Oilman Jim's Letter - 21 April 2024

Valeura Energy (VLE.TO VLERF 83PN) announced three oil discoveries on its assets in the offshore Gulf of Thailand, one in the Nong Yao D area and two in the north-east portion of the Wassana concession. Following this exploration drilling campaign, the company is returning to both infill drilling and development work, which is intended to increase production rates over the coming months to support cash flow generation, particularly, it says, as benchmark oil prices rise to new highs for this year. The company is also planning for further exploration drilling elsewhere in its portfolio later in the year.

88 Energy (88E.AX EEENF 88E.L POQ.F) announced dual reservoir success at Hickory-1 with a second light oil discovery at the SMD-B reservoir. A peak flow rate of around 50 barrels of oil per day of light oil was recorded under nitrogen lift. The Upper SFS had a previously announced peak flow rate of over 70 barrels of oil per day under natural flow. Both flow rates result from low volume stimulations over small 20 feet perforated intervals in the vertical well. It is anticipated that these reservoirs will be developed from long horizontal production wells which typically produce at multiples between 6 to 12 times higher than vertical wells. The results are also relevant for Pantheon Resources (PANR.L PTHRF P3K.F), which owns adjoining leases. Per 88E, commercialisation options are to be advanced in parallel, including farm-out to a strategic development partner and/or early, capital-lite production, given proximate infrastructure advantages. Hickory-1 is next to Dalton Highway and the Trans-Alaskan Pipeline System. Other projects were addressed in the company’s quarterly activities report. In Namibia, seismic acquisition for PEL 93 is planned for mid-2024 with a potential initial exploration well targeting the Damara play as early as H2 2025. On Project Leonis, a maiden prospective resource estimate for the Upper Schrader Bluff reservoir is expected H1 2024 and a farm-out process has commenced with multiple parties engaged and reviewing data room materials, ahead of potential drilling of a new well in 2025/2026. At Project Longhorn, two of the planned five work-overs scheduled to be in completed in 1H 2024 are underway. Q1 2024 production averaged 328 barrels of oil per day gross and the company received cash flow distribution of A$700,000 in March 2024. The cash balance as at 31 March 2024 was A$17.5 million with no debt. Around 20% of Hickory-1 flow test payments have been made, with the remainder expected to be paid in Q2 2024.

EnergyPathways (EPP.L) announced an update regarding operational and strategic progress. The outcome of outstanding licence applications is expected in H1 2024 and the company is engaging with regulators to enable fast-track development of its Marram gas project. Progress on front-end engineering design work-streams is being made, including commencement of discussions with infrastructure hosts. Developing a fully electrified Marram subsea development concept to be 100% powered with renewable energy is said to be aligned to UK Government energy strategy. The company’s plan is to develop a clean energy hub to harness the large untapped gas resources, wind energy and high-quality geo-storage reservoirs of the UK Irish Sea.

Alvopetro Energy (ALV.V ALVOF A6Y0.F) announced that it has filed a material change report which details the anticipated impact to following the decision of the independent expert in the redetermination process which increased the company's working interest in the unitized area which includes Alvopetro's Caburé natural gas field, plus the receipt of a notice of dispute from the third-party partner with respect to the findings of the expert. Alvopetro's working interest in the unit has increased from 46.2% to 56.2%, with such increase expected to become effective on June 1, 2024. As of the effective date, the company's entitlement to natural gas production from the unit will increase to 13.9 million cubic feet per day (before additional natural gas liquids volumes), compared to average 2023 natural gas production from the unit of 11.7 million cubic feet per day and Alvopetro has the right to assume operatorship of the unit. The company's before tax net present value of 2P reserves discounted at 10% increases 10.6%, from $309.7 million to $342.4 million.

Helix Exploration (HEX.L) announced a strategic partnership with Petroleum Consultants, headquartered in Billings, Montana. The company's selection was based on Petroleum Consultants’ extensive operational experience within the State of Montana and across the United States, particularly in managing exploration activities throughout the Rocky Mountains region. The execution of this contract marks the initiation of Helix’s Phase 1 work programme and first steps towards the delivery of a drilling campaign in Q3 2024. Helix raised £7.5 million in funding through its IPO in early April 2024 and is funded for the contracting of a drilling rig for the Ingomar Dome helium appraisal drilling. The company has exchanged a draft drilling contract with a supplier and anticipates executing the agreement within the coming weeks.

Grand Gulf Energy (GGE.AX GRGUF) announced that, following a seismic, petrophysical, completion and production review of analogue helium fields in the region, the company has identified three highly prospective deeper stacked potential helium reservoir targets that will be tested in future well operations. Per Grand Gulf, the updated well design and engineering (casing and perforating the entire basinal stratigraphic section) will add significant helium upside to the already identified Mississippian Leadville dolomite (10.9 billion cubic feet) and Devonian McCracken sandstone (2.7 billion cubic feet) targets. In a success case, deeper helium reservoirs will be perforated and tested for modest additional cost.

Corcel (CRCL.L RM4B.F) announced an update to Tobias Field reactivation activities in Block KON-11 in the Kwanza Basin, onshore Angola, where the Company has a 20% working interest (18% net). The operator, Sonangol, has now reported the conclusion of initial well test efforts at the TO-14 well in Block KON-11 with ongoing engineering work set to continue.  Well clean-up operations using nitrogen resulted in significant water production with oil shows and nominal oil saturation levels. Given shortages of nitrogen in Luanda, the operator has made the decision to move to testing the TO-13 well, which has been drilled in what is considered the least drained section of the reservoir and historic field. The equipment move is expected to take approximately 7 days after which formal testing will begin.  Subject to a successful well test at TO-13 and related engineering studies, the operator intends to return to TO-14 and continue well clean-up and testing operations.

Baron Oil (BOIL.L GHA.F) announced an update on operational activities and plans at the TL-SO-19-16 Production Sharing Contract, offshore Timor-Leste. All operational work related to the site survey has been successfully completed and the well will now be situated 5.1km from the site of the original Chuditch-1 discovery well in a water depth of 68m. Based on 3D seismic mapping and the results of Chuditch-1, the planned vertical appraisal well drilled at this new location is expected to encounter gas-charged reservoirs 16m shallower than at the initial location and, as a result, the company now predicts a taller 149m gas column in the reservoir target versus 133m predicted at the initial location. Drilling planning has continued at a good pace and the process of tendering for essential materials that have long procurement times has commenced. Design work on a Chuditch-2 well test is ongoing and the company is in discussions with drilling rig contractors and other third-party service providers in support of well construction plans. The company is also liaising closely with other operators in the region that are expected to drill wells in locations relatively nearby. Discussions with a number of potential funding partners are ongoing.

3D Energi (TDO.AX) announced regulatory approval of the Sauropod 3D seismic environmental plan by the National Offshore Petroleum Safety and Environment Management Authority, covering 3,447km2 of the WA-527-P petroleum exploration permit, offshore Western Australia. The exploration plan provides for an acquisition window of 2024 or 2025 between January-May inclusive. Approval of the seismic environmental plan represents an important step forward for the project. The company says it continues discussions with interested farm-in parties and is collaborating with CGG around vessel availability. A 2 year suspension and extension of the primary term, which now ends 28 December 2025, also has been granted.

Getech (GTC.L GETPF 3AS) announced a joint natural hydrogen exploration agreement and two further natural hydrogen exploration contracts. The first is a strategic joint venture exploration agreement with a new customer partner, while two additional contracts have been secured with existing exploration clients. All three contracts are aimed at locating natural hydrogen resources for commercial development. Combined, the three transactions are expected to generate £390,000 of revenue over 3 years, with additional potential upside. The joint exploration agreement is with a major European headquartered global industrial and energy company. In addition to earning fees for its exploration services, under the terms of the agreement, Getech will also earn a 5% equity interest in any licenses obtained within a designated area and will be carried through the exploration phase, including field sampling, exploration drilling and well-testing.

Blue Star Helium (BNL.AX BSNLF) announced a Las Animas helium projects update. Drilling of the company’s maiden helium development well at the Galactica/Pegasus project is on track to be undertaken during the current quarter and will be funded from Blue Star’s existing cash reserves. The well is located 3 miles southeast from the Red Rocks project that is currently producing from the Lyons Formation being targeted by Blue Star. The driller is expected to mobilise to site during May. At the Voyager project, following analysis of the BBB #33 and Bolling #4 development well results, the company has determined that commercialisation should not proceed as originally planned. Blue Star will now undertake a full review of potential commercialisation pathways.

Union Jack Oil (UJO.L UJOGF 1UJ0.F) announced a Wressle update and notice of results and dividend. In excess of US$19 million has been generated net to Union Jack since the recommencement of production at Wressle in August 2021 and the field remains materially cash generative. Production for Q1 2024 averaged circa 530 barrels of oil per day (gross) with an average water cut of 24.3%, which is said to be easily disposed of at a nearby facility at negligible cost. Planning permission has been submitted to the North Lincolnshire Council in respect of the drilling of two additional back-to-back development wells and gas export facilities to the national grid to allow for the monetisation of the significant gas reserves associated with the Penistone Flags formation. The new drilling and development campaign will commence at the earliest opportunity. The company is also optimistic about the potential positive implications of a new seismic interpretation and mapping exercise across the Wressle field that has highlighted a possible significant increase in resources from the Ashover Grit formation. Audited results for the year ended 31 December 2023 will be announced on 20 May 2024 and the board also expects to announce the payment of a dividend.

Royal Helium (RHC.V RHCCF RD31.F) announced that the company and Sparrow Hawk Developments (the economic development corporation for Peepeekisis First Nation) have entered into an economic participation agreement and a letter of intent for a C$25 million joint venture investment by Sparrow Hawk in the development of Royal Helium’s Val Marie helium project located in southwestern Saskatchewan. Under the terms of the agreement and the letter of intent, Sparrow Hawk will invest C$25 million into the drilling and completion of new wells, as well as the construction of the associated helium purification facility. Pursuant to the terms, Sparrow Hawk will have an approximate 57.5% non-operating working interest in the wells and an approximate 46% non-operating interest in the processing facility.

Zephyr Energy (ZPHR.L ZPHRF VD5N.F) announced a State 36-2R well drilling operations update. The Helmerich & Payne Rig 257 has begun rigging up to spud the initial, surface section of the well in the coming days. All necessary ancillary service providers have also arrived on site to support the company's drilling operations. The new well will target the same Cane Creek reservoir and the over pressured, gas bearing natural fracture system that was proven during the drilling of the original well. Drilling operations are expected to take approximately 30 days from the date of spud. After reaching total depth, a completion and well test crew will be mobilised to complete the short horizontal section and test any productive natural fracture system intersected by the new well.

Challenger Energy Group (CEG.L BSHPF) announced a strategic investment by Charlestown Energy, which will invest £1.5 million in the company, initially in the form of a loan, which upon closing of the AREA OFF-1 farm-out to Chevron and subject to prior completion of an agreed share consolidation will convert at a fixed price of 0.168 pence per share, a c. 20% premium to the current share price. This will result in Charlestown holding a c. 8.7% shareholding in Challenger, thus making Charlestown one of the company's largest shareholders. The investment ensures Challenger's ability to commence technical work on AREA OFF-3 at the earliest opportunity by underpinning the licence requirement to place cash on restricted deposit, ahead of the anticipated completion of the AREA OFF-1 farm-out to Chevron at which time the company will receive $12.5 million in cash proceeds. Thereafter, Challenger is expected to be fully funded for the foreseeable future, with no need for additional capital, whether equity or debt.

i3 Energy (I3E.L ITE.V I32.F) announced a partial sale of the company's royalty assets and elimination of all bank indebtedness. Total gross cash consideration is US$24.81 million. The sale of an estimated 388 barrels of oil equivalent per day translates to 6.9 times 2024 forecasted cash flow and approximately US$63,960 per flowing barrel of oil per day, which represents a significant premium to the company's current market valuation. The royalty disposition will allow i3 to accelerate value associated with its extensive inventory of high-return drilling locations, while jointly pursuing accretive inorganic growth initiatives. The company now has a fully undrawn US$55.56 million (C$75 million) senior secured revolving credit facility with a Canadian chartered bank.

Melbana Energy (MAY.AX MEOAF) announced an operational update for Alameda-3. Total depth for the 8.5 inch hole section through the Alameda (N-Sheet) reservoir has been reached at 3645 metres. The Alameda-3 appraisal well is a proximate to and with a similar trajectory to the company’s Alameda-1 exploration well that previously discovered moveable hydrocarbons in this reservoir in 2022. The primary goal of Alameda-3 is to test the oil quality and flow rates of both the Alameda (Nsheet) reservoir and the deeper Marti (I-sheet) reservoir that Alameda-1 was unable to properly determine due to the stronger than expected hydrocarbon influxes into the well-bore that occurred during the drilling of that well. Two reservoir cores were successfully obtained at 3210 metres and 3310 metres and the next stage in Alameda-3 is to acquire open hole wireline logs in the 8-1/2” section. Once cased, the program is to drill ahead in 6 inch hole to take cores in the Marti reservoir at approximately 3655 metres and 3743 metres. Total depth for the Marti reservoir is projected to be at around 3835 metres. After the acquisition of wireline logs in the 6 inch open hole, a 4-1/2 inch slotted liner will be run in the Marti reservoir before commencing the testing phase.

VVC Exploration (VVC.V VVCVF) announced the rework of a pre-existing oil well in southwest Kansas as a test for oil production in the region. The company says it has leveraged its subsurface mineral rights to examine the feasibility of oil production in an area where VVC is already involved in helium and natural gas production. A geological review has confirmed the potential for oil production within the area and this confirmation aligns with historic data indicating over 12 million barrels of oil production directly north of the Ardery well site. There is multi-zone production potential, comprising the Morrow Sandstone and the underlying St. Louis Limestone B & C zones. The project, if successful, will enhance the economic outlook of VVC’s Kansas projects at a relatively low cost.

Reconnaissance Energy Africa (RECO.V RECAF 0XD.F) announced an operations update confirming that with the recently completed financing the company is now in a position to commence drilling of the Naingopo exploration well (Prospect L) in the Damara Fold Belt. Heavy equipment and key personnel are now in the field, with construction of the well pad and access roads now commencing. On completion of the civil works, the Jarvie-1 rig will be mobilized for drilling, which is expected to commence in June 2024. The Naingopo exploration well is targeting 163 million barrels of unrisked prospective oil resources or 843 billion cubic feet of unrisked prospective natural gas resources based on the most recent prospective resources report prepared by Netherland, Sewell & Associates. Drilling is expected to take approximately 90 days and will include three sets of logging operations, coring and reservoir testing. Following the drilling of the Naingopo well, ReconAfrica is planning to drill a second Damara Fold Belt well, Prospect P, targeting 278 million barrels of unrisked prospective oil resources, or 1.5 trillion cubic feet of unrisked prospective natural gas resources. Drilling of the second well is expected to commence in the fourth quarter of 2024, subject to the results of the Naingopo well. Initial joint venture bids are expected this month.

Falcon Oil & Gas (FO.V FOG.L FAC.F) announced a proposed placing of new shares at a price of 6p in order to raise gross proceeds of up to US$4.5 million. Alongside the fundraising, a subsidiary has agreed to grant Daly Waters Energy and a major US-based energy industry service provider overriding royalty interests over working interests in the Beetaloo Sub-Basin exploration permits in return for cash payments of US$3 million and US$1 million respectively. The net proceeds of the fundraising, together with the company’s existing cash resources of around US$4.3 million, the balance of Falcon’s net carry of A$3.75m due from Tamboran and the consideration from the grant of the ORRIs will primarily be used to fund Falcon’s share of estimated capital expenditure in respect of the work to be carried out on the proposed Shenandoah South Pilot Project in 2024, including the drilling of two 3,000m horizontal wells and the stimulation and flow test of two wells in the Beetaloo Sub-basin. These proceeds will also enable Falcon to fund its share of the cost of the planned 330 km2 of 3D seismic survey around the Pilot area, which it is expected will be acquired during Q4 2024 with processed results being available by Q1 2025.

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