Market Update: 3 March 2023
Longboat Energy PLC (AIM:LBE) - Egyptian Vulture licence relinquished
IOG PLC (AIM:IOG) - YE22 reserves plunge at Southwark
Arrow Exploration Corp (TSX-V:AXL, AIM:AXL, OTC:CSTPF) - RCE-3 flow rate above expectations
AIM:ENW - VAS licence validated
Energy News
Brent Oil US$84.3/bbl vs US84.6/bbl yesterday
WTI Oil US$77.8/bbl vs US$78.1/bbl yesterday
Henry Hub Gas US$2.81/mmBtu vs US$2.74/mmBtu yesterday
UK NBP Futures 114p/therm vs 118p/therm yesterday
TTF Dutch Futures €45/MWh vs €47/MWh yesterday
- Crude oil prices were broadly unchanged with the Kommersant reporting that Russia’s total oil liquids average February production was down 0.03mb/d y/y to 11.05mb/d, little changed from pre-war levels. Russia plans to cut oil production this month by 0.5mb/d, or ~5% of crude oil production, in retaliation for Western sanctions.
- Spot European energy prices are currently trading at the equivalent of $79/bbl in the UK and $73/bbl on the Continent, below the price of Brent crude but still significantly higher than the $16/bbl price of US HH gas.
- The US EIA storage report detailed a draw of 81bcf to 2,114bcf last week, in line with consensus forecasts, with storage levels now 27.1% above last year and 19.3% above the 5-year average (top of range).
- Equinor announced the $850m acquisition of Suncor’s UK assets, consisting of 15kbo/d net production on the Buzzard field (29.89% WI) and the Rosebank undeveloped discovery (40% WI), with $250m of the consideration contingent upon a final investment decision on Rosebank that is expected later this year.
- Two new M&A deals announced in the UK renewables sector with RWE (ETR:RWE) acquiring JBM Solar, which has a 6.1GW development pipeline, and INPEX acquiring a 16.7% stake in the 950MW Moray East offshore wind farm.
Company News
Longboat Energy PLC (AIM:LBE) 11.6p, Market Cap £6.6m: Egyptian Vulture licence relinquished
- Longboat announced the joint venture would relinquish the PL939 licence (15% WI), which contains the Egyptian Vulture light oil discovery, after being unable to form an aligned view regarding an appraisal well.
- The Company now plans to form a new joint venture to re-apply for the acreage in the upcoming Norwegian licence round with awards due in January 2024.
- ERCE provided an independent assessment of the discovery in a competent person report (CPR) commissioned by Longboat, which estimated the 1C-3C resource size of the discovery at gross 4-68mboe.
For an appraisal well on Egyptian Vulture to be successful, it would need to encounter better reservoir quality than that penetrated by the discovery well, and the value proposition was clearly not sufficiently compelling for all of the JV participants to commit. Following a mixed Norwegian drilling campaign in 2022, Longboat has been frustrated in its attempts to broaden the Company’s portfolio by the intense M&A competition in one of the most commercially active regions in the world. While investors will be hoping for more substantial success from Longboat’s ongoing drilling programme, the next exploration well on the high-impact Velocette prospect (20% WI) is not due to spud until 3Q23, and we instead look towards M&A to provide potential catalysts to the stock.
IOG PLC (AIM:IOG) 5.2p, Market Cap £27m: YE22 reserves plunge at Southwark
- IOG announced a material write-down on Southwark, with 2P gross reserves falling from 71.3bcf to 10bcf, with production of the remaining Elgood 2P reserves also requiring pipeline dewatering and onshore compression.
- The volumetric estimated range for the contingent and prospective resources across the remainder of the asset portfolio remains broadly unchanged from 2021 estimates.
- The Company commented that its FY22 annual reserves were informed by nearly a full year of production data for Blythe and Elgood, recent drilling data for Southwark, as well as ongoing remapping, reinterpretation and remodelling of the pre-development discoveries and prospects in the portfolio.
Shareholders have endured a torrid 12M from the trials and tribulations at its flagship Saturn Banks development (50% WI) in the UK Southern North Sea. Underperformance from the existing production base and on the Southwark field development wells will reduce the revenues that were expected to underpin further investment in the portfolio, such that management is now looking at different options to optimise its cash flow. IOG still has some way to go to rebuild shareholder confidence in both its operational capabilities and the asset base.
Arrow Exploration Corp (TSX-V:AXL, AIM:AXL, OTC:CSTPF) 19.9p, Market Cap £44m: RCE-3 flow rate above expectations
- Arrow announced the RCE-3 well is flowing at better-than-expected choked rates of 968b/d gross from the Carbonera reservoir on the Rio Cravo Este field, located on the Tapir Block (50% WI) onshore Colombia.
- The Company commented that the RCE-3 well costs came in under budget and was the quickest well drilled to date on the block. The Company plans to provide a further update on production rates in due course.
- Arrow expects drilling on the RCE-4 well will be complete and brought on production towards the end of March. Plans are then to skid the rig to the RCE-5 location and commence drilling.
- The Company announced that the Capella field (10% WI) producing 280b/d net remains shut in since February 7, due to roadblocks and protests. Management is seeking solutions to help resolve the protesters’ concerns.
Despite the temporary disruption on Capella due to local protests, investors will be cheered that the RCE-3 well is performing above expectations. The Tapir block remains Arrow’s main avenue for growth with each of the wells in a ten-well 2023 drilling programme anticipated to add c.3-400b/d net to the Company on success. With net cash on its balance sheet and robust operations in Colombia and Canada driving positive cashflows, Arrow is well positioned deliver on its 2023 programme and achieve its 3kboe/d net production target in 1H23.
AIM:ENW 19.9p, Market Cap £64m: VAS licence validated
- Enwell announced that the Supreme Court of Ukraine has issued a final decision in the legal proceedings relating to the validity of the licence for the Vasyschevskoye (VAS) gas and condensate field in Ukraine.
- The proceedings ultimately reached the Supreme Court of Ukraine, which determined that the suspension order was not justified and should be cancelled. Accordingly, the VAS production licence continues to be valid.
- The Supreme Court is the final appellate court in the legal proceedings and therefore this decision is final.
This is positive news as these legal proceedings have been hanging over Enwell since 2019 and were progressed through the various levels of the Ukrainian Court system, with the Company being successful at each level. Following the shutdown of the VAS field following the Russian invasion, production was only restarted in October and the flow rate stabilised at ~360boe/d, which is around 90% of the pre-suspension rate. The ongoing threat of licence confiscation from enaction on 28 March of new natural resources legislation remains a concern and the Company is consulting with its external legal advisers to evaluate any requisite actions.
Research
David Mirzai – David.Mirzai@spangel.co.uk – 0203 470 0473
Sales
Richard Parlons – Richard.Parlons@spangel.co.uk - 0203 470 0472
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
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Sources of commodity prices
Oil Brent - ICE
Natural Gas - NYMEX
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