Oilman Jim's Letter - 28 January 2024

Starting with something a little different, Mandrake Resources (MAN.AX CQ4.F) announced a significant lithium brine discovery. Maiden downhole sampling of oil and gas wells at Mandrake’s 100%-owned Utah lithium project has returned lithium concentrations up to 147mg/L. Per the company, the discovery of multiple lithium-rich brines validates the project as a significant large-scale US high-grade lithium brine play. Bromine and potassium values up to 3,480mg/L and 33,600mg/L respectively represent potentially valuable by-products. A JORC-compliant exploration target is well advanced, uranium mapping and sampling work is due to commence and the company remains funded with cash of A$15.5 million.

Galp, operator of Namibian block PEL83 in which Sintana Energy (SEI.V SEUSF) indirectly owns a 4.9% carried interest, announced that it has successfully drilled, cored, and logged a deeper target (AVO-2) of the Mopane-1X well. In AVO-2, Galp has also discovered a significant column of light oil in reservoir-bearing sands of high quality. The rig is expected to be relocated to the Mopane-2X well location to evaluate the extent of the Mopane discoveries, after which a drill stem test is expected to be performed in Mopane-1X. Galp will continue to analyse the acquired data during the coming weeks to assess the commerciality of the discoveries.

Helium One Global (HE1.L HLOGF 9KE.F) announced that its Itumbula West-1 well successfully reached total depth. Elevated helium shows, over twenty times above background, were measured while drilling in the Lake Beds Formation, Red Sandstone Group, Karoo Group and Basement targets. The well also encountered elevated hydrogen shows, over two thousand times above background, in the Lake Beds Formation and sufficiently elevated in the Karoo Group and Basement. Wireline operations will now be run for formation evaluation, followed by drill stem testing across the faulted zone and additional zones of interest after full petrophysical evaluation of the wireline logs. Another placing now is highly likely. The last one was at a 92% discount to the share price when the need for funding was announced.

Molecular Energies (MEN.L PPCGF NNH.F) announced the raise of £0.65 million at 35p per share, a discount of 52.4% from the closing mid-market price the previous day. This illustrates the point I made last week about the difficulty UK small companies face in raising even relatively modest amounts of funding. The reality now is that unless a London listed company is fully funded for all operations, its share price could half any day. In MEN’s case, the fundraising was said to be necessary to provide working capital to support the company as it continues the spin-out of its alternative energy division, Green House Capital Group, and pursues new business opportunities. This discount, valuing the company at just £3.6 million, was agreed by the directors notwithstanding that the Tapir x-1 exploration well is currently drilling, targeting prospects estimated to hold over 260 million barrels of Pmean unrisked oil resources, the company is due to receive US$15 million+ from the sale of its Argentine subsidiary and its 20.5% share of the equity of Atome Energy (ATOM.L J6J.F) has a market value of over £5 million.

PetroTal (TAL.V PTAL.L PTALF SER1.F) announced its 2024 budget and other corporate updates. In 2024, the company will continue to develop Bretana, investing a further US$107 million, aiming to deliver 20% average daily production growth, while maintaining its base return of capital program to offer around 12% in total yield at current prices. There is additional potential still and the exploration program will further advance the Block 95 and 107 expansion areas with a US$12 million seismic program in Block 95 aimed at proving up the technical assumption of oil migration to prospective leads on trend to the south of the Bretana field. Comfortingly, it is not a company likely to require a placing.

Predator Oil & Gas (PRD.L 1EM.F) announced that commencement of the rigless testing programmes onshore Morocco is now expected to occur on or about 29 January 2024. The testing programme is forecast to last for up to 14 days. Additionally, the company announced a corporate update. Per the independent technical report by Scorpion Geoscience, unrisked P50 and P10 contingent recoverable gas resources are 109.28 and 234.42 BCF respectively net to PRD and unrisked P50 and P10 prospective recoverable gas resources are139.67 and 312.16 BCF respectively net to PRD. News is possible soon from Ireland too. The company has received a communication from the DECC that consideration of its application for a successor authorisation to Licensing Option 16/26 Corrib South is hoped to be concluded during Q1 2024. Regarding finances, Predator states that it is fully funded for all 2024 firm commitments, although the discretionary Jurassic well planned for April/May drilling may require further funding and discretionary appraisal/development drilling is provisionally scheduled for H2 2024.

Baron Oil (BOIL.L GHA.F) announced that the farm-up agreements with Timor Gap have been signed and are now subject to a single condition precedent of approval of the farm-up by Timor-Leste's National Petroleum Authority. Baron’s directors consider that the farm-up has a value to the company of approximately US$8.5 million made up of a reimbursement for back costs of around US$1 million and the offset of future spending which in 2024 is estimated to be around US$7.5 million. The operational plan remains to drill and flow test the Chuditch-2 appraisal well in late 2024, subject to rig and drilling services availability and the completion of drill financing. The cost of the Chuditch-2 appraisal well is anticipated to be approximately US$32 million, including the costs of a full production flow test. Baron is responsible for 80% of the costs and finance will be required.

Rockhopper Exploration (RKH.L RCKHF R4Y.F) announced a Sea Lion and corporate update. According to the 2024 NSAI independent report, the certified gross 2C resources in the overall North Falkland Basin have increased from 712 million barrels to 791 million barrels. Navitas has now identified suitable and available existing floating production storage and offloading vessels and is said to be actively working with industry vendors to secure all long lead equipment, continuing to target Sea Lion phase 1 final investment decision in 2024 and first oil at the end of 2026. The Sea Lion field development plan comprises 23 wells drilled in two phases with a 16% increase in gross 2C resources from 269 million barrels to 312 million barrels. Gross capital expenditure required to first oil is US$1.2 billion. Rockhopper holds a 35% working interest and has certain loans from Navitas, however, significant additional finance will be required. Rockhopper has been awarded compensation of €190 million in respect of Italy’s breaches of its obligations under the Energy Charter Treaty and is aiming to monetise this award via a participation agreement with a specialist fund that has experience in investing in legal assets.

Eco (Atlantic) Oil & Gas (EOG.V ECO.L ECAOF EOI.F) announced receipt of final government approval for the farm out of its 6.25% participating interest in Block 3B/4B to Africa Oil Corp. The company also provided an operational update on entering the next license phase for the Orinduik block. This second phase has a commitment to drill one exploration well during the remainder of the license period which ends on 13 January 2026 and following the partner company (owned jointly by TotalEnergies and QatarEnergy) relinquishing its working interest, Eco is now responsible for 100% of the costs. A farm-out process has commenced.

More in the Private and International letters this evening.

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