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Malcy’s Blog – Diversified Gas & Oil; Scirocco; Aminex; Union Jack and more…

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Oil price, DGO, Union Jack/Reabold, Scirocco, Aminex, Kistos, GKP. And finally…


WTI $42.42 +52c, Brent $44.96 +76c, Diff -$2.54 +8c, NG $2.65 +6c


Oil price


Another good week making one believe that there are indeed better opportunities should the current good news on the vaccine front come through. Today’s news that the Oxford/AstraZeneca vaccine has also been a success, can be produced swiftly in bulk and more easily delivered and the efficacy is in the 70-90% range dependent on dosage.


This is not a sight of the sunlit uplands per se but deserves optimism and we have seen enough sharp spikes in different leading country GDP’s already to know that it doesnt take much to stimulate demand. Crude oil prices, up another dollar this morning are reflecting this and also that the worlds leading oil suppliers have taken it on board ahead of the biannual Opec meeting which is now only a week away.


Finally the Baker Hughes rig count last Friday showed a fall of 2 units overall to 310 and down 5 in oil to 231.


Diversified Gas & Oil (LON:DGOC)


DGO announces that the Company’s bank lending group, led by KeyBank National Association, has completed the semi-annual redetermination of the Company’s senior secured credit facility and reaffirmed the existing $425 million borrowing base with no changes to pricing, covenants or other material terms.


Following the redetermination, DGO’s liquidity exceeds $220 million, comprised of cash on hand and availability under the Credit Facility. The Company’s current Net Debt ($730 million) to Adjusted EBITDA ratio approximates 2.2x, lower than its stated internal threshold and well below debt covenant threshold.


Rusty Hutson, Jr., CEO of the Company commented,

“We are pleased that our strong production profile, robust hedging positions and long-life proved developed producing reserves support a unanimous reaffirmation of our borrowing base. Recognising the challenging times in which we operate and against a backdrop of many borrowing base reductions, I would like to thank our bank group for their continued support of our differentiated business strategy. Evidenced by two consecutive dividend increases representing more than a 14% increase per share since the global pandemic began, our strategy remains highly resilient in the current commodity price environment. As we round out an exceptional year for DGO, we look forward to carrying our positive momentum into 2021.”


This is more good news from DGO and with a favourable combination of better commodity prices and yet still seeing investment opportunities around there is no reason to believe that 2021 cannot be as good as or even better than 2020 has been. Evidenced by the divvi increases as above, the shares have doubled from the lows but the company remains a blue chip in the sector going forward and still yields 10%.


Scirocco (AIM:SCIR)


Scirocco has updated the market this morning with regard to its 25% WI in the Ruvuma asset and the plan to progress the Ntorya gas discovery situated within the licence.


On 23rd October 2020 Aminex PLC announced that it had completed the farm-out of 50% of its ownership interest in the Ruvuma PSA to ARA (APT) which has now assumed the role of operator under the Ruvuma PSA. At a recently held OCM meeting and in subsequent discussions, APT provided the joint venture with an update on its plans for future operations on the asset for 2021 and beyond.


Scirocco notes positively that APT has, prior to assuming the operatorship, been fully engaged in the technical and operational planning for the upcoming seismic and drilling programmes preventing any loss of time and allowing for a smooth transition of operatorship and continuity of operations.


The good news is that APT has notified the joint venture that it intends to commence immediately with the contracting and procurement of services and equipment to execute a 3D seismic programme over the Ntorya gas discovery and the drilling of the Chikumbi-1 appraisal and exploration well. The joint venture is looking to take full advantage of the depressed global market for services to ensure that the programme can deliver maximum impact at the lowest possible cost.


With regard to the 3D seismic the JV has agreed to a programme involving acquiring a 400km2full fold 3D survey which will be executed in the second and third quarter to ‘align with the next operational weather window in Tanzania’. The survey will also update the original 2D interpretation to optimise the data and without increasing costs.


APT intends to engage immediately in the contracting and procurement of the relevant services to ensure that the survey is acquired in the next available weather window in Q2 2021. This will allow the joint venture to have sight of the early product processed data ahead of the spudding of the Chikumbi-1 well and reliance on the new data set for integration into the development planning for full field development. The acquisition of the 3D seismic is a critical path activity head of the investment decision on full field development and therefore a key determinant in the timeline to first gas.


Scirocco fully expects a ramp up of drilling preparation activity commencing in early 2021 including the civil works for the well pad in preparation for the arrival of the rig, the securing of LLIs and deployment of services to Tanzania in anticipation of spud currently scheduled for January 2022. The joint venture now intends to submit a revised gross budget of US$22.8 million (Scirocco 25% share US$5.7 million) to the Tanzanian authorities capturing the updates on planning and execution timetable.


Tom Reynolds CEO, said, “We are very encouraged by the progress made by the APT team in the short time they have been on licence as operator and the JV is benefitting from the significant work already put in by APT prior to formalisation of the farm-in. We are wholly supportive of the plan and budget put forward by APT and have been impressed by the technical capabilities demonstrated thus far. This update sets out a clear roadmap of intensive operational activity which will better define the potential of what we believe to be a world class discovery in Ntorya. Now with a clear understanding of the programme and associated budget, we can better engage with interested parties regarding our potential sales review, while simultaneously assessing our funding options for our share of the proposed work programme in the event that we remain within the JV through this work programme.”


It is good news to see that APT have clearly been busy and are well advanced in preparations for the acquisition of the 3D seismic and the Chikumbi-1 well, with very clear catalysts on the horizon for the JV. Whether that features SCIR at the time depends on the sales process however it ought to be an attractive element for any potential suitors with a work programme now in place to drive this project forward to full field development producing 140 mmscfd. At the time of the Aminex / APT farm-out, Aminex told the market that a 25% share in the project would see revenue of c.US$40 million per annum and I would think that this is a highly attractive proposition for companies looking for gas focused near infrastructure assets. With a clear path to improved seismic definition and a subsequent firm well on a high-quality asset, it would be surprising if there wasn’t third party demand.


All in all, things are really starting to warm up for SCIR with plenty for shareholders to look forward to in the coming months.


Aminex (LON:AEX)


Aminex announces the following operational update on its activities on the Mtwara Exploration Licence in the Ruvuma PSA, headlined Ruvuma Operations Update – Roadmap to “First Gas”. If any of the below is familiar…


As announced recently, the Company completed the Farm-Out with ARA Petroleum Tanzania Limited (APT) which has now assumed Operatorship of the Ruvuma PSA. Aminex is pleased to report that APT has presented the Ruvuma joint venture partners (JV) with an updated work programme and budget for the remainder of 2020 and for 2021 and, importantly, has proposed a planned roadmap towards “first gas” from the Ntorya discovery.


The JV has identified completion of the Full Field Development (FFD) plan as a primary and critical element required to progress the Ntorya project towards submission of an application for a 25-year development licence. A critical path in the project to develop the FFD and for making further investment decisions is to progress subsurface imaging of the internal reservoir architecture at Ntorya and, additionally, to map remaining upside potential across the licence, if any. With subsurface imaging being a key priority, APT have focused on the early acquisition of 3D seismic and are actively preparing to acquire a 454 km2 3D seismic survey, which is significantly in excess of the minimum licence commitments, and will be an essential tool for placing development wells and help in determining project infrastructure requirements.


The work programme and budget for 2020/2021 anticipates a gross JV expenditure of approximately $23 million, for which Aminex is fully carried for its 25% interest, and is expected to see the acquisition of the 3D seismic, pre-spud activities for the Chikumbi-1 well, negotiations of the commercial terms for the development licence, and the application for a further 1-year licence extension. APT plans to spud the Chikumbi-1 well in Q1 2022 and to submit the FFD before the end of 2022.


Robert Ambrose, Chief Executive of Aminex commented:


“Following the completion of the Farm-Out and with APT moving the development forward, Aminex can now concentrate on progressing initiatives that offer value creation for the Company. Furthermore, this in depth, high value work programme will eventually see Tanzania benefit from the supply of affordable and much needed lower-carbon energy and provide significant revenues for the Company.


This moment is long overdue, but an exciting time finally lies ahead for Aminex and we look forward to updating shareholders on further progress as appropriate.”


Long overdue is pretty much the word for incredibly patient shareholders and those who only write about them…Whilst the drilling date of 2022 may sound like a long way away I think it has been explained in both reports that whilst it is a haul various combinations hold it back for understandable reasons. Shareholders now at least have firm dates, a fully carried route and a decent valuation which is no way in the Aminex price, sometimes this company, through no fault of its own makes me pull my hair out…


Union Jack (AIM:UJO) /Reabold Resources (AIM:RBD)


A West Newton drilling update today from UJO and RBD, the WNB-1 well has been drilled safely to a Total Depth of 2,295 metres encountering both the primary and secondary objectives, the Kirkham Abbey and Cadeby formations, respectively. The Kirkham Abbey formation indicated a hydrocarbon charge based on wireline logs, cuttings and mud gas readings. The secondary target, the Cadeby formation contained insufficient reservoir development within the targeted slope environment.


As a result and as I understand pre-planned, the Joint Venture has commenced a side-track drilling operation from the WNB-1 well and following preparatory engineering exercises the West Newton B-1Z (WNB-1Z) will be drilling ahead during the next few days.


The objective of the WNB-1Z side-track well is to further appraise the Kirkham Abbey formation on a structurally superior location, targeting enhanced reservoir quality and on-trend with the previously discovered Kirkham Abbey accumulations. The information derived from both the WNB-1 and WNB-1Z wells will provide additional data to inform the optimal locations of future development wells at the West Newton project.


There is still much to do at West Newton and neither formation can be ignored or counted on at this stage, I have spoken to management and they remain very positive so I suspect that it is too early to write off the programme.


Kistos


Kistos, the new vehicle for former RockRose Chairman Andrew Austin has confirmed that it is coming to the Aim market with first day of dealings on Wednesday 25th November. I have scheduled a call with Andrew tomorrow and hope to have a full write up after that.


Gulf Keystone Petroleum


GKP has announced the successful completion of the SH-12 workover safely and giving a current flow rate of over 5,000 bopd, production goes to the PF-2 which has appropriate spare capacity. 2020 gross production is now expected to be at the ‘upper end’ of previous guidance of 35-36,000 bopd as current production is some 39,000 bopd.


Jon Ferrier, Gulf Keystone’s Chief Executive Officer, said: “We continue to successfully manage the challenging macro backdrop and make operational progress. I am pleased to report the successful planned workover of the SH-12 well, which is currently producing at over 5,000 bopd, driving an approximately 15% increase in production from the field.


As announced in our half-year results, the SH-12 workover was one of a series of opportunities identified which in aggregate were expected to increase gross production by c.5,000 bopd. With the very successful SH-12 workover result and work to bring SH-9 online and the debottlenecking of PF-1 proceeding as planned, we now expect to exceed our original incremental production expectation


And finally…


In the weekend footy, on Saturday there were wins for Chelski at St James’ Park, the Seagulls at Villa Park, Spurs beat the Noisy Neighbours and the Red Devils won their first league game at home just beating the Baggies.


Yesterday the Cottagers lost 2-3 to the Toffees, the Blades lost 0-1 at home to the Hammers, Leeds drew 0-0 with the Gooners and Liverpool beat the Foxes 3-0. Tonight sees Burnley entertain the Eagles and Wolves hosting the Saints.


In the rugby Nations Cup England beat Ireland 18-7, Wales beat Georgia 18-0 and Scotland lost 15-22 to France at Murrayfield.

Utility firms, Aviva and Reach in focus for coming week; UK spending review to dominate macro calend

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