Oil price, Hurricane, Aminex, Solo, Columbus,
WTI $16.94 +44c, Brent $21.44 +11c, Diff -$4.50 -33c, NG $1.75 -7c
Oil remains under pressure and will do so for a little while, world economies are being re-opened albeit very slowly in the USA and Western Europe although resumption in China is further down the line. With 1st May approaching the big question is how will the supply side deliver?
The answer is slowly and the hiatus between the COVID-19 demand hit turning around and the supply cutbacks taking up the slack, plus the need to attack the enormous stock position will take its time. It should be noted however that as with previous oil price crashes the capital expenditure taken off the table gets increasingly quicker and larger, but if you add the billions cut just by the super majors and the almost instant cuts by US onshore the effect on the longer term leads to a shortage of investment and hence a smaller production.
Finally, yet again the Baker Hughes rig count proves this point, last Friday they announced a fall of 64 rigs overall to 465 and down 60 units in oil to 378.
Hurricane Energy (LON:HUR)
Hurricane have provided a detailed operational update today ahead of the Capital Markets Event held this morning. The data gathering has been declared ‘a resounding success’ with both wells capable of producing at least 10,000/- b/d and a combined rate of up to a maximum of 20,000/- excluding downtime, is currently being tested. The water content is higher than expected but still considered to be perched and attributed to a 10m zone in the 7Z well.
Production averaged 14,900 b/d in the 1st quarter, noting that this included a month of production from just the 6 well, with 18,500 b/d in April 2020 and updated production guidance for the year is 18,000 b/d for the balance of the year averaging 17,000 b/d. Also the Aoka Mizu FPSO has delivered excellent availability of 96% since start-up.
At GWA the JV is seeking a field determination area, with the Lincoln Crestal well suspension consent deferred until 30th September 2020 for COVID-19 reasons the field development solution is still either via a single well tie to the Aoka Mizu of either the existing Lincoln Crestal well or an alternative horizontal shallower producer.
The Lancaster EPS has delivered approximately five months of steady production data due to commissioning activities, various shutdowns and testing which has shown reservoir behaviour to be more complex than anticipated and needs a more extended period of steady production to confirm validity of the Hurricane volumetric model. The next steps for Lancaster include continuing testing of the two existing wells, a volumetric review including a CPR to be produced in early 2021 with data as at end 2020, a call on the Lancaster commitment well and then proceeding to extend the Aoka Mizu FPSO contract. Options to drill and tie-back a prospective ‘L8’ well to not only increase production but also provide data to help de-risk the Company’s volumetric model and re-entering the 205/21a-7Z well are being reviewed in the light of the current oil price.
With the two wells, material balance estimates and recent pressure decline trends are consistent with the two wells being currently connected to a with a minimum in-place volume of around half a billion barrels. Bottom hole pressure response suggests that the wells are obtaining more pressure support with increased production, progressively ‘seeing’ more of the reservoir. This was a very detailed event with much more data I can talk about later but this fact along with operating costs of $17 pb and a cash balance of $152m means that Hurricane is in very robust shape with a good deal of potential upside.
Aminex has announced that they have formally received extension of the Mtwara licence from the Ministry of Energy in Tanzania. This is one of the last remaining conditions required to close the farm-out to ARA which will lead to a $35m carry of its share and take the company to ‘material gas production in Tanzania’. This is a significant amount and for Aminex’s 25% WI the carry takes them to first gas and beyond.
This is a key milestone for the company for a ‘fabulous reserve base’ and is ‘pivotal’ giving a good line of sight for conditions precedent and direction of travel. It confirms recent views that the Government in Tanzania are taking a more positive line and that energy needs in the country are being taken seriously and this is moving this in the right direction.
The timing of this approval is important, it shows that the practice of renewing and extending licences annually is back in vogue and on a rolling basis. The ongoing work programme of 200km of 3D seismic, the Chikumbi-1 well and gas negotiations should be under way soon and I understand that ARA has already started on the preparation for the work programme. This encourages me that it won’t be long before a meaningful inroad has been made into the work to be done but no fixed dates are being offered as understandably the virus may delay things.
Aminex has announced that Robert Ambrose is stepping into the CEO role as the company prepare to be a slimmed down, right sized company as it passes over the operatorship. It is clear that a lot of good work has been done in recent months and the ground work in-country means that the company is well positioned for organic or inorganic growth and that there is approaching huge opportunities for consolidation in Tanzania and across pan-Africa. Cost reductions last year have been added to again this year and the company is lean and ready to move ahead.
Solo Oil (AIM:SOLO)
Solo has received confirmation that the Mtwara exploration licence within the Ruvuma PSA and that contains the Ntorya gas field has been formally extended. Solo has demonstrated patience but no loss of enthusiasm to get this high quality onshore gas project moving forward and comment that the Tanzanian Government are showing that they want this to be a critical project in-country and that this JV is the first to receive approval.
As soon as ARA have been approved as operator by the Government they will bring to the partnership substantial operating capability and in country experience to move the project forward. As Solo has launched a formal process to ‘explore value realisation options for its assets in Tanzania’ this must be an important move and according to the company it has seen ‘an encouraging level of interest in its Tanzanian assets and a number of interested parties have requested access to the data room.
Should this be successful for Solo it will provide a significant value unlock-er and potential farm-inees will know that this key asset is very much under way. It is worth looking at Wentworth who are non-operators, enjoying the currency of the gas and being paid for it by the TPDC.
Columbus Energy Resources (AIM:CERP)
CERP has always said that the SW Peninsula was the place he wanted to be and so it seems after their Saffron well has come in big time with oil discoveries in both the Lower and Middle Cruse. They have 2363 ft of gross sands with six reserve intervals of interest with a 47% net/gross ratio, three of which have been tested to date.
In the Lower Cruse 40° API light oil was recovered to surface in line with management’s expectations of 11.5 mmbbl and the Middle Cruse found medium quality crude of 17-20° API and have already sold 340 barrels. The company have cut a deal with a third party drilling contractor, their existing partners, for a full carry on the second appraisal well to Be drilled all being well in the 3rd quarter of this year. This is a very exciting result for Columbus and vindication for a lot of very hard work by Leo Koot and his team, worth taking a look at the presentation and video interview on the RNS and website.