Oilman Jim's Letter - 17 May 2024

Tullow Oil (TLW.L TUWLF) issued a trading update. The company says it is on track to deliver free cash flow expectations of c.$600 million over 2024 to 2025 at $80/barrel and is well placed to capitalise on a higher oil price environment. Full year free cash flow guidance remains $200-300 million at $80/barrel, with a weighting towards the second half of the year largely driven by the timing of cash tax payments, liftings and revenue receipts and phasing of capital spend. An increase of $10/barrel across the year to $90/barrel would generate an additional c.$100 million of free cash flow. Tullow also is on track to reduce net debt to less than $1.4 billion and cash gearing of net debt to EBITDAX to c.1x at $80/barrel by the end of 2024. Group working interest production in the first quarter of 2024 was c.59,000 barrels of oil equivalent per day, including c.7,000 barrels of oil equivalent per day of gas production, within the expected range for the period. 2024 group working interest production guidance remains 62,000-68,000 barrels of oil equivalent per day, with the full-year outcome expected to be towards the lower end of the range.

Arrow Exploration (AXL.V AXL.L CSTPF) announced the spud of the Carrizales Norte B pad Horizontal Well 1 on the Tapir Block in the Llanos Basin of Colombia. The CNB HZ-1 well will develop the Ubaque formation which has been successfully delineated by the CN Q1 2024 well program and is expected to be drilled to a true vertical depth of 8,400 feet with a horizontal length of 1,800 feet. Once CNB HZ-1 is on production in June, Arrow plans to drill a water disposal well and three more horizontal wells from the CNB pad. Following further drilling during the second half of 2024 at Baquiano and Matteguafa, the company expects to drill additional horizontal wells at the CNB pad towards the end of the year. The Baquiano pad and road construction are now complete and the RCE-1 well has been successfully converted to a water disposal well.  The process of converting the CN-4 well to a water disposal well has begun, which is estimated to take up to four months. Arrow is also in the initial planning stage for a 3D seismic program in the southern end of the Tapir block where the intent is to further develop the Icaco and Macoya Este leads. The company continues to have a strong balance sheet with $12.4 million cash and no debt as of May 1, 2024. Arrow expects to release Q1 2024 results at the end of May.

Chariot (CHAR.L OIGLF) announced the results from the drilling of the RZK-1 well on the Gaufrette prospect, the first of a two well drilling campaign, in the Loukos Onshore licence, onshore Morocco. The well was drilled to a final measured depth of 961m through the Gaufrette main target. Following evaluation of the well data, preliminary interpretation confirms thick intervals of good quality reservoir exceeding pre-drill expectations, with multiple gas shows of various intensity, however these reservoirs are largely interpreted to be water-bearing and therefore are sub-economic. Further post-drill analysis will be conducted, alongside interpretation of the newly reprocessed 3D seismic data, to understand the results of the well and implications for future exploration in the Gaufrette area, including potential deeper objectives. The well will now be plugged and abandoned and the rig will then move to the second location of the campaign to drill the OBA-1 well at the Dartois prospect in the coming days, which is targeting a different independent prospect.

TAG Oil (TAO.V TAOIF) announced initial production test results on its BED4-T100 horizontal well, which tested at 800 barrels of oil per day. The T100 well has demonstrated encouraging results following a multi-stage hydraulic fracture stimulation targeting the Abu-Roash “F” tight carbonate reservoir in the Badr Oil Field in the Western Desert of Egypt. During the clean-up phase post-stimulation, the T100 well flowed at rates exceeding 1,000 barrels of fluid per day. By the conclusion of the production test, the water-cut had decreased to below 30%, indicating favorable reservoir characteristics and effective well stimulation techniques. During flowback, the oil production rates ranged between 400 and 800 barrels of oil per day as the well unloaded. The well will continue to be unloaded under natural flow for another two to three weeks until an artificial lift system and surface facilities are installed. The well has recovered approximately 23% of the frac load water and has produced over 4,500 barrels of oil to date. Looking ahead, TAG Oil plans to drill horizontal wells with lateral lengths of up to 1,000 meters, accompanied by three times the fracture stimulation stages. This longer lateral approach lays the groundwork for scaling production growth. Success of the T100 well is said to be an important step to unlock the potential of this resource play and planning is underway to develop the 500 million barrels of oil in place. 

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