Oil & Gas Daily Flow
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Market Update: Tuesday 13 July 2021
Kistos Energy (AIM:KIST): Upbeat trading update ahead of drilling campaign
SDX Energy (AIM:SDX): Ibn Yunus-2 well found to be high-quality gas bearing, Egypt
Serica Energy (AIM:SQZ): Robust flow rates at the Columbus development well
Zephyr Energy (LON:ZPHR): Appraisal drilling commenced, Paradox Basin, US
Energy Prices
Brent Oil US$75.5/bbl vs US$74.9/bbl yesterday
WTI Oil US$74.4/bbl vs US$74.0/bbl yesterday
Natural Gas US$3.72/mmbtu vs US$3.62/mmbtu yesterday
Oil Price News
Oil prices pulled back slightly during the course of the trading session yesterday from the US$75/bbl level
This is a market that continues to be threatened by a two key issues, not the least of which will be the uncertainty around OPEC+ and all of the noise with that situation as far as coming together with some type of output quota
Furthermore, at the same time we have to worry about the global economy slowing down due to the Delta variant and threats of lockdowns in various economies yet again
The spread of coronavirus variants and unequal access to vaccines threaten the global economic recovery, finance chiefs of the G20 large economies warned on Saturday
The world's top oil exporter Saudi Arabia met full contractual demand for crude oil from five buyers in August, but turned down at least two requests for additional volumes
Front-month WTI crude futures posted their sixth weekly gain last week after a bullish report from the US Energy Information Administration showed US crude and gasoline stocks fell while gasoline demand reached its highest since 2019
In response to higher oil prices, US energy firms added oil and natural gas rigs for a second week in a row, data from Baker Hughes confirmed
The market appears to be looking beyond the oil supply deficit in August and expecting the OPEC+ agreement to fall apart well before April 2022 when the agreement expires as other member countries will ask for further concessions to secure more market share
The group is maintaining nearly 6MMbopd of output cuts and was expected to add to supply, but three days of meetings failed to close divisions between the Saudis and the UAE
Russia is trying to mediate between Saudi Arabia and the UAE to help strike a deal to raise oil output
However, prices found some support from a large drop in oil inventories in the US
US inventories fell by 8MMbbls for the week ended 2 July according to the API
This compares to an estimate of a 4MMbbl draw
US oil production declines this year are expected to lessen with the EIA reporting yesterday that output will be 11.10MMbopd in 2021, down by 210,000bopd from 2020, versus its previous forecast for a drop of 230,000bopd
Gas Price News
Natural gas markets initially fell during the course of the trading session on Monday, but then turned around to rally towards the US$3.80 level yet again
The market seems to be supported by Thursday’s lower-than-expected increase in government supply, a tight supply/demand balance, worries over adequate storage levels and firm cash prices
Last week, US natural gas prices rallied amid a tight natural gas market and expectations of high demand for electricity in hotter than usual weather in many parts of the US
The UK’s Winter 2021 contract hit 100p/therm during early trading today, the highest trading level for the winter contract since Refinitiv Eikon records began
Global gas prices have soared over the past month, with demand rising as economies recover from coronavirus restrictions at the same time as high prices in Asia make it harder for Europe to attract cargos of liquefied natural gas, and Europe's stock levels remain low
Company News
Kistos Energy (AIM:KIST): Upbeat trading update ahead of drilling campaign
Share Price: 205p, Market Cap: £171m
Kistos latest trading update invariably focuses on the recent acquisition of Tulip Oil for €223m (including the assumption of €87m of debt).
This deal included a 60% interest in and operatorship of the producing Q10-A gas field with 2P reserves of 32.9MMboe.
In the first half of 2021, gross production from Q10-A averaged 1.35 MM Nm3/d.
This is equivalent to 48MMcf/d or 8.6kboepd.
After raising €150m in the Nordic Bond market and approximately £100m from equity investors since it was incorporated in October 2020, the Company remains well-funded.
Cash balances at 30th June 2021 were €59.1m.
The jack-up drilling is expected to arrive on location before the end of July and to remain on contract with Kistos for approximately four months.
During that time, it will conduct a drilling campaign that is part of the process of converting approximately 100MMboe (gross) of 2C resources into 2P reserves.
This will include an appraisal of the Q11-B gas discovery, which is estimated to contain 2C resources of over 170Bcf or 30.8MMboe (gross).
If this well meets expectations, it is anticipated to lead to Q11-B coming onstream before the end of 2023.
Kistos will also conduct a flow test of the Vlieland light oil discovery, which is located in a naturally fractured reservoir overlying the producing Q10-A field and is estimated to contain gross 2C resources of more than 70MMbbls.
The Company also intends to sidetrack the Q10-A-04 well, which is not currently onstream, to a new location in the Slochteren formation, which is the field's primary producing reservoir.
In terms of outlook, Kistos expects the Q10-A gas field to exit 2021 with gross production of more than 2.0 MM Nm3/d (71MMcf/d or 12,700boepd).
Success with the forthcoming Vlieland oil test and / or the Q11-B appraisal well could result in a further significant uplift in production by the mid-2020s.
The Company continues to mature further opportunities within its existing portfolio, which is expected to lead to further drilling in the medium term.
Our take: The Company’s first trading update since the acquisition of TON is typically upbeat given Kistos’ robust financial position underpinned by a solid production base and active drilling campaign slated for the next 12 months, providing several valuation catalysts. Elsewhere, Kistos is continuing to evaluate a number of business development opportunities in the energy transition space, in line with its strategy, and we would not be surprised to see another deal take place this year.
SDX Energy (AIM:SDX): Ibn Yunus-2 well found to be high-quality gas bearing, Egypt
Share price: 15.1p, Market Cap: £30.9m
SDX has provided an update on drilling operations at the Ibn Yunus-2 well in the South Disouq Exploration Permit onshore Nile Delta, Egypt (SDX 55% working interest).
The well was drilled to a measured depth of 8,025 feet, encountering 40.5 feet net-pay of gas-bearing sands, with an average porosity of 23.4%, near the base of the Kafr El Sheikh (KES) formation.
The top of the KES sand was encountered at a measured depth of 6,768 feet.
Management expects that the IY-2 well will be tied in via a short flowline to the Ibn Yunus-1X location where an existing flowline connects to the South Disouq Central Processing Facility.
The gross cost of this tie-in is estimated at US$0.55m.
The drilling rig is now completing the well before moving to the Hanut-1X exploration well for a planned spud early in August 2021 which is targeting gross unrisked mean recoverable volumes of 139bcf with a 33% chance of success.
Our take: Whilst the Company awaits the well test results in a few weeks' time, SDX’s expectations are that the IY-2 well can maximise recovery from the Ibn Yunus Field and help maintain current gross production levels of c.45MMscfe/d at the South Disouq Central Processing Facility.
Serica Energy (AIM:SQZ): Robust flow rates at the Columbus development well
Share Price: 154p, Market Cap: £415m
Serica has confirmed the much-anticipated flow test results from the Columbus development well.
The well was drilled to a measured depth of 17,600ft with a horizontal section of over a mile in length in the Forties Sandstone formation.
A stabilised flow rate of 38.0MMscf/d of gas and 1,560bbls/d of condensate has been achieved through a 56/64ths inch choke.
This rate was at the upper end of the pre-drill range of expected outcomes and was constrained by the surface well test equipment on board the rig.
A diving support vessel (DSV) will tie the subsea wellhead into the Arran Field export system directly after the rig leaves location.
It is anticipated that Columbus start-up will occur in Q4 2021 once initial flow from the Arran field has reached stable conditions.
Once it has been brought on stream it is anticipated that the Columbus well will produce at around 7,000boepd (gross) of which at least 75% is expected to be gas.
Serica has a 50% interest and has been the operator throughout the exploration, appraisal and field development stages and has developed the field in conjunction with its partners Waldorf Production and Tailwind Energy.
Minimal subsea equipment has been installed to enable tie-in of the Columbus well to adjacent infrastructure, thus minimising environmental impact and CO2 emissions.
Our take: A very positive update from Serica today with flow rates at the upper end of pre-drill expectations. Columbus is part of Serica’s ongoing capital investment programme which is aimed at boosting production in the second half of this year and beyond, alongside the recently announced Rhum R3 well.
Zephyr Energy (LON:ZPHR): Appraisal drilling commenced, Paradox Basin, US
Share Price: 5.7p, Market Cap: £74.4m
Zephyr has announced the commencement of drilling operations on the State 16-2LN-CC appraisal well, ahead of the Company's month-end target date.
Over the last week, the rig was mobilised to the well site where it was subsequently assembled and tested. #
In addition, all necessary ancillary service providers arrived on site to support drilling operations.
Drilling is expected to take approximately 20 days.
The primary objective of the State 16-2LN-CC well is to test the natural fracture play in the Cane Creek reservoir - with a goal to deliver the Company's first production from the Paradox project.
A second key objective is to gather additional data from the eight high-graded reservoirs overlying the Cane Creek to help determine the potential of these reservoirs, should operational conditions allow.
Over the last year, Zephyr has worked closely with a project team led by the University of Utah's Energy & Geoscience Institute (EGI), in collaboration with the Utah Geological Survey (UGS) and other Utah-based partners.
The analysis of the Paradox Basin is sponsored by the US Department of Energy and its National Energy Technology Laboratory, and in 2020 the group provided US$2m to assist with drilling and data acquisition costs related to Zephyr's State 16-2 "dual-use" well which was completed in January 2021.
Today, Zephyr has confirmed that EGI has agreed to fund additional data acquisition efforts, specifically including the funding of Dipole Sonic logs to be deployed during the drilling operations of the State 16-2LN-CC well.
This additional funding and continued collaboration will be useful to help both the Company and the Project Team further define the potential of the overlying reservoirs.
Our take: Zephyr will now shortly try to repeat the drilling success of last winter through this latest well in the Paradox Basin. The State 16-2LN-CC (lateral well), will target the Company's first production on the Paradox project. Using a flat oil price of US$70/boe, the Company estimates that the lateral well has a 2C single-well NPV10 of US$10.4m. Using the same flat oil price of US$70/boe, the prime reservoir target on its lease holding - the Cane Creek reservoir - has estimated 2C resources with an NPV10 of US$225m.
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
Sales
Richard Parlons – 020 3470 0472
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Rob Rees – 020 3470 0535
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Sources of commodity prices
Oil Brent, WTI - ICE
Natural Gas - NYMEX
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