Oilman Jim's Letter - 19 May 2024

Mining Minerals & Metals (MMM.L), an investment vehicle established to undertake an acquisition of one or more businesses ‎‎that has operations involved in natural resource exploration, announced an update on the proposed all share acquisition of Georgina Energy, a UK-domiciled company with prospective helium, hydrogen and natural gas development assets in Australia. The companies are currently finalising the proposed acquisition, which is expected to complete in late Q2 2024. A finalised competent person's report over Georgina's key asset, Hussar, has been received confirming an in-situ value of over US$60 billion from the defined net attributable 2U prospective resources of helium, hydrogen and natural gas. Combined with current, non-independently verified estimates from the Mount Winter project the company will hold an overall in-situ value in excess of $100 billion. The company says it has received significant institutional interest from preliminary investor meetings in connection with the fundraise.

Gulf Keystone Petroleum (GKP.L GUKYF) announced an operational update and the launch of a share buyback programme for up to a maximum aggregate consideration of $10 million. Local sales have continued to be robust in recent weeks, with gross average sales in 2024 year to date of c.37,000 barrels of oil per day and realised prices recently increasing to c.$27/barrel. As a result, the company’s liquidity position has continued to improve. Given GKP’s weak share price, which the board believes trades at a significant discount to the intrinsic value of the Shaikan Field and does not adequately reflect the near-term cash flow generation potential from local sales, the board has decided to initiate a share buyback programme of up to $10 million. The company sees strong local sales demand in the near term, enabling continued free cash flow generation. Gross production potential is currently between 45,000 – 48,000 barrels of oil per day following recent optimisations to well performance.

Africa Oil (AOI.TO AOIFF) announced that the company repurchased a total of 1,043,100 Africa Oil common shares during the period of May 6, 2024 to May 10, 2024 under the previously announced share buyback program. During this period, the company repurchased 478,100 shares on the TSX and/or alternative Canadian trading systems and 565,000 shares on Nasdaq Stockholm. All common shares repurchased by Africa Oil under the share buyback program will be cancelled. Since December 6, 2023, a total of 14,546,832 shares have been repurchased. A maximum of 38,654,702 shares may be repurchased before December 5, 2024. Africa Oil has producing and development assets in deepwater Nigeria, an interest in the Venus light oil and associated gas discovery, offshore Namibia, and an exploration/appraisal portfolio in the west and south of Africa, as well as Guyana. Financial and operating results for the three months ended March 31, 2024 disclosed that the Company ended Q1 2024 with a cash balance of $195.5 million and no debt. Recorded daily working interest production was approximately 17,100 barrels of oil equivalent per day and average daily net entitlement production was approximately 20,100 barrels of oil equivalent per day. Recorded cashflow from operations was $77.1 million.

W&T Offshore (WTI) reported operational and financial results for the first quarter of 2024 and declared a second quarter 2024 dividend of $0.01 per share. The company completed an accretive acquisition of six shallow water Gulf of Mexico fields in January 2024, paying $77.2 million for the Cox acquisition where W&T acquired and will operate 100% working interests in six fields that are located adjacent to existing W&T operations. Year-end 2023 proved reserves based on an independent engineering report prepared by Netherland Sewell and Associates were 21.8 million barrels of oil equivalent, around 17% higher than W&T’s expectation of 18.7 million barrels of oil equivalent at the time of acquisition. The company generated production of 35.1 thousand barrels of oil equivalent per day (55% liquids) in the first quarter of 2024, an increase of approximately 3% over fourth quarter 2023 and above the midpoint of guidance. Three of the Cox fields, Mobile 916, West Delta 073, and Eugene Island 064, were shut-in during the first quarter 2024. As such, adjusted EBITDA of $49.4 million did not reflect the full potential of the Cox acquisition. The company produced net cash from operating activities of $11.6 million and free cash flow of $32.4 million in the first quarter of 2024, marking the 25th consecutive quarter of positive free cash flow. Cash and cash equivalents of $94.8 million and net debt of $296.4 million at March 31, 2024 were reported, which reflects the impact of funding the Cox acquisition using cash on hand. The company continued to maintain a low leverage profile with net debt to trailing twelve months adjusted EBITDA of 1.6x. WTI adopted a quarterly cash dividend policy in November 2023 and paid dividends of $0.01 per common share in December 2023 and March 2024. The company has declared a second quarter of 2024 dividend of $0.01 per share, which will be payable on May 31, 2024.

Harbour Energy (HBR.L HBRIY) announced a significant gas discovery at Tangkulo, Indonesia. The company noted the operator Mubadala Energy's announcement that the Tangkulo-1 exploration well has made a significant discovery on the South Andaman licence (Harbour 20% interest), offshore North Sumatra, Indonesia. This follows the major discovery at the Layaran-1 well on South Andaman in December 2023. The rig will now move to appraise the Layaran discovery, marking the final well of this exploration and appraisal campaign.

GeoPark (GPRK) announced that it has signed an asset purchase agreement with Phoenix Global Resources, a subsidiary of Mercuria Energy Trading, for the acquisition of non-operated working interest in four adjacent unconventional blocks in the Neuquén Basin in Argentina. A 45% working interest is being acquired in each of the Mata Mora Norte producing block and Mata Mora Sur exploration block, located in Neuquén Province, and a 50% working interest in each of the Confluencia Norte and Confluencia Sur exploration blocks, located in Rio Negro Province. The Vaca Muerta shale formation is said to be the best onshore hydrocarbons play in Latin America today. It holds an estimated 16 billion barrels of oil and 300+ trillion cubic feet of unconventional gas resources with less than 10% developed to date. Oil production from Vaca Muerta has grown almost 4x since 2019 to 352,715 barrels of oil per day. It is currently contributing 50% of Argentina’s total oil production and has the potential to triple again over the next six years. Vaca Muerta has been significantly de-risked since 2009 with the drilling of almost 7,000 exploration and development wells. The new assets will increase GeoPark’s 2024 production by an estimated 5,500-6,500 net barrels of oil equivalent per day, subject to when the closing date of the transaction occurs. Approximately 150 more gross drilling locations have been identified for the full development of the Mata Mora Norte Block. Under the agreed indicative development program, production from the Mata Mora Norte Block is expected to reach approximately 40,000 gross barrels of oil equivalent per day by 2028. The Mata Mora Norte Block is expected to generate net adjusted EBITDA of $90-100 million in full year 2024. At expected plateau production of 40,000 gross barrels of oil equivalent per day in 2028-2030, the assets are expected to contribute $290-295 million of EBITDA to GeoPark at a $70/barrel Brent oil price. GeoPark will pay $190 million for a total of 122,315 gross acres (58,402 net acres). In addition to the upfront consideration, GeoPark will fund 100% of exploratory commitments up to $113 million gross ($57 million of net carry), to be funded over two years, an acquisition of midstream capacity according to the WI of $11 million, and a $10 million bonus contingent on results in the Confluencia exploration campaign. The transaction is expected to close before the end of 3Q2024. Andrés Ocampo, Chief Executive Officer, describes the transaction as transformational for GeoPark. First Quarter 2024 Results announced subsequently disclosed $111.5 million adjusted EBITDA, an adjusted EBITDA margin of 67% and $30.2 million net profit that was 15% higher than in 1Q2023. Quarterly average oil and gas production in 1Q2024 reached 35,473 barrels of oil equivalent per day, down 3% compared to 1Q2023, mainly due to the divestment of the Chilean business on January 18, 2024. The cash position reached $150.7 million at the end of the quarter, while net leverage stood at 0.8x times and the debt profile remained robust with no principal maturities until January 2027.

New Stratus Energy (NSE.V RDRIF) announced that it has entered into definitive agreements with an arm’s-length vendor for the acquisition of an initial 49% equity interest in Operaciones Petroleras Soledad, a private Mexican oil & gas company, with the exclusive right for NSE to negotiate the purchase up to an additional 41% of the equity interest. OPS is the third-party contractor and operator of a hydrocarbons production contract awarded by Pemex Exploracion y Produccion, a subsidiary of Petroleos Mexicanos, the Mexican national oil company, on the Soledad block located in the State of Veracruz in eastern Mexico. NSE is paying $2 million for the initial 49% tranche and has agreed to fund capital expenditure requirements under the production contract. The maximum capital exposure of NSE under the facility at any point in time will be approximately $12.5 million. Soledad Block proved reserves are estimated at 43.3 million barrels of oil equivalent and gross production is approximately 1,430 barrels of oil equivalent per day. NSE will have a right of first refusal to negotiate the second tranche of the acquisition.

i3 Energy (I3E.L ITEEF ITE.TO) announced its operating and financial results for the three months ended 31 March 2024. Free cash flow for Q1 2024 was $15.0 million compared to $9.9 million for the same 2023 period. Highlights of the quarter were a new C$75 million reserve-based senior secured credit facility with the National Bank of Canada, comprised of a C$55 million revolving facility and a C$20 million operating loan facility, repayment of approximately C$57 million, representing the outstanding balance of i3 Energy's existing C$75 million loan facility with Trafigura, and average Q1 2024 production of 19,410 barrels of oil equivalent per day. Dividends of £3.084 million ($3.911 million) were declared and paid in Q1 2024. Post quarter-end, i3 entered into a definitive agreement to sell most of the company's royalty assets for a total gross cash consideration of $24.81 million (C$33.50 million). As at 31 March 2024, i3 had net debt of $21.0 million, which was eliminated at the close of the royalty disposition. The company says it is set up for a busy operational period for the second half of the year, during which it will drill a diversified inventory of drilling locations across its Canadian portfolio, designed to grow production and advance development of key assets.

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 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. 

Pulsar Helium (PLSR.V PSRHF) announced commencement of additional downhole well works at the Jetstream #1 appraisal well on its Topaz helium project. Well activities are expected to occur in three phases of work over approximately two weeks. The initial phase will focus on additional downhole data acquisitions, followed by a second phase of wellhead and wellbore works in preparation for the final phase which consists of the flow testing and pressure build-up program. The company’s previous announcement was that that 100% of the 10,295,858 common share purchase warrants subject to a warrant acceleration notice have been exercised resulting in gross proceeds to the company of C$4,633,136. The warrants were previously issued by Pulsar in connection with its initial public offering completed August 15, 2023, at an exercise price of CAD$0.45. In addition, 1,220,708 broker warrants were exercised, at exercise prices of CAD$0.30 and CAD$0.45, for aggregate gross proceeds of C$465,097. Total aggregate gross proceeds of all warrants exercised is C$5,098,233.

Blue Star Helium (BNL.AX BSNLF) announced that it has executed a maiden master services agreement for helium recovery at its Voyager helium project with IACX Energy. IACX expects to install and commission the processing facility in Q4 2023, subject to necessary permits, surface use and access agreements. Product sales are expected to commence promptly after first production. IACX will supply and operate the helium plant in exchange for a monthly payment. Blue Star will not incur any capital costs associated with fabrication of the plant. Production and helium recovery will be achieved by pressure swing adsorption. Blue Star expects to produce 38 million cubic feet of helium in the first year of full capacity based on 8 per cent helium in the raw gas. Total field and operating costs will be about $100-120 per thousand cubic feet of helium product gas at full capacity. Current equivalent helium is selling for around $450 per thousand cubic feet and higher. Total field and operating costs are inclusive of the monthly gas processing fee, the lease operating expenses to operate the wells, rentals costs for compression and power generation, fuel and other miscellaneous field maintenance.

Desert Mountain Energy (DME.V DMEHF) announced that it has signed a new agreement with Beam Earth to commence hydrogen exploration in Arizona, targeting the fourth quarter of 2024. Under the terms of the new agreement, Beam Earth will pay $225,000 to DME within 90 days, cover all geophysical and associated drilling costs, including the completion of pilot wells, engineering for a combined "white" hydrogen/helium plant, planning for a green hydrogen plant in Arizona, planning and engineering for ammonia and loading facilities in New Mexico and Arizona, conducting geophysical work in Chaves County, New Mexico, focused on white hydrogen and the planning and engineering work for blue hydrogen processing/reformation and power generation plants in New Mexico. DME will be the operator of record for all wells and plants in Arizona and New Mexico, plus the company will retain 100% right, title and interest for all its currently owned wells in New Mexico, as well as wells #1-4, #6, and #8 in Arizona. DME and Beam Earth will jointly share in the hydrogen and helium profits from new wells in Arizona. The agreement is said to offer a non-dilutive growth opportunity, allowing DME to focus on its advanced helium extraction technology and maximize return on investment. With the up-front payment and the planned work extending through Q1 of 2025, Beam Earth is expected to invest between C$3.6 and C$4.3 million before DME incurs more than minimal expenditures.

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