Oilman Jim's Letter - June 2, 2024

Valeura Energy (VLE.TO VLERF 83PN.F) announced the successful completion of an infill drilling campaign at Nong Yao A and the start of development drilling on the Nong Yao C extension, both part of the Nong Yao oil field, offshore Gulf of Thailand. Per Sean Guest, President and CEO, the results further illustrate the potential of Valeura’s assets to add volumes through ongoing infill drilling. The start of drilling operations at the brand new Nong Yao C infrastructure is said to mark a significant milestone for the company.  This will be the first new development for Valeura in Thailand and is expected to serve as a substantial source of production growth in the second half of this year. The drilling campaign is anticipated to take approximately four months and will be comprised of up to nine gross wells, being six producer wells and up to three water injectors. The company is anticipating first oil from the Nong Yao C development in Q3 2024, and thereafter is targeting aggregate peak oil production rates from the expanded Nong Yao field of 11,000 barrels per day, approximately a 50% increase over the 7,307 barrels per day reported for Q1 2024.

Chariot (CHAR.L OIGLF C62.F) announced a gas discovery at its Moroccan onshore licence. The OBA-1 well on the Dartois prospect, the second of a two well drilling campaign in the Loukos onshore licence, was drilled to a final measured depth of 901m through the target reservoirs. Following evaluation of the well data, preliminary interpretation confirms the presence of reservoirs over an interval of approximately 200m gross thickness, within which an approximate 70m gross interval of primary interest has been identified containing elevated resistivities coincident with elevated mud gas readings, indicating potential gas pays with no water-bearing reservoirs identified. Further post-drill analysis will be conducted in preparation for well flow testing which will determine the well productivity and the gas resource potential of the discovery. The well will now be suspended to allow future rigless flow testing operations and potential use as a producer well. Next up is the offshore drilling campaign planned for Q3 2024 on the Anchois gas field with new partners Energean, where they are looking to increase the development to over 1 trillion cubic feet.

Blue Star Helium (BNL.AX BSNLF) announced that the State 16 SWSE 3054 development well at its Galactica helium project in Las Animas County, Colorado, has been successfully drilled to its final total depth. The well encountered the Lyons formation at a depth of 1,111.5 feet and was completed at its planned TD at the base of the upper sand of the Lyons formation at 1,211 feet. No water was encountered during drilling. Wireline logs confirmed this and show approximately 96 feet of high-quality sands in the upper Lyons production section to be gas saturated. The well flowed naturally during drilling and has been cleaning-up since drilling operations were completed. The company is now to commence pressure and flow testing, including a pressure gradient test, followed by sampling and a pressure build-up test over a five-day period. Upon successful final testing and analysis, the well will be completed for tie-in to production facilities. Commercial discussions with interested buyers have been ongoing since Q4 2023.

VAALCO Energy (EGY EGY.L VAW.F) announced that it has drilled, completed and brought online four long lateral wells in Canada. All were 2.75 mile lateral development wells. Strong initial production rates of approximately 500 barrels of oil per day were recorded for three of the four wells, with production of approximately 350 barrels of oil per day for the fourth well, prior to it being shut in for a pressure build up. Average cycle time for the four wells was about 65 days from rig release to first production. The company now is targeting an appraisal well in the third quarter of 2024. Based on experience to date, VAALCO now is drilling 2.5 to 3-mile laterals almost exclusively in Canada.

Gran Tierra Energy (GTE GTE.TO GTE.L G1P0.F) announced an operational update. Regarding the Arawana-J1 oil discovery, the company has run production casing, cemented and perforated the Basal Tena oil zone and begun production testing. A jet pump was run and the well has produced at stabilized rates over 48 hours at 1,174 barrels oil per day , 20-degree API gravity oil, less than 1% water cut, and a gas-oil ratio of 258 standard cubic feet per stock tank barrel. The well continues to clean-up and over 12 hours the well has produced at stabilized rates of 1,358 barrels of oil per day of 20-degree API gravity oil, less than 1% water cut, and a gas-oil ratio of 239 standard cubic feet per stock tank barrel. Upon completion of drilling the Arawana-J1 well, the rig was moved on the same well pad and commenced drilling the Bocachico Norte-J1 exploration well (a follow-up to the successful Bocachico-J1 exploration well) to test both the deeper T-Sandstone and Basal Tena prospectivity. The Bocachico-J1 well had initial 90-day production rates in the Basal Tena of greater than 1,100 barrels of oil per day, continues to produce at approximately 850 barrels of oil per day, 20-degree API oil, and has less than 1% water cut. At Charapa, the 20 km 2D seismic commitment was successfully completed and the data is now being processed. The 238 km2 3D program is 13% complete and will be finished shooting in mid-June. The processed 3D dataset is expected to be delivered by the third quarter of 2024 and will be used to high-grade multiple structural leads identified on vintage 2D seismic lines, which are expected to be drilled in 2025. As for the remainder of the 2024 Ecuador exploration program, upon completion of the Bocachico Norte-J1 exploration well, the rig will be moved to the Charapa block to drill three exploration wells and finally back to the Chanangue block to target two Zabaleta exploration wells to test the Basal Tena up dip from Arawana-J1, and test additional deeper U- and T-Sandstone units on the structural high. The directors will utilize Gran Tierra's strong cash flow, solid balance sheet, and new production to fund development.

Zephyr Energy (ZPHR.L ZPHRF VD5N.F) announced the receipt of additional grant funding from the U.S. Department of Energy for upcoming operations on the State 36-2R LNW-CC well at its project in the Paradox Basin, Utah, and provided a further update regarding current drilling operations on the well. A further grant of $250,000 has been received (taking total grant funding received to $3.65 million) to fund a detailed evaluation of the State 36-2R production data from the forthcoming production test. Meanwhile, drilling operations continue to proceed safely and in line with management's expectations. The 8 ½ inch section is currently drilled to a depth of 9,940 feet, with the planned section total depth of 10,075 feet to be reached imminently.  After reaching the section total depth, a casing string will be set and cemented in place, just above the final Cane Creek reservoir target. After casing and cementing, drilling will re-commence on the final reservoir section. The objective for this short section is to safely and successfully land the well within the Cane Creek reservoir and drill approximately 270 feet horizontally to intersect the productive natural fracture system encountered in the original well. After reaching planned final total depth and setting a production liner, the drilling rig will be demobilised, and the well will be prepared for production testing.

Challenger Energy (CEG.L BSHPF) announced that the investment in the company by Charlestown Energy Partners has completed and that Robert Bose, Managing Member of Charlestown, has joined the Challenger board. Charlestown has advanced a £1.5 million loan to Challenger and on closing of the farm-out of the Uruguay AREA OFF-1 licence to Chevron (CVX CHV.F), and subject to the prior completion of an agreed share consolidation, this loan (and interest) will convert into new ordinary shares in Challenger at a fixed price of 0.168 pence per share, a premium to the current share price. The investment will underpin accelerated commencement of technical activity on the company's AREA OFF-3 licence offshore Uruguay and Robert Bose (a member of the Charlestown oversight committee and Chief Executive Officer of Sintana Energy (SEI.V SEUSF) has been appointed as a non-executive director of Challenger with immediate effect.

Arrow Exploration (AXL.V AXL.L CSTPF C1JT.F) announced interim results for the three months ended March 31, 2024. The company recorded $14.4 million of total oil and natural gas revenue, net of royalties, more than double compared to the same period in Q1 2023. Net income was $3.2 million, against $3.0 million in Q1 2023, while EBITDA more than doubled to $10 million. Average corporate production was up 139% to 2,730 barrels of oil equivalent per day. The cash position was $11.6 million at the end of Q1 2024 and the company generated operating cashflows of $8.6 million, compared to $2.4 million in Q1 2023. During the quarter, Arrow successfully drilled four development Carrizales Norte wells, resulting in additional production and reserves additions and post period end, two additional Carrizales Norte development wells were drilled. The company spud the first Carrizales Norte horizontal well (CNB HZ-1) from the Carrizales Norte B pad and expects to be able to provide an update on the production figures in the coming weeks. Subject to successful completion, CNB HZ-1, in conjunction with the other three planned CNB horizontal wells, are expected to result in a positive increase in Arrow's production rates. Moving forward, Arrow will complete stimulation efforts at the Oso Pardo-3 and 4 wells in the Middle Magdalena Basin and continue with the balance of the 2024 capital program, the majority of which will be focused on the Carrizales Norte field and will include three horizontal wells. Low risk step-out and exploration wells are also planned at the Mateguafa Attic and Baquiano prospects. The 2024 capital program will be self-funded by a combination of cash flow from operations and cash reserves.

Afentra (AET.L STGAF) announced its unaudited annual results for the year ended 31 December 2023. During 2023 and post period, the company successfully completed three acquisitions in Angola to acquire 30% non-operated interest in the producing Block 3/05 and a 21.33% non-operated interest in the adjacent development Block 3/05A. Cash resources at year end 2023 were $19.6 million against $30.6 million in 2022. The reserve based lending facility at year end was $31.7 million, resulting in year end net debt of $12.3 million. A first cargo of 300,000 barrels of crude oil was sold in August 2023, at a sales price inclusive of the Brent premium of $88 per barrel, generating pre-tax sales of $26.4 million net to Afentra. Crude oil stock at year end was approximately 300,000 barrels. Combined 2023 gross production on Block 3/05 and Block 3/05A was 20,180 barrels of oil per day, up from 18,700 barrels of oil per day in 2022. Light well intervention campaigns were successfully executed, leading to December 2023 gross production exceeding 23,000 barrels of oil per day, while water injection upgrades doubled injection rates, with December rates of around 42,000 barrels of water per day. Post year end, the company was selected as the preferred bidder for 45% non-operating equity in both KON15 and KON19 located in the Kwanza Basin onshore Angola, a PSA for the onshore Block KON19 was negotiated with Agência Nacional de Petróleo, Gás e Biocombustíveis and now awaits the formal Government approval. Afentra completed the Azule acquisition resulting in the company holding non-operated interests of 30% in Block 3/05 and 21.33% in Block 3/05A and the Government of Angola declared the Punja Development Area in Block 3/05A a marginal discovery with improved fiscal terms now applicable for the remainder of its term. The company sold cargo of 450,000 barrels of crude oil in February 2024. The sales price inclusive of the Brent premium was $85 per barrel, generating pre-tax sales of $38.2 million to Afentra. Net debt at the Azule completion was around $46.2 million with crude oil stock of around 840,000 barrels.

EnQuest (ENQ.L ENQUF 3EQ.F) announced an operations update. The company has continued to deliver strong operational performance across its operated portfolio, with production to the end of April averaging 43,600 barrels of oil per day, above the mid-point of guidance. Net debt was around $344 million at 30 April, representing a reduction of around $137 million since 31 December 2023. There was around $534 million liquidity at 30 April, which provides a platform for transformational transactional growth, enhanced by EnQuest's advantaged UK tax position. The $15 million share buy back programme commenced on 29 April 2024. Production guidance for 2024 is 41,000 barrels of oil equivalent per day to 45,000 barrels of oil equivalent per day. Cash capital expenditure is expected to total around $200 million, operating expenditure to total around $415 million and decommissioning expenditure to total around $70 million.

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