A busy start to the week for junior UK oil & gas firms
This week has got off to a great start for oil and gas companies, with the black stuff reaching its highest price in more than a month on Monday. The rise came after Saudi energy minister Khalid al-Falih said OPEC+ deal will most likely extend its deal to reduce oil output by nine months. Prices were also supported by cooling of trade tensions between the US and China, with a private meeting between Donald Trump and Xi Jinping leading the former to hold off on new tariffs for the ‘time being’.
Against this backdrop, the UK’s junior oil and gas business collectively broke a quiet streak that has permeated 2019 so far by delivering a great deal of newsflow. Here, we take a look at some of yesterday’s biggest movers and shakers:
Despite enjoying a rise throughout morning trading, Block finished Monday down 2.8pc at 10.1p after announcing that it has entered an oil storage leasing with the state-back Georgian oil and gas corporation. The deal is expected to allow oil production to restart in around a week at the company’s highly-publicised West Rustavi field in Georgia.
It also secures Block for immediate access to up to 90,000bbls of nearby storage capacity, something that the firm says it critical for the progress of its fully-funded back-to-back drilling programme at West Rustavi. This has been designed to ramp up existing oil production and advance contingent gas resources of more than 600Bcf.
Elsewhere in Monday’s update, Block said the next step in its West Rustavi programme will be the sidetracking of well 38. This sits adjacent and analogous to well 16aZ, where Block revealed average test flow rate of 1,100bopd, more than three times its 325bopd target production rate. The news led the firm’s shares to soar by more than 75pc in just one session when it was released in April.
Meanwhile, the business said on Monday that it also plans to sidetrack three of West Rustavi’s other wells and conduct a 3D seismic survey to identify optimal locations for new horizontal oil and gas wells across the field.n Block’s chief executive Paul Haywood added:
‘We are delighted to have secured first-class oil storage capacity at competitive rates close to West Rustavi, at a major facility where GOGC safeguards some 350,000 bbls on behalf of several well-established operators. We can now allow well 16aZ to flow to its full potential, opening the prospect of excellent netbacks of US$36/bbl at US$65/bbl Brent and US$3.40/MCF for gas.’
Nostra Terra Oil & Gas
After enduring a fairly steady decline over the last couple of months, Nostra’s shareholders will have been happy to see the firm finish in the black on Monday. The company, which rose 1.1pc to 1.9p, revealed a strong set of 2018 results that included a 56pc year-on-year jump in revenues to $2.3m and a 22pc increase in production to 37,384 barrels. Elsewhere, gross profit rose 423pc to $942,000 while developments at the firm’s Pine Mills and Permian Basin sites saw net 2P assets jump by 276pc to c.2.5m barrels.
All eyes will now be on Nostra’s Mesquite asset located on the Eastern Shelf of the Permian Basin with estimated recoverable reserves of 2.4mmbbls over 1,384 net acres. The firm is continuing to look at options for advancing Mesquite, which it acquired towards the end of 2018. It has previously said that it has already received numerous unsolicited approaches about the asset from industry partners.
Meanwhile, at the end of April, Nostra revealed that it was in advanced discussions regarding a new 160-acre lease opportunity in the Mesquite area. The firm said the lease would give it an immediate opportunity to drill a half-mile horizontal well to prove up and increase its overall proven and probable oil reserves at the site.
Things were looking bleaker over at Hurricane Energy, which saw its shares decline by 20.4pc to 42.7p on the news that it has had to plug and abandon its Warwick Deep well. The well was drilled to a total depth of 1,964m but did not flow at commercial rates, instead producing a mixture of drilling brine, water, oil, and gas. All is not lost, however, with the rig used to drill Warwick Deep not moving to Lincoln Crestal, the second well in a three-well area on Hurricane’s 50pc-owned Greater Warwick Area.
Meanwhile, following a long period of preparation, this year has seen Hurricane take huge steps forward in its delivery of the Lancaster Early Production Scheme (EPS) for its Greater Lancaster Area licences. The scheme involves a two well tie-back to the Aoka Mizu floating production storage and offloading (FPSO) unit and targets 17,000bopd production. At an operating cost of $22/bbl, this is expected to generate more than $200m of operating cash flow p.a. based on $60/bbl brent.
In a milestone development, Hurricane announced in May that hydrocarbons had been introduced into the Aoka Mizu FPSO’s process system. Introduction of hydrocarbons marked the final stage of the FPSO’s commissioning and marked the commencement of the Lancaster EPS start-up phase.
Then, in June, the business went on to announce that Lancaster had become the UK’s first producing fractured basement field after the FPSO’s start-up phase completed with a 72-hour production test. The combined flow from both wells during this test period reached and maintained the planned production rate of 20,000bopd. Shortly afterwards, Hurricane announced that it had generated its first revenues after selling its first cargo from Lancaster to BP Oil International. The raft of newsflow saw Hurricane’s share rise from 45.7p to highs of 60.8p.
While Hurricane suffered, Upland enjoyed a very strong start to the week, rising 11.11pc to 1.95p. The firm revealed the formal signing of the permit documents for the exclusive Saouaf hydrocarbon exploration and appraisal licence, onshore northern Tunisia. The development allows the firm to actively market its participation in the licence to potential farminees – previously the company could only receive unsolicited expressions of interest. In Monday’s update, Upland said it has already received such expressions of interest from several companies, including major international and national oil & gas companies.
Saouaf covers 4,004 km2 and is estimated to hold recoverable resources of approximately 2 Tcf of gas and 42 MMbbl oil across thirteen prospects and leads. This includes the existing Dekrila gas discovery, which is estimated to host a 227Bcf recoverable resource alone. Meanwhile, the Bou Dabbous Flower structure is estimated to host 813Bcf of recoverable gas.
In Monday’s update, Upland added that field visits to Saouaf have revealed the presence of additional surface oil seeps that indicate a significant oil play may be possible in addition to the licence’s existing prospects. The company’s chief executive Steve Staley said:
‘The Board of Upland is pleased to announce the signature of the Saoauf Licence. This enables us to move forward with our plans in the Saouaf Licence area whilst we continue to pursue other ventures in Tunisia, Sarawak and the North Sea. We will continue to update the market on progress across all of our projects.’
Finally, the biggest mover on Monday was likely Lekoil, which soared 73.2pc to 6.4p. The company announced that its Otakikpo joint venture with Green Energy International has signed a memorandum of understanding (MOU) with Schlumberger and a subsidiary of major Nigeria-focused oil player. The agreement covers an infrastructure sharing and drilling programme around a group of marginal field assets in the JV’s flagship OML 11 lease in the south-eastern part of the Niger Delta.
The work is expected to result in the drilling of up to five new wells, the expansion of processing infrastructure, and the construction of an export pipeline. The Otakikpo JV will partake in the costs of its field development with funds provided for such participation by the development consortium Capital expenditure to be incurred by the Otakikpo JV for the work is expected to be c.$170m, of which Lekoil is expected to fund $68m.
Under the terms of the MOU, the major oil company will provide funding to the Otakikpo JV alongside the other funding partners, subject to due diligence, project economics, entry into definitive documentation and final investment decision. The Otakikpo JV will also enter into an exclusive offtake agreement with the oil major for the sale of crude produced pursuant to this project.
Lekoil’s chief executive Lekan Akinyanmi called the MOU a ‘significant milestone’ for the firm and the Otakikpo JV.
‘It secures the necessary funding, subject to the various conditions being satisfied, to drill additional wells and unlock further value at Otakikpo,’ he added. ‘We are pleased to be working with Schlumberger (who brings world-class implementation) and other members of the consortium. We look forward to the transformation of operations infrastructure and an opportunity to earning revenue along the value chain.’
Block Energy, completed a £12 million fundraising. CEO Paul Haywood is confident in his outlook
The author was remunerated but does not hold shares