Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Thursday 10 June 2021
Mosman Oil & Gas* (AIM:MSMN): Comprehensive operational update, US
Pharos Energy (LON:PHAR): Modest discovery in Egypt
Serica Energy (AIM:SQZ): Robust flow rates at the Rhum R3 well
Energy Prices
Brent Oil US$72.3/bbl vs US$72.5/bbl yesterday
WTI Oil US$69.9/bbl vs US$70.2/bbl yesterday
Natural Gas US$3.17/mmbtu vs US$3.13/mmbtu yesterday
Oil Price News
Brent Crude prices are expected to average US$68/bbl in the third quarter this year according to the EIA in its latest monthly outlook, raising the forecast by US$5/bbl barrel from the previous projection
Despite the COVID crisis in India, global oil demand remained higher than supply in May, which extended the global inventory drawdown of crude and fuels, although the withdrawal is estimated by the EIA at 1.2MMbopd last month, compared with average monthly withdrawals of 2.1MMboopd since June 2020
EIA’s latest price outlook is close or slightly below current levels and “incorporates the recent price increases and our forecast of mostly balanced oil markets in the coming months,”
Global production is set to increase more rapidly in the second half of this year to catch up with rising demand, according to the EIA.
Earlier this week, the API reported a draw in crude oil inventories of 2.1MMbbls yesterday for the week ending 4 June
Last week, the API reported a draw in oil inventories of 5.4MMbbls after analysts had predicted a draw half that size of 2.1MMbbls
Crude oil inventories have fallen by more than 14MMbbls since the start of this year, according to API data, but are still up 43MMbbls barrels since January 2020
While crude oil inventories fell yet again this week, US oil production fell to an average of 10.8MMbopd for the week ending 28 May, according to the latest data from the Energy Information Administration
This is down 200,000bopd from the week before
The API reported a build in gasoline inventories of 2.405MMbbls for the week ending 4 June, on top of the previous week's 2.51MMbbl build
Distillate stocks saw an increase in inventories this week of 3.752MMbbls for the week, on top of last week's 1.585MMbbl increase
Cushing inventories fell this week by 420,000bbls
Gas Price News
After maintaining the US$3/mmbtu mark last week in the face of moderate temperatures, weather models that showed much hotter conditions in key US regions this week helped lift the July Nymex futures contract even higher, to around US$3.1/mmbtu
However, weather data in recent runs has backed off some of the hot weather, both in terms of intensity and location.
Yesterday, the forecast shifted a little further cooler for the next couple of weeks but maintained the “impressive heat” for this week, according to Bespoke Weather Services
Currently, there are no tropical cyclones expected to form in the Atlantic for the next 48-hours, according to NOAA
Natural gas production was also flat week on week
Company News
Mosman Oil & Gas* (AIM:MSMN): Comprehensive operational update, US
Share Price: 0.15p, Market Cap: £5.6m
TP: U/R
Mosman has updated the market with regards to progress on its projects in East Texas, US.
The Falcon-1 well (MSMN 50% WI) has continued to produce gas and oil (condensate).
The most recent sales numbers advised a gross flow rate of 548MMbtu/d (c.95boepd).
Whilst the workover conducted in May did not increase gas production, nor reduce water production, the well has today been recompleted in a new zone to determine if that zone will flow at a higher rate of oil and gas.
This is one of two zones identified on wireline logs as hydrocarbon bearing sands.
Producing this zone will increase the understanding of the reservoir at Falcon.
This in turn will enable the Galaxie lease area geological model to be revised, and the potential Galaxie well ranked against alternative drilling prospects.
Gross Production from Falcon-1 in the quarter ended 31 March 2021 was 9,274boe.
At the Stanley Project, several workovers have been performed to optimise oil production.
These workovers are normal oilfield practice as part of an ongoing management plan to maintain production and maximise long term recoveries.
Stanley-1 has initially produced at 120bopd.
The well will require sand control, which will be installed in the near future.
Stanley-2 continues to produce at 20-25bopd.
Stanley-3 is producing c.40bopd, with flow rate temporarily restricted by paraffin wax build up in the flow line that occurred prior to this workover.
The wax build up will be hot oil treated next week to enable the well to flow at higher rates.
Stanley-4 has been recompleted in a zone that initially produced both oil and gas.
The separator equipment required to produce this well has been bought and will be installed this week.
Gross production for the quarter ended 31 March 2021 was 14,557bbls.
The Duff well re-completion of a shallow zone did not produce oil, and the Operator now plans to stimulate and re-complete the well in the deeper Sparta zone in June.
Cinnabar is the project where Mosman has the highest working interest (97%) and Operatorship.
Technical work continues to define locations for multiple development wells on a lease which has produced and is held by production from two existing wells.
The required 3D seismic data has now been acquired and the contract awarded to reprocess this 3D seismic data.
In August 2020, Mosman advised that the party that failed to complete the contract to buy the Welch project had issued a claim for the return of the non-refundable deposit paid totaling US$90k.
This claim was considered by Mosman to be without merit (confirmed by Texas legal advice).
Mosman has made a commercial decision to settle the claim at a total cost of US$27,500 to Mosman, so as not to incur any additional fees associated with the claim.
Our take: With all recent activity focused on workovers to optimise near-term production from existing wells Mosman is still committed to participating in drilling several wells this year. The candidates include wells at Cinnabar, Stanley and/or Galaxie. Given the significant operational activity achieved year to date, including the successful Falcon-1 well, in addition to an oil price recovery, we are confident that the second half of Mosman’s year will bear little resemblance to the first.
*SP Angel acts as Nominated Advisor and Broker to Mosman Oil & Gas
Pharos Energy (LON:PHAR): Modest discovery in Egypt
Share Price: 25.7p, Market Cap: £111.0m
Pharos has provided an update on its activities in Egypt and Vietnam.
In Egypt, the Batran-1X commitment exploration well, drilled on a fault bounded and three-way-closed dip prospect located 4km west of the Main Tersa-1X well, reached TD last week.
The well encountered 52ft (15.85m) of net oil pay in the LARG and UB sands.
Additional thin pay zones may also be present in the Abu Roash “A”, “D” and “E” sands where oil shows were also encountered whilst drilling.
Pressure readings confirm that the oil-bearing reservoirs are at initial pressure.
The Batran-1X well will be completed as a potential future producer in the LARG and UB reservoir sections using a workover rig as part of El Fayum field activities ramp up phase.
The preliminary post-well in-place volume and resource estimates for the LARG and UB discoveries are 4.3MMbbls and 430,000bbls respectively.
The El Fayum concession prospect and lead inventory has an estimated unrisked in-place volume potential of >400MMbbls in 40 prospects all with “more of the same geology” and covered by the existing 3D seismic.
Of this total >220MMbbls is in prospects close to existing infrastructure and 156MMbbls is located within current long-term development leases.
An additional 230MMbbls of unrisked in place volumetric potential lies in new plays (e.g. deeper untested formations) or in leads outside of the present 3D seismic area.
The unconventional Abu Roash “F” play, which is considered potentially prospective over the northern half of El Fayum and which was also encountered in the Batran-1X well, has a further 1.5Bnbbls of unrisked unconventional oil in place potential in tight organic-rich marls.
During the recent downturn, the Company’s strategy, on both the El Fayum concession and the North Beni Suef (NBS) concession to the south where Pharos also has a 100% working interest, has been to suspend drilling operations and to defer exploration expenditure to preserve cash and to protect the balance sheet.
Future exploration drilling activity in the proven basins of El Fayum and NBS can be expected to focus on near field prospects close to existing facilities and prospects with new play potential.
Similarly, future seismic acquisition will focus on 3D seismic in the northern portion of El Fayum, once land access is granted, to mature existing leads and 2D seismic in the unexplored eastern desert portion of NBS to evaluate its frontier potential.
Our take: In Egypt the Batran-1X exploration commitment well has encountered oil in the Abu Roash Lower “G” (LARG) and the Upper Bahariya (UB) reservoirs. This modest discovery reconfirms the potential for additional oil on the El Fayum concession. Separately, offshore Vietnam, the Company is poised to commence a low risk development drilling programme in the Cuu Long Basin and a 3D seismic acquisition programme over Exploration Acreage in the Phu Khanh Basin.
Serica Energy (AIM:SQZ): Robust flow rates at the Rhum R3 well
Share Price: 114p, Market Cap: £306m
Serica has provided an operational update for the Rhum R3 well.
The new completion equipment has been installed into R3 and a flow test has now been performed.
A stabilised flow rate of 58.4MMscf/d of gas and 135bbls/d of condensate has been achieved through a 60/64ths inch choke.
This rate was constrained by the surface well test equipment on board the WilPhoenix semi-submersible drilling rig and it is expected that the well will be able to produce at higher rates when in production.
A diving support vessel has been contracted to install the subsea control equipment required so the well can start producing in Q3 2021.
The recompletion of R3 will increase the Rhum production capacity utilising the existing facilities located on the Bruce platform and will, therefore, not lead to significant additional CO2 emissions.
This is in line with Serica’s stated objective of reducing the carbon intensity (i.e. CO2 per barrel of oil equivalent) of its production operations.
Our take: Operations on R3 have proved more challenging than expected but today’s update appears encouraging. The volumes flowed during the test are equivalent to over 10,000boed which demonstrates the quality of the Rhum asset.
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
Sales
Richard Parlons – 020 3470 0472
Abigail Wayne – 020 3470 0534
Rob Rees – 020 3470 0535
Grant Barker – 020 3470 0471
SP Angel
Prince Frederick House
35-39 Maddox Street London
W1S 2PP
+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
Disclaimer Non-Independent Research
This note has been issued by SP Angel Corporate Finance LLP ("SP Angel") in order to promote its investment services and is a marketing communication for the purposes of the European Markets in Financial Instruments Directive (MiFID) and FCA's Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research and is not subject to any prohibition on dealing ahead of its dissemination.
SP Angel considers this note to be an acceptable minor non-monetary benefit as defined by the FCA which may be received without charge. In summary, this is because the content is either considered to be commissioned by SP Angel's clients as part our advisory services to them or is short-term market commentary. Commissioned research may from time to time include thematic and macro pieces. For further information on this and other important disclosures please the Legal and Regulatory Notices section of our website Legal and Regulatory Notices
While prepared in good faith and based upon sources believed to be reliable SP Angel does not make any guarantee, representation or warranty, (either express or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein.
The value of investments referenced herein may go up or down and past performance is not necessarily a guide to future performance. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.
The investments discussed in this note may not be suitable for all investors and the note does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. Investors must make their own investment decisions based upon their own financial objectives, resources and appetite for risk.
This note is confidential and is being supplied to you solely for your information. It may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose. If this note has been sent to you by a party other than SPA the original contents may have been altered or comments may have been added. SP Angel is not responsible for any such amendments.
Neither the information nor the opinions expressed herein constitute, or are to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. Opinions and estimates included in this note are subject to change without notice. This information is for the sole use of Eligible Counterparties and Professional Customers and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority ("FCA").
Publication of this note does not imply future production of notes covering the same issuer(s) or subject matter.
SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).
SPA has put in place a number of measures to avoid or manage conflicts of interest with regard to the preparation and distribution of research. These include (i) physical, virtual and procedural information barriers (ii) a prohibition on personal account dealing by analysts and (iii) measures to ensure that recipients and persons wishing to access the research receive/are able to access the research at the same time.
SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP. SP Angel Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority whose address is 12 Endeavour Square, London E20 1JN.
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%