Oilman Jim's Letter - 28 April 2024

Falcon Oil & Gas (FO.V FOG.L FAC.F) announced funding, a long-term gas sales agreement and results of the Shenandoah South 1H flow test. The bookbuild has been completed and Falcon has raised gross proceeds of c.US$4.9 million (c. £3.9 million) through the subscription and placing of 64,794,087 shares at an issue price of 6p. The company’s subsidiary also has agreed to grant Daly Waters Energy and a major US-based energy industry service provider overriding royalty interests over Falcon Australia’s 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 c.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 330km2 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. The Beetaloo joint venture now has signed a binding agreement for a long-term gas sales agreement to supply the Northern Territory Government with 14.6 PJ (13.8 BCF) per annum from the proposed Shenandoah South Pilot Project for an initial term of nine years, with a buyer’s option to extend for a further six-and-a-half years. Gas will be delivered to the APA-owned Amadeus Gas Pipeline on a take-or-pay basis at a market-competitive gas price, escalating at 100% of the Consumer Price Index. The buyer’s extension option is at a slightly discounted price. The Beetaloo joint venture is targeting FID on the proposed 40 TJ (38,000 MCF) per day upstream drilling program in mid-2024, subject to securing funding and key regulatory and stakeholder approvals. First gas flow is planned for H1 2026. Falcon holds a 5% working interest in the 51,200-acre area that will include the wells required to deliver the proposed pilot project volumes. The company also announced last week that the Shenandoah South 1H (SS-1H) well in EP117 achieved an above commercial IP90 flow rate of 2.9 million cubic feet per day (normalised to 5.8 million cubic feet per day over 1,000 metres), indicating that future development wells with lateral lengths of 10,000 feet may be capable of delivering average rates of 17.8 million cubic feet per day over the first 90 days of production. The SS-1H well has demonstrated steady gas flows and decline profiles in line with some of the most prolific regions of the Marcellus Shale in the US. The well will now be shut in and suspended as a potential future production well. The Beetaloo joint venture partners of Falcon and Tamboran Resources (TBN.AX TBNRL) will continue to undertake front end engineering and design studies and the company expects to take final investment decision in mid-2024, subject to funding and key stakeholder approvals. The 1 million acres of deep shale in the Beetaloo West, at a similar depth to SS-1H, has the potential to deliver the joint venture’s production ambition of 2 billion cubic feet per day (equivalent to more than 13.0 million tonnes per annum of LNG export capacity) for 40 years from a single landing zone.

Galp Energia (GALP.LS GLPEF GZ5.F) announced that the company has concluded the first phase of exploration in the Mopane field off the coast of Namibia and estimated it could hold at least 10 billion barrels of oil. Galp said it conducted testing operations at the Mopane-1X well in January and the Mopane-2X well in March. In both wells, which are 8 kilometres apart, it said “significant light oil columns were discovered in high-quality reservoir sands.” Galp, the operator, together with its partners NAMCOR and Custos (in which Sintana Energy (SEI.V SEUSF) maintains an indirect 49% interest), now has successfully completed the first phase of the Mopane exploration campaign. Per Galp: “the flows achieved during the well test have reached the maximum allowed limits of 14 thousand barrels of oil equivalent per day, potentially positioning Mopane as an important commercial discovery. In the Mopane complex alone, and before drilling additional exploration and appraisal wells, hydrocarbon in-place estimates are 10 billion barrels of oil equivalent, or higher.” Sintana Energy (SEI.V SEUSF) also announced that it has entered into a definitive agreement with Crown Energy,  a private Namibian company, providing for the acquisition by Sintana of up to 67% of the issued and outstanding shares of Giraffe Energy Investments. Giraffe is the owner of a 33% interest in Petroleum Exploration License 79 which governs blocks 2815 and 2915 located inboard of blocks operated by BW Energy, Rhino Resources and Shell.  The National Petroleum Corporation of Namibia is currently the operator with a 67% interest in PEL 79. Significant existing 2D and 3D coverage supports a material existing prospect inventory and recent discoveries, including at Mopane, provide opportunities to deploy new approaches and new insights on potential.

Europa Oil & Gas (EOG.L EGN.F) announced a third-party report that details the results of an updated study which calculated the expected emissions associated with the development of a future 1 trillion cubic feet indigenous gas discovery on Europa's Irish offshore licence FEL 4/19. Per Will Holland, Chief Executive Officer of Europa: "This updated emissions report reinforces the importance of the gas resource at Inishkea West, which has the potential to not only eradicate the need for higher emissions intensity gas imports from the UK for up to 3 years, but also a discovery would help Ireland meet its carbon emission reduction targets. A discovery at Inishkea West could provide security of gas supply for Ireland during the transition to renewable energy, which is in line with the EU's stated goals for diversity of gas supply. FEL 4/19 contains the large 1.5 trillion cubic feet, low risk Inishkea West gas prospect where, given the proximity to existing infrastructure, a discovery could be brought online quickly providing domestic gas with, as this report demonstrates, significantly lower emissions intensity than imported gas from the UK, Norway or further afield. We are now in the process of progressing FEL 4/19 to drilling, which requires us to attract additional partners to this highly prospective licence."

88 Energy (88E.AX EEENF 88E.L POQ.F) announced that it has successfully completed a book-build to domestic and international institutional and sophisticated investors to raise A$9.9 million (approx. £5.23 million) before costs. The placement will involve the issue of 3,291,974,839 new shares in the company at an issue price of A$0.003 (£0.0016) per share. Based on the forecast activity schedule, the company is now funded for at least the next 12 months, with net proceeds of the placement, together with existing cash reserves (A$17.5 million as at 31 March 2024), directed towards completing post-well testing and analysis at Hickory-1 (Project Phoenix, Alaska), securing a contingent resource for the SFS and SMD reservoirs, commencing a formal farm-out process to attract a high-quality new partner to fund the next stage of appraisal and development, and advance planning and design of an early stage production system; at PEL 93, Namibia, completion of a 2D Seismic program, generation of a maiden prospective resource report and other studies associated with the Owambo Basin; at Project Leonis, Alaska, securing a farm-out partner to fund a future exploration well to test the proven producing Upper Schrader Bluff reservoir and continue further studies and analysis; plus Alaskan lease rental costs, working capital and assessment of further new venture opportunities.

Helix Exploration (HEX.L) announced that it has executed a binding contract with Treasure State Drilling for the provision of their Cardwell KB-150 D1D drilling rig and equipment for the company's Q3 2024 appraisal drilling campaign at the Ingomar Dome helium project in Montana. The rig is well known to management, having previously drilled wells for CEO Bo Sears, and is rated to 8,000ft with sufficient capacity and equipment to fulfil project requirements, Crucially, it is available for drilling in the third quarter.

Serica Energy (SQZ.L SQZZF A3P.F) announced results for the year ended 31 December 2023. David Latin, Chairman and incoming Interim CEO, described them as strong, despite significantly lower sales prices compared to 2022 and a full year of the UK marginal tax rate being at 75%, something he described as ill-suited to a mature oil and gas basin such as the UK North Sea. The company has maintained the final dividend at 14p per share meaning an increase in the total dividend for 2023 to 23p per share compared to 22p per share in respect of 2022. A £15 million share buyback also has been initiated. Proforma production from the combined Serica and Tailwind (acquired 23 March 2023) portfolios averaged 40,121 barrels of oil equivalent per day during 2023 as a whole. Production for the year (excluding Tailwind volumes between 1 January and 23 March 2023) averaged 35,167 barrels of oil equivalent per day (Serica net production in 2022 was 26,200 barrels of oil equivalent per day). Serica 2P reserves increased to 140.3 million barrels of oil equivalent at 31 December 2023 (31 December 2022: 76.9 million barrels of oil equivalent), with net upwards reserves revisions of 23.5 million barrels of oil equivalent and a proforma reserves replacement ratio of 179% for the combined Serica and Tailwind portfolio. EBITDAX was £381.4 million (2022: £616.5 million) reflecting an average realised sales price after hedging of $63 per barrel of oil equivalent compared to $104 per barrel of oil equivalent in 2022. Further growth is expected through investment in the company’s assets and what is described as an ambitious, while disciplined, M&A effort.

Royal Helium (RHC.V RHCCF) announced that it has entered into an agreement with Research Capital Corporation as the lead underwriter and sole book runner, on behalf of a syndicate of underwriters, pursuant to which the underwriters have agreed to purchase, on a bought deal basis, 66,667,000 units of the company at a price of C$0.09 per unit for aggregate gross proceeds to Royal of C$6,000,030. Each unit is comprised of one common share and one common share purchase warrant, exercisable at C$0.12 for a period of 36 months following closing of the offering. The net proceeds will be used for new high-impact drilling on the 40 Mile project in southern Alberta, development through the Saskatchewan helium corridor, completion and testing of an existing discovery at the Ogema project, working capital and general corporate purposes.

Helium Evolution (HEVI.V HEEVF) announced the filing of the company’s annual financial statements and associated management discussion and analysis for the year ended December 31, 2023. There was a positive working capital position of C$5.7 million at December 31, 2023, excluding C$0.8 million of tubing and casing that was pre-purchased and not utilized. During the year ended December 31, 2023, HEVI says it continued to execute on its focused strategy of developing the company’s 5.6 million acres of helium rights in southern Saskatchewan and advancing its ultimate goal of producing and selling helium, generating cash flow and driving positive returns for shareholders. For the remainder of 2024 and into 2025, HEVI is planning to embark upon a drilling program in the Mankota area of Saskatchewan with its partner, North American Helium, building upon three existing helium discoveries in the region. HEVI and North American are planning to drill up to nine joint development wells which are expected to spud between Q3 2024 and Q2 2025.

Zephyr Energy (ZPHR.L ZPHRF) announced the spud and start of the main drilling operation on the State 36-2 LNW-CC-R well, Utah, United States. The rig-up operation for the Helmerich & Payne Rig 257 was completed yesterday and shortly thereafter the surface section of the well was spud. The well, for which the company expects to recover substantially all the drilling costs incurred through the well control insurance policy, will target the Cane Creek reservoir and the highly productive natural fracture system encountered by the original well. Drilling is planned to a total depth of 10,362 feet measured depth (9,600 feet true vertical depth) and will incorporate a short, 270-foot horizontal reservoir section. The well has been designed and permitted such that the horizontal section can be extended to a further 10,000 feet in the Cane Creek reservoir, should that be required in the future. Drilling operations are expected to take approximately 30 days. After reaching total depth and setting a production liner, the rig will be demobilised and the well will be prepared for production testing.

i3 Energy (I3E.L ITE.V) announced the company's 2024 capital budget and production guidance. The budget of US$50.9 million is forecasted to deliver 15 gross wells (10.5 net, 95% net i3-operated) to be drilled across the portfolio in Central Alberta, Simonette, and its northern Clearwater acreage. Forecast exit 2024 production of 20,250 - 21,250 barrels of oil equivalent per day represents a year-over-year increase of approximately 3% from the prior year average exit rate, or approximately 8% from current levels, as the company expects to recommence drilling in June 2024 and positions for accelerated Montney development in 2025. US$70 - 75 million of 2024 net operating income is forecast and US$55 - 60 million of EBITDA before hedging gains and losses, based on budget price assumptions of US$82/barrel for WTI and C$2.25/gigajoule for AECO natural gas. The company is expected to return forecasted dividends of £12.3 million (US$15.7 million) in 2024, representing 1.026 pence per share for the year, translating to a forward yield of 8.1% based on the closing price of i3's ordinary shares of 12.66 pence on 23 April 2024.

Petro Matad (MATD.L PRTDF) announced an operational update. The company says it is working with the local government agencies to secure the remaining approvals necessary to allow the 2024 operational programme to commence. Preparations are being made to complete the Heron 1 well for production once approvals are in hand and when contractor crews return to Mongolia. Petro Matad continues to push the central government to complete the certification process and confirm Block XX as State Special Purpose land to streamline the permitting process in future years and reduce the risk of interference or obstruction. Meanwhile, SunSteppe Renewable Energy, MATD's renewable energy joint venture is said to continue to make good progress. An exclusive memorandum of understanding with the Oyu Tolgoi mine to develop a green hydrogen project has been signed and grant funding from the Japanese government has been secured.

TAG Oil (TAO.V TAOIF TOP.F) announced that it has successfully pumped all twelve planned stages of its multistage hydraulic frac on the BED4-T100 well. Stages one through three, which are located across the heavily fractured and more permeable section of the well, received a concentrated acid stimulation while stages four through twelve were mechanically fracture stimulated with proppant. At least 50 tonnes of sand were used per stage in the mechanically propped fracture stages with over 1 million pounds successfully pumped across the 308-metre lateral section. The fracture equipment has been moved off location and a coiled tubing unit is in the process of drilling out the ball seats used to separate the fracture stages that will be followed with the flow back operations in the next several days. The technical team is assuming approximately 7-10 days of flow back before it expects to see consistent clean oil flows. Stabilized flow rates are expected approximately 10 days after consistent oil rates are achieved. Accordingly, the company expects to be able to release flow rates on the T100 well at some point during May.   

Finally, Trillion Energy International (TCF.CN TRLEF Z62.F) announced a summary and highlights of its December 31, 2023 year-end reserve report. NPV10 of total proved plus probable natural gas and oil reserves is US$420.5 million net to Trillion, which represents US$3.44 per common share (current US share price is 12 cents). Total proved plus probable conventional natural gas reserves increased to 55.75 billion cubic feet, up from 42.5 billion cubic feet at year end 2022, an increase of 31%. Total proved plus probable oil reserves were 240 million barrels for the Cendere oil field, compared to 252 million barrels in 2022.

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