Oilman Jim's Letter - July 14, 2024

Devon Energy (DVN DY6.F) announced that it has entered into a definitive purchase agreement to acquire the Williston Basin business of Grayson Mill Energy in a transaction valued at $5 billion, consisting of $3.25 billion of cash and $1.75 billion of stock to the sellers. The acquisition now positions Devon as one of the largest oil producers in the U.S. with total production reaching an average of 765,000 barrels of oil equivalent per day. Average annual cash flow savings from operating efficiencies and marketing synergies are up to $50 million. The acquisition also adds 500 gross locations and 300 high-quality refrac candidates. On a pro forma basis, Devon will possess an inventory life of up to 10 years in the Williston Basin at a constant development pace of three operated rigs. The acquired business also generates peer-leading operating margins in the Williston Basin that benefit from midstream infrastructure ownership in 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals. This midstream ownership creates a margin uplift of more than $125 million of EBITDAX annually and provides marketing optionality to capture higher pricing through access points to multiple end use markets. The transaction further improves the outlook for return of capital to shareholders. Due to the accretive nature to free cash flow, Devon’s board of directors has expanded its share-repurchase authorization by 67 percent to $5 billion through mid-year 2026. The company also expects this acquisition to be accretive to the company’s dividend payout in 2025 and beyond.

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Zephyr Energy (ZPHR.L ZPHRF VD5N.F) announced commencement of the well production test on the State 36-2R LNW-CC well at the company's project in the Paradox Basin, Utah. The well is currently flowing both natural gas and condensate, and Zephyr says it is encouraged by initial results. Over the next two weeks, the well will be flowed and production tested to more rigorously determine the reservoir pressure, fluid composition, well flow rate and bulk reservoir permeability, and to deliver an early estimate of the overall potential recoverable resources. Initial results and analysis will be announced as soon as possible at the end of this two-week period, assuming no unexpected delays to the production test programme…more

Valeura Energy (VLE.TSX VLERF 83PN.F) announced an update on Q2 2024 operations. Oil production averaged 21,100 barrels per day and the company saw drilling success across the portfolio, including exploration success at Nong Yao D, production wells at Nong Yao A, and the start of development drilling at Nong Yao C. Revenue was $164 million with price realisations of $87.70/barrel, a record $2.70/barrel premium over Brent. The quarter closed with no debt and cash of $145 million, after having paid an aggregate $109 million in taxes, purchase of the Nong Yao floating storage and offloading vessel, and final contingent consideration associated with the asset acquisition from KrisEnergy (Asia)…more

Union Jack Oil (UJO.L UJOGF 1UJ0.F) announced that it has been informed by the operator, Reach Oil & Gas, that the Andrews 2-17 well, located in Seminole County, Oklahoma, has been spudded. Union Jack holds a 45% working interest in the Andrews 2-17 well, which has an operator estimated geological chance of success of around 80%. Drilling time is approximately eight days to a depth of around 4,700 feet. Thereafter, completion is expected to take approximately a further eight days including perforating and flow-back if successful. 2-17 is an up-dip offset well to Andrews 1-17, which is expected to encounter a similar reservoir above the oil/water contact seen in the first well. On success, the 2-17 well will share common production facilities with the Andrews 1-17, thereby lowering costs and optimising project economics. Union Jack is paying its pro-rata 45% share of well costs (around $340,000) from the company's existing cash resources. Back in the UK, Union Jack announced that Wressle revenues now exceed $20 million, net to the company. The most productive phase of development, the material Penistone Flags formation, potentially awaits…more

Pulsar Helium (PLSR.V PSRHF Y3K.F) announced an update on progress at its 100% owned Topaz helium project in Minnesota. Interpretation of a 2D seismic sweep shows a seismic reflector at a depth coincident with the helium bearing zone intersected in Jetstream #1, and additional reflectors with similar characteristics at greater depth. The positive result is said to highlight 2D seismic reflection as an efficient exploration tool and supports the larger 2D seismic survey scheduled for July. This will provide regional high-resolution data to complement the existing passive seismic and airborne gravity gradiometry data. The combination of this data will be used to assist the placement of step out wells from Jetstream #1. Pulsar has also received processed AGG, magnetic and Lidar data from an infill survey flown in May covering an area of 190 square kilometres which is now ready for interpretation. When combined with the AGG data acquired in 2022, the survey has a combined resolution of 150 metre line spacing. All technical data for Topaz has been transferred to Sproule International, which is expected to publish an updated resource calculation this month…more

88 Energy (88E.ASX 88E.L EEENF POQ.F) announced commencement of the 2D seismic data acquisition program for PEL 93. The program has been designed to acquire approximately 200-line kilometres of 2D seismic data. PEL 93 covers 18,500 square kilometres of sub-surface within the Owambo Basin in Namibia and 88 Energy holds a 20% non-operated working interest, with an option to earn up to a 45% interest via additional staged farm-in activities. Polaris Natural Resources Development was awarded the contract and mobilised vibroseis units and recording equipment to location late June 2024. Polaris expects to complete the program in Q3 2024, with data processing anticipated to be finalised in Q4 2024. Results will be integrated with existing historical exploration data to refine current prospect interpretation. The outcome of this program will be the quantification of the size of the prospective resource through a certified estimate, as well as the identification of future potential drilling locations. An exploration renaissance is said by 88E to be underway in the region, with Reconnaissance Energy Africa (see below) spudding the first of its four planned wells as part of an initial exploration drilling campaign in PEL 73 and PEL 01…more

Reconnaissance Energy Africa (RECO.V RECAF 0XD.F) announced the spudding of the Naingopo exploration well on PEL 73, onshore northeast Namibia. The well is anticipated to reach total depth of 3,800 metres (12,500 feet) and take 90 days to drill. This is said to be a significant play opening well which may unlock a total potential resource of over 3.1 billion barrels of oil or 18 trillion cubic feet of natural gas based on the most recent prospective resource report prepared by Netherland, Sewell & Associates. The well is expected to test multiple reservoir intervals and is targeting 163 million barrels of unrisked prospective oil resources or 843 billion cubic feet of unrisked prospective natural gas resources, net to ReconAfrica. In the past month, the company has received proceeds of approximately C$1.9 million from the exercise of warrants. With a recent share price of C$1.75 , the company has potential proceeds of approximately C$35 million from in the money share purchase warrants…more

Deltic Energy (DELT.L 7RC0.F) announced that it has accepted one of the two licences that were provisionally awarded by the North Sea Transition Authority in Tranche 3 of the UK's 33rd Offshore Licensing Round. Licence P2672 is located immediately to the west of the West Sole gas field, covers blocks 47/5e, 47/10c and 48/6c and contains the Pharos and Teviot discoveries.  Deltic's preliminary evaluation, completed as part of the application process, has resulted in an updated understanding of the structural setting, which suggests that the Pharos discovery and the Blackadder prospect are in fact a single Leman Sandstone structure. Preliminary volumetrics estimate P50 prospective resources of 165 billion cubic feet of gas for Blackadder/Pharos and 17 billion cubic feet of gas for Teviot. The initial 3 year Phase A work programme commitments for the licence are focused on the reprocessing of legacy 3D seismic data to improve reservoir imaging and refine the structural model in order to further de-risk the Blackadder structure at nominal cost. Per Graham Swindells, Deltic CEO, the Blackadder project has many analogous attributes to the Selene prospect (drill upcoming) where the reworking of legacy datasets has unearthed a potential missed pay opportunity of material scale. Blackadder's location, in close proximity to existing infrastructure that requires new third party gas to defer decommissioning, should enhance its value in a mature basin where new licences are likely to become increasingly scarce. Over the coming year the company will progress its work on the legacy data in preparation for farm-out, in anticipation of drilling an appraisal well on Blackadder in due course…more

Grand Gulf Energy (GGE.ASX GRGUF) announced the execution of a gas sales and processing agreement with Green Natural Gas, new owners of the advanced Lisbon Helium Processing Plant located 20 miles north and connected by pipeline to the Red Helium project. In the event of a successful commercial gas flow, the agreement facilitates near-immediate monetization of the company’s Red Helium project with minimal CAPEX. The agreement continues a relationship with a proven helium refining facility with extensive helium processing and marketing experience. Key terms include an industry standard revenue split in favour of the producer as well as standard tariffs for gathering, compression and processing, including access to the helium liquefaction train and associated premium grade helium markets and prices. The agreement is said to represent recognition from Green Natural Gas of the significant potential of the Red Helium project and the technical merits of the proposed near term development activities including the Jesse-3 and Earp-1 up-dip twins of historical wells with proven gas and reservoir. The project is targeting a gross prospective resource of 12.7 billion cubic feet and the agreement provides line of sight to monetisation of success with minimal time in a burgeoning helium market…more

PetroTal (TAL.TSX PTAL.L PTALF SER1.F) announced operational, financial and corporate updates. Average production was 18,290 barrels of oil per day in Q2 2024, which included a brief river blockade during the quarter. June's average production was 20,555 barrels of oil per day. Wells 18H and 19H were successfully completed in early May and June 2024 and the company commenced drilling well 5WD on June 17, 2024. Well 18H is currently performing within expectations with initial 7-day and 30-day production rates of 4,621 barrels of oil per day and 3,929 barrels of oil per day, respectively. The well cost approximately $17.3 million and its investment payback is expected to be around six months at current oil prices. Well 19H, the company's 20th oil producing well, commenced drilling on May 9, 2024, and production on June 14, 2024. Subsequent to clean up, well 19H achieved strong 7-day production rates of 8,511 barrels of oil per day. It was also drilled and completed well below budget at a cost of approximately $11.5 million. The well's investment payback is expected in less than two months at current oil prices. The 5WD will be PetroTal's 4th formation water disposal well allowing for water injection capacity to increase to approximately 170,000 barrels of water per day by year-end, facilitating the company's ability to produce over 20,000 barrels of oil per day on a recurring basis. The 5WD has an approximate cost of $12.5 million. PetroTal also is accelerating an additional well, 20H, into its 2024 drilling program. Drilling will commence in late July for an approximate cost of $15.0 million. During the first week of July, the company achieved total production of 20 million barrels of oil since PetroTal's first production in June 2018. Bretana's proved and probable oil reserves have more than tripled, bringing the field's estimated ultimate recovery to around 120 million barrels of oil. While the field's current 2P well inventory is more than halfway completed, it still has nearly 100 million barrels of oil to be recovered. The company exited Q2 2024 with approximately $84 million of unrestricted cash and $12 million of restricted cash for a total of $96 million. During Q2 2024, PetroTal purchased 1.2 million shares at an average price of $0.61/share pursuant to the share buyback program, and paid dividends of $13.7 million ($0.015/share) on June 14, 2024, related to Q1 2024 operations…more

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