Malcy's Blog - Oil price, Chariot, GKP, Trinity. And finally…

Proactive Investors - WTI (Mar) $79.68 -$1.33, Brent (Mar) $86.66 -81c, Diff -$6.98 +52c.

USNG (Feb) $3.11 +17c, UKNG (Feb) 140.0p +3.56p, TTF (Feb) €57.7 +€8.0.

Oil price

Last week oil was down a dollar or so and this week is going to be crazy with meetings across the Board. If you are a meeting person you are in clover wherever you look but actually I think we know the answers to almost all the questions.

The Fed announces rates on Wednesday and a hike of 25 bp’s is banco, unless you know better and as for the BoE and ECB on Thursday they are predicted to follow suit, even by economists.

And of course Opec meet on Wednesday as well, normally I would say stay at home for that too but given Brent is near enough 90 bucks, the area slightly above what needs to be defended so probably no change in strategy from the cartel either.

Chariot Oil & Gas Ltd (LON:CHARC)

Chariot has announced it has entered into a sales agreement for the acquisition of the business and assets of an independent water producer, ENEO Water PTE Limited, an African company focused on delivering clean water solutions using renewable energy. This acquisition complements Chariot’s Transitional Power and Green Hydrogen businesses within the context of increasing water scarcity across Africa.

· Desalinated water is an essential component of green hydrogen production, so the capacity to implement desalination solutions powered by renewable energy will be critical for the feasibility of Project Nour in Mauritania and other green hydrogen projects;

· Chariot’s intention is to provide affordable access to water for private offtakers and municipalities in Africa, as part of its commitment to socially responsible development. Chariot intends to originate, invest in and own decentralised water supply projects, where the water is produced through renewable energy and can be sold to offtakers under long-term agreements;

· ENEO utilises an efficient, modular and scalable reverse osmosis technology that can be 100% powered by solar energy to produce desalinated water;

· A proof–of–concept project at the largest windfarm in the Republic of Djibouti is under construction which will give local communities access to potable water for the next 20 years; and

· Consideration for the acquisition shall be payable in Chariot Ordinary Shares with an initial US$0.5 million payable on completion of the sales agreement and a further deferred consideration of up to US$0.5 million payable on the achievement of financial close on further projects.

Benoit Garrivier, Head of Chariot Transitional Power, commented:

“Water is a precious commodity with cleanliness, scarcity and sustainability of supply becoming growing themes throughout Africa. This acquisition of ENEO is a strong strategic fit for Chariot with the renewable power and water sectors sharing similar geographic and offtake markets. The treatment of brackish and contaminated water is an important consideration for commercial and industrial companies and desalinated water is also an important component of green hydrogen production, so we also have a natural overlap within our current portfolio and network.

The project in Djibouti provides important proof of concept and we are very pleased to be part of this operation, helping to provide water produced through renewable sources to the local communities. As the technology we use is both modular and scalable we look forward to expanding this offering, in line with our mission of creating value whilst delivering a range of positive impacts.”

This seems to me to be a pretty wise move for Chariot, for not a lot of money it has made an investment in what I consider to be an important asset in the future. Also the very fact that the process can be powered 100% by solar energy and which produces desalinated water.

It also fits very well with Chariot’s growing renewable portfolio and one which can be built on to make a substantial division if required and the words ‘modular and scaleable’ are highly significant. There is plenty going on at Chariot pretty much across the board, when they said that they would be very busy, they weren’t joking…

Gulf Keystone Petroleum Ltd (LON:GKP)

Gulf Keystone has provided an operational and corporate update. The information contained in this announcement has not been audited and may be subject to further review.

Operational

• 2022 was a Lost Time Incident (“LTI”) free year with only one minor recordable incident. Following over 440 days without an LTI, an incident occurred during drilling operations in January 2023. The safety of our workforce is our priority and we are currently carrying out an investigation
• Gross average production in 2023 year to date of c.47,800 bopd(1), with the recent increase driven by the gradual ramp up of SH-16, which was brought online in December 2022
• Ongoing drilling programme expected to drive production growth:
  • SH-17 drilled and completed in early 2023, under budget and ahead of schedule; currently being hooked up to commence production in Q1 2023, in line with guidance
  • SH-18 (formerly SH-P) recently spudded, with first production expected in Q2 2023, as previously announced
• Gross average production for 2022 of 44,202 bopd in line with guidance, up from 43,440 bopd in 2021:
  • Incremental production driven by:
  • The benefit of SH-13 and SH-14 production, brought on-stream in December 2021
  • Start-up of SH-15 in April 2022 and SH-16 in December 2022
• Mostly offset by:
  • Prudent management of well production rates to avoid trace amounts of water production ahead of installation of water handling capacity, including the shut-in of SH-12 for most of H1 2022
  • The temporary shut-in of one well during Q4 2022 due to an isolated ESP electrical failure
  • In line with expectations and our development plan, continued base natural decline currently estimated at 6-10% per annum across the Shaikan Field, which remains low relative to the industry even following production of around 115 million barrels to date

Financial

• 2022 net capex of c.$115 million comprised of:
  • Drilling costs of c.$65 million, including the SH-15 and SH-16 wells that were drilled and brought online during the year, and SH-17 which was completed in early 2023
  • Facilities and future well pad preparation costs of c.$35 million, including early work related to the expansion of PF-1 and PF-2 with water handling capacity and installation of flowlines connecting the new well pads to the production facilities
  • Well work over and intervention costs of c.$15 million
• 2022 gross Opex per barrel of c.$3.2/bbl, in line with 2022 guidance of $2.9-$3.3/bbl, despite increased activity and industry cost inflation
• During 2022, GKP received $450 million from the Kurdistan Regional Government (“KRG”) for crude oil sales and repayment of historic revenue arrears
• GKP recently received net $39 million from the KRG for August 2022 crude oil sales. Discussions are ongoing with the KRG regarding payments for September to November 2022 crude oil sales, which are overdue
• Continuing engagement with the Ministry of Natural Resources (“MNR”) regarding proposed amendments to the Shaikan Lifting Agreement, including a change in reference price for Shaikan crude oil sales from Dated Brent to the local Kurdistan Blend benchmark (“KBT”), effective 1 September 2022
• Record dividends paid in 2022 of $215 million, representing a sector-leading dividend yield of 41%(2)
• Cash balance of $151 million(3) with no outstanding debt

Outlook

• As we move towards approval of the Field Development Plan (“FDP”), we are focused on driving profitable production growth by expanding the production facilities and continuing our drilling campaign in the Jurassic reservoir, capitalising on the attractive returns resulting from the quick payback of investment under the PSC(4) following the recent recovery of the majority of our historic costs, while continuing to return excess cash to shareholders, underlined by our declaration of a $25 million interim dividend, payable on 3 March 2023
• In line with our rigorous focus on capital discipline and maintaining a robust balance sheet, we have built flexibility into our work programme, predicating investment levels on the timeliness of KRG payments and oil prices:
  • Improvements in KRG payment timing and a continuation of the robust oil price environment would enable us to continue drilling beyond SH-18 and update our guidance
  • A deterioration in market conditions, including continued delays to KRG payments, would lead us to review potential reductions in our work programme and guidance
• In 2023, we will bring SH-17 and SH-18 online to target double digit percentage production growth, while laying the foundation for an inflection in annual average production growth in 2024 by preparing well pads and flowlines to enable continuous drilling and advancing the expansion of our production facilities, including the installation of water handling capacity
• We remain confident in the Shaikan Field’s significant production growth potential. We are preparing a Competent Person’s Report (“CPR”) as at 31 December 2022, which will provide an updated independent third-party evaluation of Shaikan’s reserves and resources. We expect to announce the results of the CPR in Q1 2023

2023 guidance

• Gross average production in 2023 is expected to be 46,000 to 52,000 bopd, representing an 11% increase from 2022 at the mid-point:
  • Reflects anticipated contributions from SH-17 and SH-18, the benefits of well workovers, continued prudent management of well production rates to avoid trace amounts of water production, and natural field declines
  • If we continue to drill beyond SH-18, we would expect to review production guidance
• 2023 net capital expenditure guidance of $160-$175 million:
  • $30-$35 million: Completion of SH-17, drilling of SH-18 and well workover programme to optimise production
  • $45-$50 million: Long lead items and preparing well pads to enable continuous drilling beyond SH-18
  • $85-$90 million: Continued expansion of production facilities, targeting by H2 2024 an increase in total field capacity from c.60,000 bopd currently to 85,000 bopd and installation of water handling capacity, potentially enabling the increase in production rates from constrained wells
  • We continue to manage pressures in a supply constrained market
• 2023 gross Opex guidance of $3.0-$3.4/bbl, underpinned by the Company’s continued focus on strict cost control
• Monitoring discussions between the Federal Iraqi Government and the KRG on the management of oil and gas assets in Kurdistan following the Iraqi Federal Supreme Court ruling in February 2022. GKP operations currently remain unaffected

Shaikan Field Development Plan

• The FDP is expected to enhance the sustainability and longevity of the company’s capacity for shareholder distributions, while generating material economic value for Kurdistan and significantly reducing flaring through the Gas Management Plan, a requirement of the PSC
• Capitalising on the Shaikan Field’s significant growth potential and current estimated 2P reserves to production ratio of c.29 years, the FDP is expected to increase Jurassic gross production plateau up to 85,000 bopd and test the Triassic reservoir, targeting initial pilot production of up to 10,000 bopd
• As we move towards FDP approval, we have agreed with the MNR to proceed with execution of the Jurassic reservoir expansion to increase profitable production and cash flow generation, with investment levels predicated on timely payments from the KRG and a robust oil price environment
• While timing of FDP approval remains uncertain, we are making good progress towards key project sanction milestones:
  • Finalisation of technical scope and future work programme, which is substantially complete
  • Optimisation of phasing of the work programme to facilitate accelerated cost recovery, dependent on oil prices and timing of KRG payments
  • Finalisation of commercial negotiations, including a potential update to the PSC with the target of ensuring any changes are at minimum value neutral for GKP
  • Conclusion of the Gas Management Plan (“GMP”) tendering process and, as appropriate, financing arrangements
• The Company will continue to update the market and intends to host a Capital Markets Day as we move closer towards FDP approval

Financial framework & shareholder distributions

• As the Company transitions to increased investment in profitable production growth from the Jurassic reservoir through a flexible capital programme, the Board remains focused on balancing investment in growth with sustainable shareholder returns, while maintaining a robust balance sheet and prudent liquidity levels
• The Company has a policy of paying an ordinary dividend of at least $25 million per annum, and is committed to distributing excess cash to shareholders by way of dividends and/or share buybacks
• In determining the level of shareholder distributions, the Board regularly reviews the Company’s expected liquidity, cash flow generation and investment needs, based on a rigorous framework that includes an assessment of the outlook for oil prices, Shaikan production and future PSC and capital commitments (including costs associated with the FDP), as well as timeliness of payments from the KRG, among other factors
• Since 2019, the Company has successfully delivered against this strategy by growing gross average annual production by 34%, distributing $415 million to shareholders and maintaining a strong balance sheet, against a backdrop of commodity price volatility and the COVID-19 pandemic
• To underline the Board’s continued commitment, the Company is pleased to announce the declaration of a $25 million interim dividend:
  • $25 million interim dividend is equivalent to 11.561 US cents per Common Share of the Company and is expected to be paid on 3 March 2023, based on a record date of 17 February 2023 and ex-dividend date of 16 February 2023
  • Shareholders continue to have the option of being paid the dividend in either GBP or USD, with the default currency GBP
• Closer to FDP approval, the Board expects to provide an update on the impact of the FDP on the overall financial framework of the Company

Board update

Following the Company’s announcement on 19 December 2022 advising of the intention of the Chair of the Board, Jaap Huijskes, to step down at the 2023 Annual General Meeting, the Company’s Board and Nomination Committee has conducted a process for appointing a successor. The Company is pleased to announce that the current Deputy Chair and Senior Independent Director, Martin Angle, will be appointed Chair of the Board following the conclusion of the AGM. Ms Kimberley Wood, current independent non-executive director, will be appointed Deputy Chair and SID at this time.

Jon Harris, Gulf Keystone’s Chief Executive Officer, said:

“2022 was a strong year for GKP, in which we made progress on multiple fronts that will position the company to maximise long-term value from the Shaikan Field. We laid the initial groundwork for a material increase in production levels in 2023 and 2024, while progressing towards key project sanction milestones of the Shaikan Field Development Plan. In addition, we paid record dividends to our shareholders of $215 million, bringing total shareholder distributions to $415 million since 2019, while at the same time strengthening our balance sheet through repayment of our $100 million bond.

Looking ahead, we are positive about the outlook for oil prices, although we remain vigilant about the challenges facing the global economy and the recent delays to KRG payments. Consequently, as we move towards FDP approval and transition to increased investment in profitable production growth from the Jurassic reservoir to drive cash generation, we have put in place a flexible capital programme for 2023 that is responsive to the external environment. This will enable the Board to prudently manage the balance between our liquidity levels, growth investment and distributions to maximise total risk adjusted returns for shareholders. To underline the Board’s continued commitment to reviewing the return of excess cash to shareholders as we progress, we are pleased to announce the declaration of an interim dividend of $25 million.”

A detailed update from GKP today in which they remain overall very positive. Production last year was, at 44,202 b/d in line with guidance and up on the 2021 figure of 43,202 b/d. Guidance for this year has been announced at 46,000-52,000 b/d which is very encouraging.

Like others in the country they are owed money by the KRG but like others appear to be fairly relaxed about it, it hasn’t slowed their generosity to shareholders, today they announced another $25m of interim dividend. this is based on considerable optimism with regards to increased production for this year and next.

Trinity Exploration and Production PLC (LON:TRIN)

Trinity has updated on operations for the three-month period ended 31 December 2022. The information contained herein has not been audited and may be subject to further review and amendment.

Q4 2022 Operational Highlights

· The Company maintained solid production performance over the year in line with guidance:

– Q4 2022 sales volumes averaged 2,961 bopd (Q3 2022: 2,990 bopd).

– Full year 2022 sales volumes totalled 2,975 bopd (2021: 3,006 bopd).

· The Company maintained year-on-year production through a combination of workovers, recompletion activities and swabbing.

– During Q4, 1 recompletion (“RCP”) (Q3 2022: 3) and 27 workovers (Q3 2022: 35) were completed, with swabbing operations continuing across onshore and West Coast assets.

– A total of 19 RCPs and 117 workovers were completed during 2022 (2021: 7 RCPs and 96 workovers).

· The third well of the 2022 onshore drilling campaign was completed and brought into production in the Period.

· Initial production levels for the three wells drilled in 2022 were on prognosis but subsequent performance is lower than planned. Each well drilled penetrated multiple oil-bearing horizons but is being produced currently from only a single interval. Trinity’s normal operating practice is to recomplete these wells sequentially in different productive horizons, or to complete multiple zones, which may improve and extend production levels in due course.

· 31 Tier 1 onshore wells are fully automated resulting in increased cost savings from reduced manual interventions and workover preventions.

Q4 2022 Financial Highlights

· Average realisation of US$ 75.4/bbl for Q4 2022 (Q3 2022: US$ 84.3/bbl) yielding a full year 2022 average of US$ 84.9/bbl (FY 2021: US$ 60.4/bbl).

· Operating cash flow pre-tax and pre-hedging of:

– Q4 2022 US$ 5.5 million (unaudited) (Q3 2022: US$ 8.6 million).

– FY 2022 US$ 26.5 million (unaudited) (FY 2021: US$ 20.5 million).

· Low operating break-even1, pre-hedging, Q4 2022 US$ 31.4/bbl (Q3 2022: US$ 32.2/bbl) and US$ 31.9/bbl (unaudited) for the full year 2022 (2021: US$ 29.2/bbl).

· Cash balance of US$ 12.1 million (unaudited) as at 31 December 2022 versus US$ 18.3 million (audited) as at 31 December 2021 and US$ 16.5 million (unaudited) as at 30 September 2022.

· Completion of the share buyback programme announced on 20 September 2022 with 672,000 shares repurchased (1.7% of the Company’s shares in issue) for US$ 1.0 million.

A further US$ 1.0 million buyback was announced on 24 October 2022 and, during the Period, the Company repurchased an additional 400,000 shares (1.0% of the Company’s shares in issue) for US$ 0.53 million.

The buyback programme is ongoing. A further 152,000 shares have been repurchased during January 2023 (0.4% of the Company’s shares in issue). The total number of shares held in Treasury at 30 January 2023 is 1,224,000 (3.1% of the Company’s shares in issue).

1 Operating break-even is the realised price/bbl where the adjusted EBITDA/bbl for the Group is equal to zero.

Outlook

Hedging Position

The company incurred substantial hedging costs in 2022 as a consequence of high oil prices following the Russian invasion of Ukraine. Those hedging instruments gradually unwound over the course of 2022, and from 1 January 2023 the Company has no hedging instruments in place. The total cash cost of the hedging programme in 2022 was US$ 10.4 million.

The Company believes that hedging remains a valuable component of its risk management toolkit and will continually monitor the oil price environment alongside its financial commitments to determine any future hedging strategy.

Fiscal Reforms

The Government of Trinidad and Tobago’s 2023 Budget Statement announced reforms to Supplemental Petroleum Tax and Investment Tax Credit. These were assented to in the Finance (No. 2) Act, 2022 on 20 December 2022. The benefit to Trinity’s cash flow, at a Brent oil price of US$ 80/bbl, is estimated to be in the order of US$ 2.5 million per annum for the existing business. In addition, new oil wells in shallow water marine areas (the definition of which covers Trinity’s East Coast and West Coast assets), whether in existing fields or new fields, will benefit from lower Supplemental Petroleum Tax rates. We await the legislation which will allow us to calibrate the economic uplift associated with this amelioration.

East Coast – Galeota

The Company is progressing its assessment of alternative development concepts for the Galeota licence on the East Coast, taking account of the fiscal reforms introduced for new shallow marine wells. This includes acceleration of production of existing 2P reserves from the Trintes field. On completion of this work the Company may re-engage with counterparties that participated in a farmout process in 2022.

West Coast – ABM-151

The Company has been progressing a reactivation programme for a key West Coast well, ABM-151, involving the installation of a new crow’s nest and boat landing, together with remote surveillance technology. Final approvals are being sought to introduce hydrocarbons into the system which is anticipated in February 2023 at an expected rate ranging between 60-110 bopd.

2022 Onshore and Nearshore Competitive Bid Round

On 9 January 2023 Trinity submitted a bid for the Buenos Ayres block in the 2022 Onshore and Nearshore Competitive Bid Round conducted by the Government of Trinidad and Tobago Ministry of Energy and Energy Industries (“MEEI”) which had been launched on 8 July 2022.

At a bid round closing ceremony on 9 January 2023, the MEEI opened sixteen bids covering eight of the eleven blocks offered in the bid round, of which two (Trinity’s and one other) were for the Buenos Ayres block. Successful bids are expected to be announced three months following the close of the bid round.

Buenos Ayres is located immediately to the west of Trinity’s existing Palo Seco area interests with Blocks WD-5/6, WD-2 and PS-4 and, at its closest, is only around 500 metres from the Company’s existing sub-licences. This proximity, together with Trinity’s advanced technical understanding of the area’s stratigraphy from the 2020 purchase and subsequent integration and mapping of the Palo Seco and NWD 3D seismic datasets, gives the Company confidence that it has submitted a highly credible and attractive application to the MEEI.

Drilling Update

On 26 January 2023, Trinity announced that it is progressing to drill the deep “Jacobin” well in the WD-5/6 area. The well will test a structural prospect defined on 3D seismic, with target reservoirs of Lower Cruse Miocene-age turbidite sandstones. The well will also intersect multiple shallower stacked reservoir targets.

A successful well would unlock both a further development of Jacobin and follow-on drill-ready prospects and mapped leads both on existing ac

Jeremy Bridglalsingh, Chief Executive Officer of Trinity, commented:

“Trinity delivered a robust operating performance in 2022 which continues to highlight the strength and resilience of our core business.

We delivered production for the year within guidance and we remain on-track to progress our growth agenda in 2023. We submitted an application in the 2022 Onshore and Nearshore Competitive Bid Round in January, we expect to have the reactivation of ABM-151 onstream in February and we continue to target further impactful wells, the most exciting of which is our proposed deep onshore well on the Jacobin prospect. These are the first near-term growth catalysts we are pursuing, as we unlock the value in our portfolio. Coupled with that, our programme of share buybacks reinforces our focus on creating and returning value to our shareholders.

Trinity is pleased to have bid for the Buenos Ayres block as part of the 2022 Onshore and Nearshore Competitive Bid Round. Following-on from the positive fiscal changes announced on 26 September 2022, the success of this licensing round demonstrates that the Government is focused on stimulating the energy sector which we expect will continue to provide additional growth opportunities for Trinity.“

After having announced the punch line last week today Trinity announce the meat and drink today but it was nothing to really cheer, production was in line with guidance but that was of course still down albeit by a smidgeon.

The industry in Trinidad is a tough game and it looks like Trinity came to this particular knife fight armed with a catapult. The Jacobin well is going to be mighty important but looking at the competition, even if it comes in it is unlikely to be a game-changer which is what the oppo are delivering right now…

And finally…

In the FA Cup 4th Round there were few surprises which is rather a shame. Teams going through are the noisy Neighbours who beat the Gooners 2nd’s, Leeds, the Foxes, the Robins which a good win over the Baggies, the Saints, Spurs, the Red Devils, the Seagulls who ko’d Liverpool and the Potters. Plenty of replays as Blackburn and Birmingham, the Cottagers and the Black Cats, the Tractor Boys and Burnley, the Hatters and the Mariners, the Owls and the Cods and in an amazing tie in which Wrexham and the Blades ended up 3-3.

Tonight sees the Rams host the Hammers and of course the 5th Round draw…

Rather pleasing to see Rory beating Patrick Green at the Desert Classic and of course Djoko equalled Rafa’s Slam number of 22 wins.

And The Philadelphia Eagles will face the Kansas City Chiefs in the Super Bowl in a couple of weeks time after the Eagles beat an injury hit 49ers 31-7 and the Chiefs beat the Bengals 23-20.

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