Paradox Basin play. We are extremely grateful for our collaboration with the Project Team and look forward to a continuation of these efforts going forward.


“We will continue to keep our stakeholders informed as operations progress over the coming weeks, and – as always – we will adhere to our core mission to be responsible stewards of our investors’ capital and responsible stewards of the environment in which we work.”


The Zephyr machine is rolling along ahead of schedule and additional funding from the U.S. Department of Energy for further data acquisition, what is not to like. I’ve a pretty taste for paradox, as Gilbert and Sullivan wrote and Harrington is indeed the very model of a modern Major-general…


President Energy (AIM:PPC)


Today’s operations update from President states that the new oil treatment plant at the Puesto Flores field, Rio Negro, Argentina is partially in service with full operational capacity expected by the end of July, slightly later than originally forecast due to Covid related delays.


At Puesto Guardian, Salta Province, Argentina, the first of the three new firm oil wells is currently expected to be spudded on time in the first half of October with the second and third wells to be drilled back to back through Q4 2021. Ordering of long lead items and contracting of rig for Salta in advanced progress in readiness for the spud date of the first well.


Reprocessing of 202km2 3D seismic at the Pozo Escondido field, Puesto Guardian Concession, Salta is to take place in Q3 2021 with a view to generating new drilling opportunities for Q1 2022. The previously announced new 3D seismic of 100km2 over Canada Grande now expected to be acquired at end of rainy season at or around March 2022;


The Paraguay farm-out is awaiting regulatory approvals, currently expected before the end of the current quarter, and in the meantime, negotiations regarding long lead items and the drilling rig are in progress with various site visits having taken place.


Peter Levine, Chairman, commented


“Given the circumstances, the actions of President’s engineering team in relation to the new oil treatment plan has been commendable in the face of the difficulties encountered. The facilities once in full operation, expected by the end of this month, means that we own and control the delivery of our oil in Rio Negro with the concomitant cost savings.


“Salta operational planning presses ahead to ensure the new wells will be drilled on time. Further details on the wells and expectations will be announced in due course. Paraguay also progresses in line with expectations and prior announcements


“These operations, the carrying on the core production businesses in Argentina and America together with the significant progress on Atome demonstrate the potential of our Group whose current entire market capitalisation is less than GBP50 million.”


Peter Levine is right to impress that the market cap of President is less than GBP50m and for a company with such a rich asset portfolio, well balanced and offering upside across the board is parsimonious in the extreme. Investors with patience and foresight should be able to do very well out of this market inconsistency.


Block Energy (AIM:BLOE)


Q2 operational highlights from Block included the Spud of WR-B1 well in Georgia at the end of Q2, planning of second well continuing with location and timing to be finalised. Over 170,000 operational man-hours worked in the year to date, with no lost-time incidents and the Company produced a combined total of 42.6 Mboe of oil and gas during Q2 2021.


Block sold 15.6 Mbbls of oil during Q2 2021 for $960,000, resulting in a weighted average price of approximately $62/bbl and 64.6 MMcf of gas during Q2 2021 for $209,000, resulting in a weighted average price of approximately $3.24/Mcf.


The Company ended the quarter with a strong liquidity position with $5.4 million cash at bank and was accepted into the UN Global Compact Network. Finally, an agreement was announced between Block Energy and Baker Hughes to deploy energy-efficient technologies for oil and gas production and to evaluate geothermal projects in Georgia.


Block Energy’s Chief Executive Officer, Paul Haywood, said:


“I am pleased to report another positive quarter for Block Energy both financially and operationally. Towards the end of the quarter, we delivered on our key objective as we spudded the WR-B1 well, which, after significant planning and dedication from the team, seeks to provide a material boost to our production in Georgia. The WR-B1 well will also play a vital role in the second well in the campaign as we will look to use critical WR-B1 drilling information to mitigate risk and optimise the programme of the next well. Beyond the drill bit, execution of the baseline production enhancement plan has made solid progress throughout Q2 and we look forward to seeing the results of the team’s hard work as the Company moves through an active drilling and workover period in Q3.”


SDX Energy (AIM:SDX)


SDX has provided an update on drilling operations at the Ibn Yunus-2 well in the South Disouq Exploration Permit onshore Nile Delta, Egypt (SDX 55% working interest).


The well was drilled to a measured depth of 8,025 feet, encountering 40.5 feet net-pay of high-quality gas-bearing sands, with an average porosity of 23.4%, near the base of the Kafr El Sheikh (“KES”) formation. The top of the KES sand was encountered at a measured depth of 6,768 feet. Whilst we still await the well test results in a few weeks’ time, the Company’s expectations are that the IY-2 well can maximise recovery from the Ibn Yunus Field and help maintain current gross production levels of c.45MMscfe/d at the South Disouq Central Processing Facility.


Management expects that the IY-2 well will be tied in via a short flowline to the Ibn Yunus-1X location where an existing flowline connects to the South Disouq Central Processing Facility. The gross cost of this tie-in is estimated at US$0.55 million. A further announcement will be made in the coming weeks on completion of the testing of IY-2.


The drilling rig is now completing the well before moving to the Hanut-1X exploration well for a planned spud early in August 2021 which is targeting gross unrisked mean recoverable volumes of 139bcf with a 33% chance of success.


Mark Reid, CEO of SDX, commented:


“This is a good result that fully justifies the drilling of the Ibn Yunus-2 well. With only a short tie-in needed, we expect the well to begin to contribute to production by the end of August and we will update the market on testing in the coming weeks. The rig will move to the Hanut-1X location as soon as the Ibn Yunus-2 completion operations are finished, and we look forward to updating the market further on this potentially transformational well.”


And finally…


It’s is the final ODI between Pakistan and the England B squad. Winning the toss Ben Stokes asked the visitors to bat and after 32 overs they are 164-2.


Further bad news from the footy, I see that Lando Norris was attacked and robbed in the car park at Wembley after the match. His team issue GBP40,000 watch was stolen in the mugging.

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