Oilman Jim's Letter - 5 May 2024

Sintana Energy (SEI.V SEUSF) announced that Chevron Namibia Exploration Limited, an affiliate of Chevron Corp., has executed an agreement that provides for their entry into Petroleum Exploration License 82 with the assumption of an 80% working interest and operatorship. NAMCOR, the National Petroleum Corporation of Namibia, and Custos Energy (Pty) Ltd. will each maintain a 10% carried interest in PEL 82. Sintana maintains an indirect 49% interest in Custos. PEL 82 governs blocks 2112B and 2212A located in the Walvis Basin, offshore Namibia and is one of the Walvis Basin’s most attractive opportunities. Approximately 70% of the total block area is covered by existing seismic – over 3,500 km of 2D and 9,500 km2 of 3D data. Previous drilling activity on PEL 82 includes the Murombe-1 and Wingat-1 wells, the results of which confirmed the regional extension and presence of the Barremian-Aptian oil-prone source rock (Kudu shale). The Murombe-1 penetrated the Baobab sands returning approximately 20% porosity. The Wingat-1 well recovered 38-41 degree API oil to surface. The company also announced that it has granted an aggregate of 2,400,000 restricted share units and 1,650,000 stock options to directors and officers. The stock options are each exercisable to acquire one common share of the company at an exercise price of C$1.08 until May 1, 2034 and vest in tranches over the next two years.

Aminex (AEX.L AEXFF) announced that it has agreed a funding facility with its largest shareholder, Eclipse Investments. The facility is for US$3 million, available for up to 24 months and the first US$1.5 million tranche is guaranteed, with the remaining tranche available at Eclipse's discretion. Any advances drawn down will be set-off against the company's US$35 million carry in respect of the Ntorya development at Eclipse's discretion. If not already set-off against the carry, Eclipse can demand repayment, but not before 31 December 2026. There is no security granted against the facility and no arrangement fees payable by Aminex. The company had sufficient funds until the end of 2024, when revenues from the Ntorya gas discovery had originally been expected, however, first revenues are now estimated in mid-2025 and Aminex believes it is prudent to arrange this funding now. Final results, also announced, confirmed the following planned for 2024 upon receipt of the development licence: contract a rig operator to undertake the drilling of the Chikumbi-1 appraisal well and, if successful, to complete the well as a gas producer; re-enter and repair a tubular leak in NT-1 to enable the well to be completed as a gas producer; undertake further testing on NT-2, currently suspended as a gas producer, using a mobile test unit and refine the design of in-field gas processing facilities; and support the Tanzanian authorities in the construction of a spur pipeline to take gas from Ntorya to the Madimba Gas Plant and accommodate gas extraction from the field.

Deltic Energy (DELT.L 7RC0.F) announced a Pensacola update. Following commitment to the appraisal well in December 2023, operational planning has continued to progress according to plan. Long lead items have been ordered, the geophysical site survey over the proposed well location has been completed and the final geotechnical site survey is scheduled to take place in May/June 2024. The rig contract was entered into in February which secured the Valaris 123 heavy duty jack-up drilling unit to drill both the Selene exploration well and Pensacola appraisal well, with the Pensacola well due to be drilled immediately following completion of Selene operations. Subject to the timing of the completion of Selene, the Pensacola well remains on track to be drilled in Q4 2024. However, fiscal uncertainty created by the current government, along with recent rhetoric emanating from the Labour Party, have had a severely negative effect on the ability of UK exploration and production companies to commit to long term investments in the North Sea. Against the hostile political environment, Deltic have not yet been able to secure a farm-out partner for Pensacola and there is a risk that a farm-out may not be secured before the end of May 2024. The difficult state of UK equity markets, especially for smaller companies, coupled with the impact of the political and fiscal regime on UK E&P company valuations and investor sentiment means that accessing traditional equity capital is unlikely to be a viable option to allow Deltic to meet its 30% share of the Pensacola well (currently estimated to be roughly GBP£15 million net to Deltic). This is frustrating for the company as a recently commissioned Competent Person's Report by RPS Energy assessed Pensacola as having a 2C NPV10 of approximately US$200 million net to Deltic, representing a multiple of the company's current market capitalisation. Unfortunately, if an industry and/or funding solution is not in place by the end of May 2024, being the point  at which Deltic will be required to demonstrate its capacity to fund its share of costs, Deltic will be required to withdraw from the Pensacola licence and transfer its interest in Pensacola to the joint venture partners.

Canacol Energy (CNE.TO CNNEF) announced that the company has sold its entire 21.01% holding in Arrow Exploration (AXL.V AXL.L) for gross proceeds of approximately US$13.8 million. In respect of usual business, the Chontaduro 2 appraisal well, located on the 100 percent operated VIM21 exploration and production contract, was spud on April 18, 2024, and reached a total depth of 10,026 feet measured depth on April 27, 2024. The well encountered 88 feet true vertical depth of net gas pay with average porosity of 23 percent within the primary Cienaga de Oro sandstone reservoir target. The well is currently being completed within the CDO reservoir and is expected to be tied into permanent production at a rate of between 10 and 12 million cubic feet per day within one week. Separately, Arrow Exploration announced its annual audited financial statements and management's discussion and analysis. The company saw a significant 79% growth in total oil and gas revenue to US$44.7 million, net of royalties, and recorded a net loss of US$1.1 million inclusive of an impairment loss of US$11.8 million. So far in 2024, Arrow has drilled six development wells on the Carrizales Norte field in the Tapir Block, which are all currently producing at restricted rates (ramping production up slowly prevents early water breakthrough in each well) and is currently mobilizing the drilling rig to the Carrizales Norte B (CNB) pad to start drilling the first horizontal well.

Pantheon Resources (PANR.L PTHRF P3K.F) announced an updated Independent Expert Report by Lee Keeling & Associates covering the Alkaid horizon within its Ahpun Field over which it has a 100% working interest. Estimated base case possible reserves are 5 million barrels and 27 billion cubic feet of recoverable natural gas at the Alkaid horizon, in addition to contingent resources totalling 74 million barrels of marketable liquids and 396 billion cubic feet of recoverable natural gas. Estimated high case contingent resources total 123 million barrels and 634 billion cubic feet. Attribution of reserves in the immediate vicinity of the Alkaid-2 well and economic modelling of the overall Alkaid horizon estimate real rates of return in excess of 20%, supporting Pantheon's previous assessment that the Alkaid-2 long term production test demonstrated the commerciality of the Alkaid horizon in Ahpun. As always, these Pantheon announcements are of relevance to 88 Energy (88E.AX EEENF 88E.L POQ.F) too.

Predator Oil & Gas (PRD.L 1EM.F) announced that Petroleum Agreement Amendment #4 has been ratified and that preparations for the Sandjet rigless testing programme can now be progressed as planned. Also awaited is news regarding MOU-5, which was expected to be drilled between 1 April and 31 May 2024, but Chariot (see below) appear to have the rig.

Touchstone Exploration (TXP.TO PBEGF TXP.L PNW1.F) announced a recommended all share offer pursuant to which it will acquire the entire issued and to be issued ordinary share capital of Trinity Exploration & Production (TRIN.L TRXEF 3BE.F). Under the terms of the acquisition, Trinity shareholders will be entitled to receive 1.5 new Touchstone shares for each Trinity share, resulting in them owning approximately 19.9 per cent. of the share capital of the combined group. Based upon Touchstone's closing share price of 41.25 pence as of 30 April 2024, the acquisition represents an implied value of 61.9 pence per Trinity share (approximately US$0.77 per Trinity share), a premium of approximately 71.9 per cent. to the closing price of 36 pence on 30 April 2024. With a broader shareholder base and more shares in issue, Touchstone believes that shareholders will benefit from the larger size and increased liquidity of the combined group and will be able to trade their Touchstone Shares on both AIM and TSX.

Gran Tierra Energy (GTE GTE.TO GTE.L) announced the company’s financial and operating results for the quarter ended March 31, 2024. During the quarter, Gran Tierra made significant progress in its development drilling programs, with the successful program in Costayaco confirming the company’s reservoir interpretation and extending the field both to the north and the south. Production at the field increased to the highest level since 2017. The company is further excited about the initial drilling and open-hole logging results of the Arawana exploration well in the Chanangue block in Ecuador. The mapped area of closure, and the rock properties observed in the Arawana-1 well compares to the Cohembi field, which as of the end of 2023, has produced 28 million barrels of oil equivalent and has remaining reserves of 25 million barrels of oil equivalent proved, 54 million barrels of oil equivalent proved plus probable and 95 million barrels of oil equivalent proved plus probable plus possible. The company’s adjusted EBITDA for the quarter was US$95 million compared to US$93 million in the prior quarter and US$90 million in the first quarter of 2023. Twelve month trailing net debt to adjusted EBITDA was 1.3 times and is expected to be less than 1.0x by year end 2024. Free cash flow for the quarter was approximately $19 million, during which time Gran Tierra purchased approximately 0.9 million shares. Since January 1, 2023 the company has repurchased approximately 3.3 million shares, or 10% of shares issued and outstanding at January 1, 2023, all from free cash flow.

ADX Energy (ADX.AX ADXRF GHU.F) announced a A$13.5 million institutional placement. Firm commitments have been received. The placement provides balance sheet strength to progress an extensive exploration and development program in Austria during the second half of 2024 including: evaluation, data analysis and production testing of the Welchau-1 gas condensate discovery; assessment of exploration prospectivity and potential deepening of the Welchau-1 well; drilling of a gas exploration well in the ADX-AT-I licence; drilling, completion and tie-in of the Anshof-2A sidetrack well; gas processing upgrades including a CO2 reduction plant at ADX’s Vienna Basin oil and gas fields; and general working capital. Strong news flow is upcoming.

Zephyr Energy (ZPHR.L ZPHRF) announced that the company has retired US$3.88 million (£3.11 million) of existing debt through the issuance of equity comprised of  64,045,768 new ordinary shares at a price of 4.85p per share. The issue price is the undiscounted mid-market closing price of the company's shares on 2 May 2024. Zephyr also reported that State 36-2 LNW-CC-R well operations are progressing as expected. On 26 April, the 17-½ inch surface section of the well was completed at a total depth at 1,570 feet, at which point casing was set and cemented prior to the installation of the blowout preventor. Drilling operations have since commenced on the 12-¼ inch intermediate section, with a current hole depth of 3,238 feet. 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. 

Finally, Chariot (CHAR.L OIGLF C62.F) announced that drilling operations have commenced at the Loukos licence, onshore Morocco, with the spud of the RZK-1 well on the Gaufrette prospect. The main target has best estimate recoverable prospective resources of 10 billion cubic feet of gas. Success potentially unlocks combined best estimate recoverable prospective resources of 26 billion cubic feet and results will be announced on completion of drilling.

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