Oil price, Sound, IOG, UJO/Egdon/Europa, Pharos. And finally…

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WTI $72.39 +74c, Brent $74.74 +26c, Diff -$2.55 -48c, NG $4.04 +7c, UKNG 101.22p +3.72p


Oil price


It was all US news that dominated the oil market yesterday, the Fed signalled no change in their view on rates following their two day meeting. The EIA stats were good across the board, Crude drew by 4.1m barrels with gasoline and distillates also falling by 2.3m and 3.1m b’s respectively.


With the refinery run rate staying up at 91.1%, only 0.3% off last week, the market is seeing substantial demand, last week it went over 21m b/d with no signs of that falling although the slight rise in Covid cases might have a modest effect.


Finally it should be noted that the UKNG price is over 101p this morning and that is for the August contract, for December it is 106p but surely that will increase.


Sound Energy


Sound Energy has provided an update in relation to the Company’s micro liquified natural gas (“mLNG”) phase 1 development plan for the TE-5 Horst development at the Tendrara Production Concession. Highlights of the deal include, a ten year take or pay LNG sale and purchase agreement entered into with Afriquia Gaz, a GBP2 million equity placing with Afriquia Gaz cementing the strategic alignment with Sound Energy PLC (AIM:SOU) leading to improved envisaged Afriquia Gaz loan note financing terms.


The Company has entered into a binding and fully termed conditional LNG sale and purchase agreement with Afriquia Gaz S.A. (“Afriquia”), pursuant to which SEMEL will sell not less than 171,000 cubic metres of LNG per year (approximately 100 million cubic metres a year of gas to be produced and liquefied from the Phase 1 Development) on behalf of the Concession joint venture (the “LNG SPA”).


Under the LNG SPA, SEMEL will commit, for 360 days of each year over a period of 10 years from first gas, to provide to Afriquia a daily quantity of between 475 and 546 cubic metres of LNG, and Afriquia will commit to an annual minimum “Take or Pay” quantity of 475 cubic metres per day of LNG.


Pricing under the LNG SPA will be within a range, the floor price being US $6 per mmBTU and the ceiling price commencing at $8 per mmBTU and increasing during the course of the LNG SPA to $8.346 per mmBTU and will be determined using an indexed formula which applies a combination of the European Title Transfer Facility and United States Henry Hub benchmark indices. The point of sale to Afriquia will be at the Tendrara (TE-5) field location following processing and liquefaction, with Afriquia having responsibility for transportation and delivery to its downstream customers.


The LNG SPA is conditional upon fulfilment of certain conditions precedent including the approval of the LNG SPA by the Concession joint venture, the execution of a loan note agreement between the Company (as borrower) and Afriquia (as lender) setting out the terms of an US$ 18 million secured loan with a 6% annual coupon and a 12 year term.


The execution of a project contract with Italfluid Geoenergy S.r.l (Italfluid) for the provision of a gas processing and liquefaction facility relating to the Phase 1 Development, receipt by Afriquia of regulatory approvals for the transportation of LNG by tankers and the sale of LNG, and Afriquia having secured in principle agreement from downstream buyers to purchase not less than 60% of the Annual Take or Pay Quantity under the LNG SPA.


Finally the Company has also announced subsequent to its announcement on 29 June 2020, that it has entered in an equity subscription agreement with Afriquia pursuant to which Afriquia has made a GBP2.0m subscription to the Company in consideration for which the Company has today issued for 159,731,651 new ordinary shares in Sound Energy at a price of 1.2521 pence per new ordinary share to Afriquia.


Graham Lyon, Sound Energy’s Executive Chairman, commented:


“We are delighted to announce the signature of a binding ten year LNG sales agreement for the Phase 1 development covering the sale of not less than 100 million cubic metres of gas in a liquified form per year. In addition, the execution of the previously announced equity subscription agreement and the GBP2 million equity placing cements the strategic alignment between Sound Energy and Afriquia Gaz. This is a key milestone in moving forward towards the final investment decision and notice to proceed for the Tendrara Phase 1 Development.


In recognition of the alignment between Sound Energy and Afriquia Gaz, I am also pleased that we announce today that the parties are working towards improved terms in relation to the Afriquia Gaz loan note upon which the LNG sale and purchase agreement is, inter alia, conditional. We plan to conclude this loan note ahead of finalising the contract to construct the plant.


By establishing clear paths both to market for our gas and to our financing of Phase 1 Development, today’s announcement together with the recently announced Schlumberger Silk Route Service acquisition not only mark critical milestones for the Company but underscore our commitment to Sound Energy Shareholders to deliver upon our objectives and to create value through innovative commercial arrangements.”


You can sense the true delight from Chairman Graham Lyon as he announces this really exceptional deal for Sound which takes the company a giant leap forward in this ground-breaking arrangement, the 1st time for LNG to be sold in Morocco. Perhaps more important it creates a strong alliance with very significant group who are one of the market leaders in energy sales in Morocco.


It makes for a 10 year take or pay with strong counterparty, the key building block to undertake FID with the gas sold at site, reducing the need to incur transportation and regassification costs and marketing to customers that would add significantly to Sound’s costs. The attractive loan note terms and conditions will provide the required funding for project and the new, supportive long term shareholder will end up at around 10% holding of Sound Energy PLC


I have reproduced the data above in detail as it is very important for the company as suggested in the Chairman’s comments as well. This is so transformational that the shares should really motor as it opens up Morocco in a big way for Sound with a partner and one prepared to fund as well.


IOG


IOG has announced the execution of a gas sales agreement with Gazprom Marketing & Trading Limited (“GM&T”). This follows a competitive offtake process involving more than 10 bidders over recent months.


The GSA relates to IOG’s equity production for the first two years from the Elgood and Southwark fields, part of the Company’s Phase 1 development, and the Nailsworth and Elland fields that form part of the Phase 2 development, with a mutual extension option. Gas will be sold on a day-ahead daily nomination basis at a price linked to the National Balancing Point (NBP, the UK traded gas benchmark). A separate gas sales agreement with BP Gas Marketing Limited was signed on 24 February 2014 for Blythe, the other Phase 1 field.


Following a two-month period to establish consistent production, the GSA incorporates the potential for physical gas hedging, which the Company intends to undertake as part of its overall risk management programme.


Andrew Hockey, CEO of IOG, commented:


“We were pleased at the strong interest in offtake rights for our gas, which helped to secure attractive terms for IOG. As we will be delivering all of our gas into the Bacton terminal complex, an important UK gas hub relatively close to major demand centres, we expect to benefit from favourable pricing. We look forward to developing a good working relationship with GM&T over the coming years.


In that context we also note the significant strengthening of the UK gas market over 2021 to date as we progress towards gas production, expected in Q4 this year. Forward pricing for the six-month Winter 2021 gas period closed yesterday at over 101 pence per therm – 96% ahead of our central planning case for that period. Forward pricing for Summer 2022 closed yesterday at over 59 pence per therm, 49% ahead of our central planning case for that period.”


CEO Andrew Hockey and his team are correctly delighted that as they sign the GSA for the four respective fields and first gas due in Q4 of this year the gas price is so high that it way exceeds their original economics and with gas being the way ahead IOG are perfectly placed to be a key player in the upcoming energy markets, something that the market has yet to understand.


Union Jack Oil/Egdon Resources/Europa


Egdon, as operator and 30% interest, along with Union Jack Oil 40% and Europa 30% have provided an update on operations at its Wressle Oil Field Development located in North Lincolnshire, covered by Licences PEDL180 and PEDL182.


Egdon advise that the proppant squeeze operation on the Ashover Grit reservoir interval in the Wressle-1 well has been completed safely and successfully. A total of 146 cubic metres of gelled fluid with 17.3 tonnes of ceramic proppant were injected into the Ashover Grit formation in line with the authorised programme. The injection operations lasted a total of only 1 hour and 30 minutes over a two-day period.


There were no health, safety, environmental or security issues experienced during the operations; and as predicted, real time monitoring confirmed there was no induced seismicity and that the noise levels were well within the permitted limits. The operation was subject to a pre-operational inspection by the Health and Safety Executive and active monitoring by the Environment Agency. Ground and surface water monitoring has continued in accordance with the requirements of the Environmental Permit.


All equipment and personnel associated with the operation have now demobilised from site.


The Wressle well will now be subject to a coiled tubing operation to fully clean out the production tubing prior to bringing the well back into production through the site’s permanent production facilities. Based on the implemented programme, pre-operational simulation modelling concluded that the proppant squeeze operation would result in constrained flow rates of 500 barrels of oil per day (gross). Once the well is brought back into production, we will provide a further update to report on the stabilised flow rates achieved from the proppant squeeze.


Mark Abbott, Managing Director of Egdon, commented:


“I am pleased to report on the safe and successful completion of the proppant squeeze operations at Wressle. I would like to thank our team of contractors and staff for the highly professional way in which the operations were undertaken with no adverse impact on the environment or the amenity of our neighbours.


I now look forward to the well being placed back on production and reporting on the positive impact of the operation on future oil production from the site in the coming weeks.”


This is good news for the Wressle partners and the amount that it will contribute is not to be discounted. An efficient operation has been a success and should add value to the JV.


Pharos Energy (LSE:PHAR)


Pharos has announced the completion of its 3D seismic programme on the western part of Block 125 in the Phu Khanh Basin, offshore Vietnam; and the completion of the refinancing of its Reserve Based Lending Facility secured against the Group’s producing assets in Vietnam.


The 909 km2 3D seismic programme was acquired on behalf of Pharos by Shearwater GeoServices Singapore Pte Ltd, using the SW Vespucci seismic vessel (a photograph of which is available on our corporate website at www.pharos.energy). The total survey sail line of 2,273 km was shot across water depths between 100m to 2,300m.


The capital spend for the acquisition of the 3D survey is circa US$7.5m net to Pharos. Seismic processing tenders have been issued and, following review, a contract will be awarded shortly. The final seismic processed results are expected in H1 2022.


The Group has also completed the refinancing of its Reserve Based Lending Facility secured against the Group’s producing assets in Vietnam. The new RBL will provide access to up to a committed US$100m with a further US$50m available on an uncommitted “accordion” basis and has a four-year term that matures in July 2025. In connection with the refinancing, Pharos is delighted to welcome Societe Generale to the banking group alongside BNP Paribas, Credit Agricole Corporate and Investment Bank and DBS. Societe Generale replaces Standard Chartered Bank in the lender group.


The original RBL, which was signed in September 2018 and was due to mature in September 2023, had an outstanding loan balance of US$56.3m at expiry. The new RBL extends the tenor of the facility by 22 months, allowing for a rephasing of the repayment schedule and the provision of additional funds available for general corporate purposes.


Ed Story, President and Chief Executive Officer, commented:


“The 909 km2 3D seismic programme in Block 125 was acquired over the past several weeks, and in combination with our 7,107 line km of 2D seismic acquired in 2019 across Blocks 125 & 126, this fulfils our geophysical commitment over both blocks.


The Phu Khanh Basin is geologically analogous to most of the prolific hydrocarbon producing basins of Southeast Asia and it represents the last unexplored frontier in Vietnam. The 3D seismic, once processed and interpreted, will give us, and our local partner SOVICO, an unrivalled data set to identify prospectivity anywhere between the source kitchen in the basin deep all along the predicted oil migration pathway to the shallow basin margin. We will use this data to attract an investment partner for any subsequent drilling phase. Exposure to acreage with such material potential can be truly transformational for many companies but particularly for one the size of Pharos.


I am also pleased to announce the completion of the refinancing of our RBL, which is secured solely against our Vietnam assets. This rephases the repayment schedule and extends the tenor of the facility by 22 months, providing immediate additional liquidity of circa US$20m.”


I really like the look of Pharos at the moment and whilst the company has had severe delays in Egypt due to Covid delays, on the assumption that the deal goes ahead there is still plenty of upside. The ability to pump money in when the button is pressed will have a multiplier effect on production which keeps me confident about the future for Pharos which has a management quality that is amongst the best in the sector.


And finally…


In Tokyo team GB have won two medals so far today, a sliver for Mallory Franklin in the womens C1 canoe slalom and a bronze for Matt Coward-Holley in the trap shooting.


Glorious Goodwood continues, today’s big race is the Nassau Stakes.

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