Oilman Jim's Letter - 17 March 2024

Sintana Energy (SEI.V SEUSF) announced a new light oil discovery and successful appraisal at Mopane-2X. Galp, the operator, has successfully drilled the Mopane-2X well to its designated depth on PEL 83, encountering a significant column of light oil in reservoirs of high quality. The AVO-3 exploration target, the AVO-1 appraisal target and a deeper target were fully cored and logged, with the AVO-1 appraisal target finding the same pressure regime as in the Mopane-1X discovery well located approximately 8 km to the east, confirming its lateral extension. The rig will now return to the Mopane-1X well location to conduct a drill stem test until early April. Galp says it will continue to analyze the acquired data during the coming weeks to assess the commerciality of the discoveries. PEL 83 is located immediately north of PEL 39, home to Shell’s basin opening discoveries at Graff-1, La Rona-1 and Jonker-1. Additionally, it is located north and east of PEL 56 where TotalEnergies announced its giant oil discovery at Venus-1. Resources are estimated at up to 10 billion barrels of original-oil-in-place in the Mopane prospect. The finds are only part of initial exploration efforts within PEL 83 and are among multiple blocks in which Sintana holds indirect carried interests.

Pulsar Helium (PLSR.V PSRHF Y3K.F) announced that it has received the analytical laboratory results for gas samples from the Jetstream #1 appraisal well at the Topaz helium project in Minnesota. A total of eleven samples were analysed and helium contents of up to 13.8% were measured. Dr Peter Barry, a noble gas isotope geochemist, has concluded that the value of 13.8% helium represents a minimum source estimate for helium, due to the clear presence of small amounts of atmospheric contamination in the samples, which decreases the measured helium content relative to the true source helium concentration. Cliff Cain of the Edelgas Group, an international gas advisor firm, stated that having compared this to their extensive database for helium occurrences around the world, the results from the Jetstream #1 appraisal well are the highest helium concentrations they have ever seen. A well testing package is intended to rig up on Jetstream #1 and execute a flow testing and pressure build-up program, plus collect pressurised gas samples for laboratory analysis when road conditions allow heavy traffic to return.

Reconnaissance Energy Africa (RECO.V RECAF 0XD.F) announced an updated prospective resource report prepared by Netherland, Sewell & Associates, focused on the Damara Fold and Thrust Belt Area, located withinPEL73 in the Kavango Basin, North East Namibia, in which the company holds a 90% working interest. Gross to the company unrisked, prospective oil in place in identified prospects is 15.4 billion barrels. Gross to the company unrisked, prospective oil resources in identified prospects is 3.1 billion barrels. The drilling program is planned to commence in June 2024 with the drilling of Prospect L. Per the recent interview with CEO, Brian Reinsborough, expect news later this month or early next regarding financing and possibly a farm-out.

88 Energy (88E.AX EEENF 88E.L POQ.F) announced that Hickory-1 flow test operations have commenced. Well operations are underway ahead of perforating and flow testing the Upper SFS zone at the Hickory-1 discovery well. Two flow tests are scheduled, one each in the Upper SFS and SMD-B reservoirs, with each frac and flowback operation expected to take approximately ten days. The company says it has strengthened its technical advisory team to include additional engineering expertise, as well as experienced members of the Pantheon Resources (PANR.L PTHRF P3K.F) team being available to share their relevant recent and extensive knowledge. Per 88E, results from the Upper SFS reservoir will be available on completion of flow back activities. Regarding PANR, it will be impacted by this news too and there’s also possible funding news coming before month end.

Invictus Energy (IVZ.AX IVCTF) announced a corporate and operational update. Following the two gas discoveries from the Upper and Lower Angwa reservoirs in the recently completed Mukuyu-2 / ST1 drilling campaign, preliminary compositional analysis from downhole reservoir fluid samples has confirmed a rich gas-condensate discovery. Invictus says it is currently undertaking a well test design study for Mukuyu-2 to define the optimal test parameters and the subsequent long lead equipment and mobilisation plan to determine the timing for the Mukuyu-2 well test. Mukuyu 3D seismic survey planning is nearing completion. Meanwhile, the Petroleum Production Sharing Agreement with the Republic of Zimbabwe is advancing for implementation. This is anticipated to provide several additional large international parties with the necessary confidence to progress additional proposals on farm-in and alternative financing options for the company.

Hartshead Resources (HHR.AX) addressed uncertainty in the UK gas sector due to changes in taxation policy proposed by the UK Labour Party. Given that this party is currently significantly ahead in polling, with elections to be held prior to 28 Jan 2025, Hartshead is assessing project economics for its Production Seaward License P2607 development in the UK North Sea. Their project timeline is currently under review, however, the likely delay in awarding of key contracts for capital items associated with the long lead items for development would result in a delay to first gas, previously scheduled for 2025. Per Chris Lewis, Hartshead’s CEO: “The announcement from the Labour Party on the 8th of February was disappointing for the Company, our Partner, and our Shareholders as it introduces uncertainty into our development project, which before then had been moving forward with significant momentum. The danger is that these proposals will cause a flight of capital to other jurisdictions, decimate the skills and supply chain required for the UK to lead the energy transition and result in the loss of tens, if not hundreds of thousands of jobs. We are working with industry bodies, industry partners, contractors, unions, MPs and other stakeholders to understand the precise plans and to highlight the danger of damaging and self-defeating policy.”

UK companies have already seen the writing on the wall and are reallocating investment outside the UK. One small example is Union Jack Oil (UJO.L), which in recent days announced a spud date for the Andrews-1-17 well in Oklahoma and a further expansion of the company's US mineral royalty portfolio, via the acquisition of three additional packages in North Dakota and Texas. Regarding the upcoming Oklahoma well, per David Bramhill, Executive Chairman: "The Andrews-1-17 well has a high chance of success and if proven commercial could be in production within literally weeks from spudding.  Similar low-cost development wells nearby, typically produce initially at approximately 150 barrels of oil and over 200 thousand cubic feet of gas per day and can provide rapid pay-back within six months. The rate of progress from generating a drillable prospect, obtaining permission to drill and putting a rig onsite in Oklahoma is remarkable.”

Challenger Energy (CEG.L) announced last week the farm-out of 60% of the AREA OFF-1 block in Uruguay to Chevron, which will pay to Challenger US$12.5 million cash and carry 100% of CEG's share of the costs associated with a 3D seismic campaign on AREA OFF-1 up to a maximum of US$15 million net to Challenger. Chevron will acquire a 60% participating interest in the AREA OFF-1 block, and will assume operatorship of the block. Challenger will retain a 40% non-operating interest. Following the 3D seismic campaign, should Chevron decide to drill an initial exploration well on the AREA-OFF 1 block, Chevron will carry 50% of CEG's share of costs associated with that well, up to a maximum of US$20 million net to Challenger. That news was followed this week with the company announcing the formal signing of its AREA OFF-3 licence, offshore Uruguay. This licence covers an area of 13,252 sq km and has substantial existing 2D and 3D seismic coverage, with two previously identified material prospects possessing currently estimated gross resource potential of up to ~2 billion barrels of oil and up to ~9 trillion cubic feet of gas. Challenger intends to follow a similar strategy to that successfully adopted for the AREA OFF-1 licence.

Finally, Zephyr Energy (ZPHR.L) announced a Paradox project update. The company continues to progress planning for the forthcoming redrill of the State 36-2 well in Utah. Zephyr says it retains full well control insurance and expects to recover a substantial majority of the costs associated with the redrill. At the well pad, all surface hole location preparations have been completed to enable rig mobilisation. The company plans to mobilise a spudder rig to the well pad over the next two weeks to drill and set conductor pipe and once these operations are complete, the location will be ready to accept a drilling rig. ZPHR states it is in the final stages of execution of a rig contract with the intent to begin full drilling operations in mid-April 2024.

These are opinions only of the individual author.  The contents of this piece do not contain investment advice and the information provided is for educational purposes only and no discussions constitute an offer to sell or the solicitation of an offer to buy any securities of any company.  All content is purely subjective and you should do your own due diligence.  No representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness or reasonableness of the information contained in the piece is made.  Any assumptions, opinions and estimates expressed in the piece constitute judgments of the author as of the date thereof and are subject to change without notice.  Any projections contained in the information are based on a number of assumptions and there can be no guarantee that any projected outcomes will be achieved.  No liability is accepted for any direct, consequential or other loss arising from reliance on the contents of this piece.  The author is not acting as your financial, legal, accounting, tax or other adviser or in any fiduciary capacity.

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