Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 25 May 2021
Serica Energy (AIM:SQZ) – Frustration at the Columbus development well
Touchstone Exploration (AIM:TXP): Robust pressure data recovered from the Cascadura Deep-1 well, Trinidad
Union Jack Oil* (AIM:UJO): Equipment mobilisation to West Newton commenced
Energy Prices
Brent Oil US$68.3/bbl vs US$67.1/bbl yesterday
WTI Oil US$65.8/bbl vs US$64.2/bbl yesterday
Natural Gas US$2.98/mmbtu vs US$2.94/mmbtu yesterday
Oil Price News
- Oil prices rose by 2% yesterday, buoyed by market expectations that fuel demand globally is rising with the re-opening of major economies in Europe and higher travel numbers in the US
- Further bullish supply sentiment was boosted over the weekend with an announcement that Iran’s three-month agreement with the International Atomic Energy Agency (IAEA) for monitoring nuclear activities had ended and the agency would not have access to data collected from cameras inside Iranian nuclear facilities
- This appears to have narrowed the window for the global powers to reach an agreement for the return of Iran and the United States to the nuclear deal
- Later yesterday, however, the IAEA issued a press release that its Director General Rafael Mariano Grossi had agreed with Iran to extend by one month to 24 June the necessary verification and monitoring activities carried out by the agency in the Islamic Republic
- Meanwhile, the US Transportation Security Administration (TSA) reported c.1.9m traveller throughput at airports on 23 May, the highest number since the pandemic started grounding flights in March last year
Gas Price News
- Natural gas prices have ticked up as the market continues to remain supported by solid LNG demand and forecasts calling for more heat
- Strong demand from manufacturing also helped buoy prices
- US Durable Goods orders are stoked by manufacturing demand that has been building since last fall
- According to the Commerce Department, new orders for durable goods increased by 0.5% to US$256.3bn in March compared with February
- According to the National Oceanic Atmospheric Administration, the rally in natural gas comes despite warmer than expected weather that will cover most of the United States for the next two weeks
Company News
Serica Energy (AIM:SQZ) – Frustration at the Columbus development well
Share Price: 114p, Market Cap: £306m
- Serica has provide an operations update in respect of the Columbus development well which was spudded in mid-March and drilled to a total measured depth of 17,600ft.
- A 5,900ft horizontal section was drilled through the reservoir formations of the upper Forties and encountered a sequence of sands and shales, in line with pre-drill expectations.
- The well requires sand screens to be installed to prevent fine particles being produced; difficulties were encountered while running the screens and it was ultimately not possible to install them.
- As a result, the reservoir section of the well will be side-tracked and re-drilled, using data collected during initial drilling to optimise its trajectory and avoid the difficulties encountered running the screens in the original well.
- The additional operations are expected to take around 3-4 weeks at a net cost to Serica of around £3m.
- These operations are not expected to affect the timing of production start-up which is still expected during Q4 2021.
Our take: A frustrating update from the Company however management anticipate that the additional operations on Columbus are not anticipated to affect the timing of first production. The Columbus development will add further production and diversity to the Company’s portfolio in our view. Serica's net production levels remain strong despite the added complexities associated with operating remote installations. This is further boosted through the recent recovery in gas pricing and the future outlook remains robust.
Touchstone Exploration (AIM:TXP): Robust pressure data recovered from the Cascadura Deep-1 well, Trinidad
Share Price: 99p, Market Cap: £207m
- Touchstone has updated the market in respect of the recovery of pressure gauges from the Cascadura Deep-1 well on the Company's Ortoire onshore exploration block in Trinidad (TXP 80% WI and Operator).
- As previously announced, the Cascadura Deep-1 well was completed over a 199ft thick interval in Sheet Four of the overthrust Herrera Formation.
- Following production testing operations, the well was shut in for a pressure build-up test last month and the pressure gauges were recovered last week.
- Touchstone has confirmed that build-up test data showed no depletion with a final bottomhole pressure of 4,746 psi, confirming a substantial liquids rich gas discovery.
- Analysis of this build-up data showed the test was unbounded with a minimum radius of investigation of 1,500ft, confirming the significant size and reserves potential of the pool.
- While the well test data indicated that the formation was damaged, management remains confident that the well will require no stimulation and that flow rates will be consistent with those during testing (average flow back rate of 22.9MMcf/d of natural gas and 449bbls/d of NGLs).
- Natural gas produced during the production test was c.94% methane with no hydrogen sulphide and NGLs consisted of 57degree API condensate with no associated hydrogen sulphide.
- In addition, there remains approximately 560ft of potential pay above the completed zone which can be evaluated in future development.
- Elsewhere, the design for the main production facility at Cascadura has been completed with an initial production capacity of 90MMcf/d (expandable to 200MMcf/d).
- The Company has requested to complete an Environmental Impact Assessment (EIA) on the Cascadura development project that will enable it to undertake a pre-approved multi-year program including drilling, completions, facilities, gathering lines and the main sales infrastructure without the time intensive application process that would have previously accompanied each individual workstream.
- Royston location preparation has been delayed due to COVID-19 restrictions impacting construction, with the well anticipated to spud in June 2021.
- The associated Royston seismic program continues with 149 of 370 shot holes drilled and data acquisition anticipated to commence mid-June 2021.
- The Coho surface facility is nearing completion and awaiting pipeline installation and tie-in.
- Chinook-1 testing continues with the planned completion of the Cruse sands currently awaiting regulatory approval.
Our take: More positive news from Touchstone today with the downhole gauges recovered from Cascadura Deep-1 providing strong data, increasing the Company’s confidence in the substantial size of the pool's reserves and its potential deliverability. The data is consistent with the previous testing performed at Cascadura-1ST1, and significantly in our view, the lack of any boundary limits observed on the reservoir suggests a much larger reservoir than previously anticipated. The positive test results from Cascadura Deep-1 further expands the opportunity on the Ortoire block with the Company now producing from two wells in the Cascadura structure. The Company now plans to accelerate operations required to bring the two Cascadura wells onto production as the test results allow it to properly size surface facilities for reservoir management. It will also move forward with the required applications to establish a second Cascadura surface location, designed for up to four development wells. The test results demonstrate the clear future production opportunities for the Company in our view.
Union Jack Oil* (AIM:UJO): Equipment mobilisation to West Newton commenced
Share Price: 38.9p, Market Cap: £38m
STRONG BUY: 176p TP
- Union Jack has provided an update on the mobilisation of associated equipment and planned test activities at the West Newton B site (UJO 16.665% WI).
- The Company has confirmed that equipment required to complete and test the West Newton B-1Z well commenced mobilisation to site yesterday.
- This equipment includes a workover rig, well test package, Certified Ultra-low Emission Burners, a wireline unit and other related materials.
- The equipment will be rigged-up during the first week of operations, after which completion activities including perforation and well treatment operations will commence.
- The well test will follow these operations.
- Overall, the duration of the West Newton B-1Z completion and testing operations are expected to take approximately six weeks.
- The West Newton B-1Z completion and testing operations are targeting and fully appraising hydrocarbons within the conventional Kirkham Abbey Formation reservoir.
- Following the completion of operations on the WN B-1Z well, it is the Operator’s intention to mobilise equipment and personnel to the West Newton A site to re-commence testing of the WN A-2 well, also appraising hydrocarbons within the Kirkham Abbey reservoir.
Our take: The Company and its partners will now focus on two Extended Well Test’s (EWT) on both the WNB1Z and WNA-2 appraisal wells. The licence area is within the western sector of the Southern Zechstein Basin. The West Newton A-1, A-2 and recent B-1Z discoveries are on-trend with the prolific offshore Hewett gas complex. As such, the short to medium term will focus on maturing this play further to commercialisation, in addition to proving up analogue fields across the project area. We highlight that Union Jack remains in a well-funded, debt free position, which will be augmented further with Wressle now onstream, which we believe is yet to be priced into Union Jack’s market valuation. On this basis, we reiterate our STRONG BUY rating and 176p/share TP.
* SP Angel Acts as Nominated Advisor and Broker to Union Jack Oil
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
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Sources of commodity prices
Oil Brent, WTI - ICE
Natural Gas - NYMEX
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Recommendations are based on a 12-month time horizon as follows:
Buy - Expected return >15%
Hold - Expected return range -15% to +15%
Sell - Expected return < 15%