Oilman Jim's Letter - June 9, 2024

Royal Helium (RHC.V RHCCF RD31.F) announced that it has now shipped both the 10th and 11th purified helium trailers from the Steveville helium purification facility, located near Brooks, Alberta. The Steveville facility continues to ramp up capacity and is experiencing both growth in throughput rate and more consistency in run-time. On the inlet side, the production zones of the reservoir are flowing as projected with helium concentrations meeting or exceeding original expectations. Over the course of the past three weeks, the company has achieved stable production at 50% of nameplate capacity with periodic increases up to 75% of nameplate capacity. Stable production at 50% of nameplate amounts to approximate sales of four trailers per month, representing a 100% increase from prior levels. Once the plant is at capacity, it is expected to produce between seven and eight trailers of purified helium per month. 

Deltic Energy (DELT.L) announced an update in relation to Licence P2252 and the Pensacola discovery. The company has been granted a short period of additional time from Shell, in its capacity as licence operator of P2252, which will allow Deltic until 12 June 2024 to progress discussions with potential counter parties in relation to a possible transaction. Absent that, Deltic will be required to withdraw from the Pensacola licence and transfer its interest in Pensacola to the joint venture partners.

88 Energy (88E.AX 88E.L EEENF POQ.F) announced a maiden internal prospective resource estimate of 381 million barrels of oil (net mean, unrisked) for Project Leonis. This follows review of a data suite that included 3D and 2D seismic data, well logs from Hemi Springs Unit-3 and Hailstorm-1, as well as nearby wells adjacent to the Project Leonis acreage, along with petrophysical analysis and mapping. Per the company, with the Trans-Alaska Pipeline running through the acreage and Deadhorse just six miles to the North, Project Leonis represents a significant resource and development opportunity. 88E says it has commenced permitting and planning processes for an exploration well, Tiri-1, ahead of a future potential drilling event, to target the USB zone. Timing for the drilling of the Tiri-1 exploration well is dependent on securing a farm-out partner.

Zion Oil & Gas (ZNOG) announced the start of recompletion operations for the MJ-01 well in Israel. The location is said to be safe and ready for operations, which have faced some logistical challenges due to the war. Zion had contracted services, equipment, and material from Turkey, which then placed an embargo on trade with Israel, however, the company has been able to secure alternatives from vendors located in Romania, Greece, and the United States. After opening the well, Zion will attempt to unlock hydrocarbon flows in both previously and newly identified zones of interest. The crew is currently engaged in safety testing and moving the rig.

Blue Star Helium (BNL.AX BSNLF) announced a significant helium discovery at the State 16 SWSE 3054 development well at its Galactica helium project in Las Animas County, Colorado. Laboratory analysis of reservoir samples show air corrected helium concentrations up to 1.9%, consistent with offset discovery wells. Peak flow rates were as high as 313 thousand cubic feet per day and stabilised at 285 thousand cubic feet per day, consistent with the adjacent Red Rocks commercialised development. CO2 approaching 70% concentration also has the potential to contribute significant revenues. Results are being analysed by the company’s independent engineering consultants, where a maximum stabilised rate and drawdown will be modelled for incorporation into development planning and economics. Blue Star has filed a new OGDP for 5 additional development wells and is progressing the helium processing plant site permitting.

Eco (Atlantic) Oil & Gas (EOG.V ECO.L ECAOF EOI.F) announced the farm-in to Block 1 offshore South Africa Orange Basin. The company is acquiring a 75% working interest and will become operator. Block 1 is 19,929 km2 in area and is located on the Namibian Border in South Africa. The Eastern side of the block is approximately 174 km off the South African shoreline and the block reaches out some 263 km West into deep water in the Orange Basin. Terms are as follows: $150,000 payable upon signing, $225,000 payable upon issuance of Government title transfer and $375,000 payable upon a TSX-V/AIM compliant resource report to be commissioned by Eco. The company will carry the remaining 25% interest through the budget and work program for the first three years up to an agreed sum of $2.3 million of a total work program. The block has significant 2D and 3D seismic data already completed and no additional seismic acquisition or drilling of wells is planned in the three-year carried period.

Pantheon Resources (PANR.L PTHRF P3K.F) announced that the company's wholly owned subsidiary, Great Bear Pantheon, has entered into a gas sales precedent agreement with Alaska Gasline Development Corp subsidiary 8 Star Alaska. The project under development is to deliver natural gas within Alaska and export up to 20 million tonnes per annum of liquified natural gas. Phase 1 is a pipeline from the North Slope to Southcentral Alaska to provide natural gas to avert what is described as the looming energy crisis facing the region. This phase does not involve construction of a LNG plant and has a lower capex requirement and construction timeframe, allowing gas transportation as early as 2029. Alaska Gasline Development Corp is aiming to undertake front end engineering and design ahead of a final investment decision planned for the middle of 2025. Pantheon says it expects to be able to lay out the full strategy for achieving funding to first investment decision and beyond by the end of this month. In addition, the company is working with Cawley Gillespie & Associates to finalise their independent resource report on the Ahpun Topsets, which should be completed and published in the coming weeks.

Jersey Oil & Gas (JOG.L TPC1.F) announced an update on the Buchan redevelopment project. Following the announcement of an earlier than expected UK General Election in July 2024, the Buchan joint venture partners have assessed the implications and their plan for progressing the project. While activities continue in order for the Buchan project to be ready for field development plan approval by the end of this year, the exact timing for achieving this key milestone and enabling project sanction is now linked to securing fiscal clarity from the next government and ensuring that the project remains financially attractive. Following the receipt of fiscal clarity and subject to field development plan approval, the major contract awards and capital commitments for the project are now expected in 2025, which leads to Buchan first production being targeted for late 2027. JOG remains fully funded with a current cash position of over £13 million and a forecast annual base cash spend of £3 million. The Buchan project remains fully carried to field development plan with a further $20 million payment due following approval by the NSTA and receipt of the associated regulatory and legal consents. The company also has a full carry to first oil for its 20% equity interest in the Buchan field development costs.

Predator Oil & Gas (PRD.L 1EM.F) announced a corporate update. In Morocco, the early stages of the Sandjet rigless testing programme have commenced with the arrival of some well services equipment at the MOU-3 well site and the preparation of the well for re-entry and perforating. Extensive operations at MOU-3 are anticipated to last for at least five weeks before moving to the next well in the Sandjet testing programme. Following completion of the MOU-3 rigless well testing a decision will be made to move to either MOU-1 or MOU-4 next to perforate the TGB-2 Sand and the Moulouya Fan sequence respectively. The MOU-5 well will now commence drilling as soon as practical after entry into the First Extension Period following the delay to the scheduling of the Star Valley rig 101 programme due to other commitments. The company says it is fully financed for all its near-term operations. In Trinidad, a sale and purchase agreement has been executed for assignment of a further 16.2% interest in Cory Moruga, and in Ireland the company has agreed in principle farm-in terms on successor authorisation to Licencing Option 16/26, Corrib South.

Zephyr Energy (ZPHR.L ZPHRF VD5N.F) announced a State 36-2R well update. Drilling operations have been completed, with the well drilled to a total depth of 10,290 feet (measured depth). A production liner will be set across the Cane Creek reservoir section and, over the coming weeks, Zephyr will mobilise equipment for completion and production testing of the naturally fractured reservoir zone that was intersected during drilling operations. The well is said to have encountered drilling mud gas shows of a similar magnitude to the original well and pore pressure analysis suggests formation pressures estimated at approximately 9,300 pounds per square inch, which is broadly consistent with previously drilled offset wells. The well further confirms the presence of hydrocarbons within a large structural compartment, within Zephyr's acreage and 3D seismic coverage.

Jadestone Energy (JSE.L JDSEF 8KW.F) announced an update on the Akatara gas development project onshore Indonesia. The Akatara gas processing facility is nearing the key milestone of mechanical completion, where all components and systems of the facility will have been constructed, installed and tested, and the project focus is now on the final commissioning of the plant ahead of introducing wellhead gas. The project remains on schedule for gas into the facility in approximately two weeks time and for commercial gas, LPG and condensate sales following shortly thereafter. The workover campaign on the five existing Akatara wells which will provide gas to the facility has been successfully completed, flowing at an aggregate rate of 54 million cubic feet per day, significantly in excess of the c.25 million cubic feet per day of raw feed gas required under the gas sales agreement. In addition, the 17km pipeline which will deliver gas into the regional gas trunkline has been successfully tested and is now ready to receive Akatara gas.

Diversified Energy (DEC DEC.L) announced the closing of its acquisition of the proportionate working interest in certain assets within the company's Central Region from Oaktree Capital Management. Concurrently, the company also completed an acquisition-related redetermination of the borrowing base of its revolving credit facility resulting in a 26% or $80 million increase in the borrowing base to $385 million and estimated post-transaction liquidity of ~$130 million. The purchase price for the acquisition was $410 million before purchase price adjustments (net $377 million after purchase price adjustments). Proved developed producing reserves are 85 million barrels of oil equivalent with a PV10 of $462 million and current net production is 20,000 barrels of oil equivalent per day. Estimated 2024 adjusted EBITDA is $126 million. Consideration for the acquisition consists of $83 million in deferred cash payments to Oaktree, the assumption of Oaktree's proportionate debt of $120 million associated with the ABS VI amortizing note and other expanded liquidity sources.

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