Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: WednesAIM:day 25 August 2021
Challenger Energy (AIM:CEG): Saffron-2 production testing update
Energy Prices
Brent Oil US$70.1/bbl vs US$69.5/bbl yesterday
WTI Oil US$67.3/bbl vs US$66.2/bbl yesterday
Natural Gas US$4.01/mmbtu vs US$3.93/mmbtu yesterday
Oil Price News
Oil prices recovered for the second day in a row yesterday, fuelled by optimism about falling COVID-19 infections in China and by a major production outage in the Gulf of Mexico
The EIA’s estimate for oil production in the US rose by 100,000bopd for the third week in a row to an average of 11.4MMbopd
US crude inventories fell 3.2MMbbls last week to 435.5MMbbls, their lowest since January 2020, according to US Energy Department figures
Gasoline stocks, however, rose modestly, and gasoline product supplied to the market, a measure of demand, was 9.5MMbopd, just 1% below 2019 levels
Fuel demand in the world's top consumer has steadily increased throughout the year with the four-week average of overall US product supplied was 20.8MMbopd, in line with pre-coronavirus levels from 2019
That has come just as the OPEC+ agreed to raise output by 400,000bopd every month into next year, returning some of the supply the group has held back since early 2020
The IEA estimates that demand for oil is expected to increase at a slower rate over the rest of 2021 because of surging cases of the Delta variant
Also bearish for the markets in the longer term, a US offshore regulator yesterday said efforts to resume a federal oil and gas leasing program were underway and would soon bear results following a court decision ending a suspension
Gas Price News
After looking a bit cooler for late August, weather models are looking healthier for natural gas prices
Once the coolest of the datasets, the European 15-day outlook gained about 12 gas-weighted degree days (GWDD) because of hotter changes seen in the eastern half of the continent
The La Niña base state remains intact, which, especially in the back half of summer, correlates to above-normal heat, according to Bespoke Weather Services
This appears to be the main driver of the changes, which put the final week of August now close to a weekly record in terms of GWDDs for those dates
The price action is pointing towards the current low storage levels, and elevated summer temperatures in the US and Europe
Carbon dioxide emissions from the energy sector will increase 7% to 4.9 billion mt in 2021 given growing economic activity, according to the EIA's Short-Term Energy Outlook
The sector's emissions fell 11% in 2020.
With summer heat nearing what traditionally is the peak period this month, weather forecasts have once again become a driving force for gas markets
The American and European data each saw a difference of less than 2 cooling degree days (CDD) for the coming 15 days
Company News
Challenger Energy (AIM:CEG): Saffron-2 production testing update
Share price: 1.3p, Market Cap: £10.8m
Challenger has provided an update in relation to ongoing production testing of the Saffron-2 appraisal well.
A commercial production rate (81bopd) has been established at Saffron-2, from approximately 66ft of Middle Cruse reservoir units; produced oil is already being sold and generating immediate revenues for the Company.
To maximise near-term production income additional clean-up, testing, and optimisation of producing zones is currently underway; the Upper Cruse reservoir units also remain to be perforated and produced.
The Lower Cruse reservoir units exhibited good pressure and produced high-quality oil (480 API), but testing of these zones was halted due to the impact of mobile shales on the well bore; these lower zones have been isolated from the currently producing horizons, capable of being re-entered for future remedial actions in support of production.
Well data and projection of aggregated well performance is being used to reassess overall Saffron field resources and economics, with work underway to determine the optimal forward plan for development of the Saffron project as a whole.
Our take: Whilst commercial, the current flow rate being produced from Saffron-2 will come as a disappointment to shareholders in our view. Nevertheless, Challenger has preserved the ability to re-enter and produce the lower zones in the future, and planning of further wells is already underway.
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
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Sources of commodity prices
Oil Brent, WTI - ICE
Natural Gas - NYMEX
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