Today’s Oil & Gas Update – Challenger Energy and more…

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Market Update: WednesAIM:day 25 August 2021


Challenger Energy (AIM:CEG): Saffron-2 production testing update




Energy Prices


Brent Oil US$70.1/bbl vs US$69.5/bbl yesterday


WTI Oil US$67.3/bbl vs US$66.2/bbl yesterday


Natural Gas US$4.01/mmbtu vs US$3.93/mmbtu yesterday




Oil Price News


Oil prices recovered for the second day in a row yesterday, fuelled by optimism about falling COVID-19 infections in China and by a major production outage in the Gulf of Mexico


The EIA’s estimate for oil production in the US rose by 100,000bopd for the third week in a row to an average of 11.4MMbopd


US crude inventories fell 3.2MMbbls last week to 435.5MMbbls, their lowest since January 2020, according to US Energy Department figures


Gasoline stocks, however, rose modestly, and gasoline product supplied to the market, a measure of demand, was 9.5MMbopd, just 1% below 2019 levels


Fuel demand in the world’s top consumer has steadily increased throughout the year with the four-week average of overall US product supplied was 20.8MMbopd, in line with pre-coronavirus levels from 2019


That has come just as the OPEC+ agreed to raise output by 400,000bopd every month into next year, returning some of the supply the group has held back since early 2020


The IEA estimates that demand for oil is expected to increase at a slower rate over the rest of 2021 because of surging cases of the Delta variant


Also bearish for the markets in the longer term, a US offshore regulator yesterday said efforts to resume a federal oil and gas leasing program were underway and would soon bear results following a court decision ending a suspension




Gas Price News


After looking a bit cooler for late August, weather models are looking healthier for natural gas prices


Once the coolest of the datasets, the European 15-day outlook gained about 12 gas-weighted degree days (GWDD) because of hotter changes seen in the eastern half of the continent


The La Nina base state remains intact, which, especially in the back half of summer, correlates to above-normal heat, according to Bespoke Weather Services


This appears to be the main driver of the changes, which put the final week of August now close to a weekly record in terms of GWDDs for those dates


The price action is pointing towards the current low storage levels, and elevated summer temperatures in the US and Europe


Carbon dioxide emissions from the energy sector will increase 7% to 4.9 billion mt in 2021 given growing economic activity, according to the EIA’s Short-Term Energy Outlook


The sector’s emissions fell 11% in 2020.


With summer heat nearing what traditionally is the peak period this month, weather forecasts have once again become a driving force for gas markets


The American and European data each saw a difference of less than 2 cooling degree days (CDD) for the coming 15 days




Company News


Challenger Energy (AIM:CEG): Saffron-2 production testing update


Share price: 1.3p, Market Cap: GBP10.8m


Challenger has provided an update in relation to ongoing production testing of the Saffron-2 appraisal well.


A commercial production rate (81bopd) has been established at Saffron-2, from approximately 66ft of Middle Cruse reservoir units; produced oil is already being sold and generating immediate revenues for the Company.


To maximise near-term production income additional clean-up, testing, and optimisation of producing zones is currently underway; the Upper Cruse reservoir units also remain to be perforated and produced.


The Lower Cruse reservoir units exhibited good pressure and produced high-quality oil (480 API), but testing of these zones was halted due to the impact of mobile shales on the well bore; these lower zones have been isolated from the currently producing horizons, capable of being re-entered for future remedial actions in support of production.


Well data and projection of aggregated well performance is being used to reassess overall Saffron field resources and economics, with work underway to determine the optimal forward plan for development of the Saffron project as a whole.


Our take: Whilst commercial, the current flow rate being produced from Saffron-2 will come as a disappointment to shareholders in our view. Nevertheless, Challenger has preserved the ability to re-enter and produce the lower zones in the future, and planning of further wells is already underway.


Research – Oil & Gas


Sam Wahab – 0203 470 0473 / 0784 385 5037


[email protected]




Sales


Richard Parlons – 020 3470 0472


Abigail Wayne – 020 3470 0534


Rob Rees – 020 3470 0535


Grant Barker – 020 3470 0471




SP Angel


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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.




Sources of commodity prices


Oil Brent, WTI – ICE


Natural Gas – NYMEX






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