Oil price, PetroTal, Scirocco Energy, Helium One. And finally…
WTI $61.14 +$1.09, Brent $64.34 +99c, Diff -$3.20 -10c, NG $3.22 +9c, UKNG 42.5p -1p
Oil is up, unsurprisingly as the storm, currently still in Texas and Louisiana sweeps up all the way to DC and New York. Outages are still about the same as yesterday and overnight natural gas exports from Texas have been banned. Fortunately the bad weather is scheduled to ease by the weekend.
Elsewhere the weather in Russia isn’t getting better and production remains down there and international markets stay tight endorsed by the API stats. We know that next week’s inventory numbers will be affected by current markets but last night’s stats showed a draw of 5.8m barrels of crude with a gasoline build of 3.9m b’s with distillates drawing 3.5m, not surprising at this time of the year.
PTAL announce a 2021 Capital budget of $100m and a programme that will be fully funded for the recently announced US$100 million bond issue, supplemented with funds generated from operations and existing cash resources.
The drilling focused development programme is expected to start in March 2021 and continue through December 2021. The programme is designed to enable PetroTal to more than double production from Q1 2021 to Q4 2021, and complete phase two of the highly scalable central processing facility in Q3 2021. The company plan to:
Drill and complete three horizontal development wells, one deviated production well and a second water disposal well at the Bretana oil field and complete the second phase of CPF-2 in Q3 2021, taking overall fluid production capacity up to 124,000 barrels per day, sufficient to handle 24,000 barrels of oil per day.
Target average 2021 oil production between 11,000 and 12,000 bopd with a target 2021 exit range of 18,000 to 19,000 bopd, generate cash flow of approximately $90 million, based on a forecast Brent oil price of $50 per barrel flat giving total 2021 capital expenditures of $100 million, fully funded from proceeds of the recent $100 million bond issue, funds from operations and existing cash resources;
In addition to ongoing Environmental, Social and Governance initiatives, PetroTal has allocated over $1 million in operating and capital spending for specific community investments.
Based on the successful 2019 and 2020 drilling results, PetroTal will spud five new development wells at Block 95 costing approximately $7 million for the deviated well and between $12- $14 million per horizontal well. Four of these oil wells are expected to be producing in 2021, with the fifth well on production in February 2022. A second water disposal well is planned in May at an estimated cost of $9 million, providing an expected 50,000 barrels of water per day of additional disposal capacity and enabling oil production growth beyond 20,000 bopd.
Completion of CPF-2 in Q3 2021 for an estimated $12 million will boost fluid handling capacity to 124,000 barrels per day, sufficient for approximately 24,000 bopd. The additional investment will bring total investment in CPF-2 to $24 million, approximately $4 million less than the original estimate. Extensions to the loading dock to handle larger oil volumes and optimal integration of CPF-1 and CPF-2 will require $3 million. Commissioning CPF-2 for commencement in Q3 2021 is designed to facilitate our Q4 2021 average oil production target of between 16,000 and 17,000 bopd.
Remaining notable capital investments include injection pumps, electrical infrastructure, and various field and security upgrades. These smaller capital items will complement the expected operational pace and fluids growth profile throughout 2021. In addition, a $1 million workover on the 4H well will commence in March that will result in a higher capacity pump being installed. The 4H well has been shut in since late January due to a transformer failure during the commissioning of the new crude oil power generation plant, thereby causing issues with the original pump. With the enhanced capacity pump, the estimated lost production of approximately 100,000 barrels of oil will be recovered in Q3 2021 and will lead to consistently higher production rates and a higher estimated ultimate recovery for the 4H well.
I think that it is worth taking as much of the detail from the statement with regards to the capital budget and drilling programme so that investors can realise just how detailed the plans are.
With this capital programme, PetroTal estimates 2021 average production of between 11,000 and 12,000 bopd, an increase from the 2020 average production of 5,675 bopd, and well above the Q4 2020 average production of 6,413 bopd.
The first 2021 development well is expected to be on production in April and increase oil production rates to pre-May 2020 shut-in levels of between 10,500 and 11,500 bopd, inclusive of base reservoir declines. In addition, before the end of June 2021, PetroTal will drill a water disposal well, resulting in H1 2021 average production of 9,000 to 10,000 bopd, equivalent to the Q1 2020 pre COVID-19 rate. Three additional horizontal development wells are expected on production through H2 2021 with the final well of the 2021 program drilled in late 2021 and on production in early February 2022. Production is expected to average between 14,000 and 15,000 bopd in H2 2021.
The $100 million bond offering, which closed on February 16, 2021, allows PetroTal to kickstart its 2021 capital program in March 2021 and immediately commence near term operations without working capital constraints. The 2021 capital budget has been planned conservatively and is fundable down to an unhedged $44/bbl Brent flat for the remainder of 2021. At $50/bbl Brent flat, the 2021 budget is substantially funded out of cash flow by 2021 year end, allowing PetroTal the flexibility to allocate additional liquidity from the bond issuance to the highest return weighted projects, while maintaining strong credit metrics.
With an enhanced risk management focus, PetroTal plans to implement a robust hedging program with an emphasis on protecting the 2021 capital budget and ensuring covenant compliance should oil prices fall materially from current levels. The program may include swaps, puts, and collars over the next twelve months’ production.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“We are excited about our early achievements in 2021. As a management team, we overcame many unique challenges in 2020 and we are now positioned stronger than before the pandemic. With the successful placement of our three year bond, we can pivot into a forward leaning position operationally and have the financial confidence to execute what we do best, namely development of the Bretana oil field. We believe our approved 2021 capital budget is balanced and paced appropriately to fit our short and long-term targets. Ongoing operational success and financial discipline will allow the Company to be rewarded in a rising oil price environment. We intend for 2021 to be a year of operational excellence as we continue to demonstrate our repeatable organic growth story to the market. Having additional liquidity will also allow our highly experienced technical team to evaluate further opportunities to the benefit of our stakeholders.
2021 will be a defining year for the Company as we look to double production and realize scale and synergies that compete with the best oil plays in the world. I would like to sincerely thank the entire PetroTal team, the Board, our shareholders, and our new bondholders for their continued support in what is an exciting period for PetroTal”.
News has been coming thick and fast from PTAL recently but this is perhaps the most important, putting the flesh on the bones of all the announcements and guiding the shareholders to what their company is planning to deliver this year. Historically I have been impressed by the way the company handles growth in its key functions and now is no time to doubt the high quality management as it sets about delivering the goods.
A strategy update from SCIR this morning which includes board changes and notes an update from Helium One.
In March 2019, Scirocco Energy announced the launch of a new strategy to create long-term, sustainable value in European energy market. and in a further development in its strategic focus, the Company confirms that it has identified various near-term investment opportunities within the low-carbon space, including renewable energy, circular economy and energy storage and transfer.
Target acquisitions under review are consistent with the Company’s goal of acquiring cash generative investments within the European energy market whilst broadening the target market and improving risk/reward. To support this increased focus within the low-carbon space, the Company announces the appointment of Mr. Muir Miller as an Independent Non-Executive Director, adding specialist experience to support this strategy development as Scirocco moves into the execution phase.
‘The additional areas of investment being screened represent a compelling market opportunity, with strategically consistent assets that complement Scirocco’s ambitions to be part of the energy transition space, as the world looks to embrace a more sustainable energy future. In particular, Scirocco is presently focused on three core areas of investment’.
– Energy – assets which generate energy for sale as gas/biogas or power;
– Circular – assets which recover a valuable component of an industrial, municipal or agricultural waste stream for re-use, generally reducing system carbon footprint; and
– Vector – assets involved in the storage, transmission or delivery of energy within a low carbon context’.
With regards to this wish list the company is working hard to make a ‘focused portfolio’ within this space. Crucial to this is the cash generative nature of the investments which are expected to deliver an appropriate return through ‘dividends and capital growth’.
‘In this respect the Company is in advanced dialogue regarding its first transaction in the sustainable energy space through the acquisition of an energy generation asset and is actively progressing with the due diligence process. Whilst there is no guarantee that the transaction will complete, the Board is reassured by the progress to date and will update shareholders and the market in due course’.
Finally it is important to know that as the investment focus moves towards the low-carbon space the board is setting new targets based around total shareholder return ‘on deployed equity within relevant assets rather than the previously set hydrocarbon production targets. Based on the pipeline of opportunities within its new area of focus, the Board is targeting an enterprise value invested asset base of GBP150 million, capable of generating cash flow of circa GBP20 million per annum, within five years’.
After a long wait, investors have now some visibility to the deal that they nearly had a while ago. Whilst strategy has changed owing to market conditions the company are showing that they can be flexible and are determined to bring a deal to the market. With talks underway with regard to their existing portfolio the transformation from an energy company to a sustainable energy company is very much in process.
With regard to the board changes, the appointment of Muir Miller is clearly important, he has significant experience in the renewable energy sector with an enviable record of building a portfolio of assets which washed its face. With the appointment of Mr Miller comes the trade-off that given the size of the company, Jon Fitzpatrick is standing down from the board this year. It should not be forgotten that important steps at Scirocco have been taken due to the perspicacious nature of his investment in time and money and that he remains a substantial and supportive shareholder.
The company also note the Helium One RNS which is covered below and in which HE1 discusses the seismic campaign now under way, see below.
Helium One Group
HE1 has announced that it has started a 150km infill seismic campaign over identified drill targets involving mobilisation of surveying and line clearing crews. The results of the high-resolution seismic survey are the final technical input prior to commencement of Helium One’s maiden drilling campaign planned for 2nd quarter 2021.
David Minchin, Chief Executive Officer, commented:
“We are delighted to be progressing our Rukwa Helium Project with this next phase of exploration. It’s an exciting time for the team at Helium One and for all our stakeholders, as this will be our largest on site mobilisation for several years. Data gathered from infill seismic will prove invaluable in refining drill targets and improving our knowledge of potential trap structures, leading to what we hope will be a ‘game changing’ drilling campaign in Q2 2021.
“We look forward to continuing to work with local communities and government departments as we progress towards maiden exploration drilling. Our thanks go to the various Tanzanian ministerial departments, regional, district and ward officials for all the co-operation we have received. The broad range of support we have received from all levels of government and the local community bodes well for our planned drilling campaign later this year.
“Our work programme on the ground In Tanzania is timely and coincides with a significant growth in the Helium pricing as demand grows in critical areas. The last six months has seen the average price of helium imported to China reach $375/Mcf as Chinese demand for helium in manufacturing of semi-conductors and fibre-optic cables grows at 6% CAGR and in MRI demand grows at 8% CAGR. There is a requirement for a new source of primary helium to support high value ‘next-gen’ technological, medical and industrial applications which Helium One has the capacity to fulfil as we seek to develop our globally significant Rukwa deposit.”
Last night in the Prem Burnley drew 1-1 v the Cottagers and the Noisy Neighbours sealed their position winning 1-3 at the Toffees.
Tonight in the Boropa Cup the Red Devils are at Real Sociedad, RZ Pellets WAC host Spurs, the Foxes go to Slavia Prague, the Gooners are at Benfica and Royal Antwerp host the Gers.