Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 8 March 2022
Prospex Energy (LON:PXEN): Gas operations in Spain to ramp up
SDX Energy PLC (AIM:SDX, OTC:SDXEF): SDX spuds the SD-5X well, South Disouq, Egypt
Energy Prices
Brent Oil US$126.5/bbl vs US$126.6/bbl yesterday
WTI Oil US$122.5/bbl vs US$123.6/bbl yesterday
Henry Hub Gas US$5.70/mmbtu vs US$5.04/mmbtu yesterday
UK NBP Futures 485p/therm vs 653p/therm yesterday
Oil Price News
- The possibility that the US might ban Russian oil imports has triggered a surge in Brent crude to its highest level since 2008
- Russia is the world's top exporter of crude and oil products combined, at around 7MMbopd or 7% of global supply
- Such a ban would be unprecedented, fuelling already elevated prices and risking inflationary shock
- Prime Minister Boris Johnson said the UK Government plans to announce a new “energy supply strategy” in the coming days, saying that the UK needs to look at using more of its hydrocarbons
- Russian oil export flows, according to media reports, have now fallen by 3MMbopd this week (from 2.5MMbopd last week) because of Western sanctions, together with buyers reluctant to assume the risk in taking Russian cargoes.
- Prices have rallied c.30% since Russia invaded Ukraine on 24 February, and has led to another shock to global price pressures already at their highest levels in decades
- European Central Bank policy makers meeting later this week to discuss the ramifications on consumers
- Elsewhere, US oil inventories continued to decline
- Inventories at Cushing are at their lowest since 2018, while US strategic reserves dropped to a near 20-year low
- According to the latest report from the EIA, US energy consumption is forecast to grow set 5-30% by 2050 under a range of scenarios, with parallel growth forecast in domestic supply for both oil (for transportation) and natural gas (for LNG export)
- Renewables will be the fastest growing energy source, but still contributes a smaller share to US energy needs in 2050 than oil or gas, out with a significant change in policy
- US energy-related CO2 emissions are forecast to be stabilised over the next 15 years before emissions begin to trend upward as increasing energy consumption outpaces continuing reductions in energy intensity and CO2 intensity
Gas Price News
- The price of natural gas hit an all-time high yesterday, briefly touching €345/MWh
- That is equivalent to US$600/bbl
- Deputy Prime Minister Alexander Novak warned European leaders that Russia could “place an embargo on gas transit via Nord Stream 1” in retaliation for their calls to sanction Russian oil and gas
- Chancellor Olaf Scholz rejected talk of an embargo on Russian energy exports, saying that the supplies were of "essential importance" to the Europe’s economy, and that heating, transport and electricity could not be otherwise secured
Company News
Prospex Energy (LON:PXEN): Gas operations in Spain to ramp up
Share Price: 4.1p, Market Cap: £10.1m
- Prospex has provided an update on its production strategy from its El Romeral power project near Carmona in Southern Spain in which the Company holds a 49.9% working interest.
- Considering the recent energy shortfalls being experienced across Europe, the owners of Tarba (Prospex and Warrego Energy) have temporarily agreed to operate the power plant 24 hours per day for six days per week from 4 March 2022 until 15 March 2022 at which point the reservoir performance and the operating regime will be reviewed.
- Recently, revenues generated by the plant have been at an all-time high as a result of the current electricity prices.
- Switching to almost continuous operations will further boost revenue.
- This has been made possible as a direct result of the successful plant automation work completed at the end of 2021.
- The automation of the power-plant has enabled 24/7 production and therefore an ability to produce at times of peak demand, regardless of day or time.
- The price of electricity in Spain remains at unprecedently high levels and is currently more than six-times what it was in March 2021 when the El Romeral power-plant was acquired.
- Currently Tarba (Prospex’s subsidiary) has cash in hand of more than €450k.
- In January and February 2022 monthly income from power generation was €285k and €263k respectively.
- A reservoir modelling project to history-match and forecast gas production profiles from the El Romeral concession is nearing completion.
- Tarba's management team intend to move to continuous daily gas production and generate electricity from the plant 24 hours per day as soon as results from the study indicate that it is prudent to do so.
- Continuous operations will also optimise reservoir management because a constant flow of gas from a gas well is preferable to shutting in production several times a week.
- Generator efficiency will also benefit from 24/7 operations.
- Further additional production capacity exists if new wells can be drilled on the concessions to increase gas production.
- Tarba applied for permits to drill several infill wells in September 2021 and continues to pursue the consent of the regulatory authorities which is expected later this year.
Our take: Prospex has ensured that a reservoir modelling history matching, and production forecasting study was undertaken to ensure that moving to continuous operations would not jeopardise gas production. The Company is now able to increase its electricity output at a time when security of energy supply is reaching critical levels throughout Europe. Prospex’s generation capacity could be increased five-fold by receiving permissions to drill planned infill wells, the first two of which are to be drilled into proven discoveries.
SDX Energy PLC (AIM:SDX, OTC:SDXEF): SDX spuds the SD-5X well, South Disouq, Egypt
Share Price: 8.5p, Market Cap: £16.7m
- SDX has confirmed the spudding of the SD-5X exploration well, targeting the Warda prospect in the South Disouq development lease.
- SD-5X spudded on 4 March 2022 and is expected to reach TD in approximately three weeks.
- The primary target, which has already been encountered in the Ibn Yunus and Sobhi field reservoirs, is the basal Kafr El Sheikh sand at around 6,800ft TVDSS.
- The well is targeting an estimated gross unrisked P50 EUR of 11Bcf and has a 40% chance of success.
- In a success case, SD-5X will be tied-in to the CPF via the existing SD-4X flowline and should be on production by the end of June 2022.
- SD-5X is the first of three wells to be drilled in the South Disouq area during 2022.
- The second well in the campaign will be the SD-12_East well on the Sobhi Field (planned spud of mid-April).
- SD-12_East will target an estimated gross unrisked P50 EUR of 7Bcf and will be followed by the MA-1X well (Mohsen) targeting an estimated gross unrisked P50 EUR of 21Bcf.
- The Mohsen well is planned to spud mid-to-late May.
Our take: This drilling campaign will further explore and exploit the potential in the South Disouq area and, if successful, could extend the production life of the asset by a further two to three years. Last month, SDX agreed to sell a 33% stake in its South Disouq for US$5.5m and will return up to US$3m to shareholders via a share buyback in the second half of 2022, once the consideration has been fully received.
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
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Richard Parlons – 020 3470 0472
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Sources of commodity prices
Oil Brent, WTI - ICE
Natural Gas - NYMEX
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