Today’s Oil & Gas Update – Falcon Oil & Gas; Mosman Oil & Gas;


Oil Price News 

Oil prices continued their steady climb upwards as hopes of a 2021 return vaccine news outweighed new of higher than expected US crude stockpiles

Brent was up 3.8% to US$47.80/bbl yesterday and January contracts are tracking closer to parity, a sign traders expect an improved demand outlook

Oil & Gas Daily Flow

Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below

 

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Market Update: Wednesday 25 November 2020

Pantheon Resources (AIM:PANR): Rig contract for the Talitha #A well secured

Falcon Oil & Gas (AIM:FOG): Kyalla 117 N2-1H ST2 still awaits measurable gas breakthrough

Mosman Oil & Gas* (AIM:MSMN): FY20 results, revenues and cash flows continue to grow

Tullow Oil plc (LON:TLW): Strategic update ahead of CMD

 

Energy Prices         

Brent Oil US$48.4/bbl vs US$46.3/bbl yesterday

WTI Oil US$45.4/bbl vs US$44.2bbl yesterday

Natural Gas US$2.72/mmbtu vs US$2.73/mmbtu yesterday

 

Oil Price News 

Oil prices continued their steady climb upwards as hopes of a 2021 return vaccine news outweighed new of higher than expected US crude stockpiles

Brent was up 3.8% to US$47.80/bbl yesterday and January contracts are tracking closer to parity, a sign traders expect an improved demand outlook

AstraZeneca’s trial is reported to be 70% effective and can be stored at temperatures of 2-8 degrees Celsius for up to 6-months

This makes storage and distribution far easier particularly in low income countries

Like Moderna’s and Pfizer’s vaccines it will take a few months for widespread distribution of the vaccine to occur so demand expectations remain for a return to more normalised demand levels in H2’21

US government crude inventory data will come out later today, inventories rose to 4.2MMbbls last week, well above the expectations of a 1.7MMbbl rise

Consensus expectations are for a 0.127MMbbl increase in inventories this week

 

Gas Price News

Natural gas prices moved higher yesterday rebounding for a second consecutive trading session

Prices were buoyed following a report that showed that the weather was expected to be cooler than normal for most of the south over the next 8-14 days

There is one storm in the Atlantic that has a 10% chance of turning into a tropical cyclone but it should not impact any natural gas installations

 

Yesterday’s Risers and Fallers

 

Company News

Pantheon Resources (AIM:PANR): Rig contract for the Talitha #A well secured

Share Price: 33p, Market Cap: £200m

Pantheon has confirmed the Company has secured a rig contract with Nordic (a wholly owned subsidiary of Calista Corporation), to drill the Talitha #A well on our Talitha Unit, with operations expected to commence in January 2021.

The Talitha #A well will target four independent reservoirs in three separate trapping sequences  which the Company estimates has the potential to contain in the region of 1Bnboe of recoverable oil, although ongoing work is required to formally delineate the ultimate potential of the lower targets. 

The Talitha Unit lies adjacent to the Dalton Highway and Trans Alaska Pipeline with the major infrastructure servicing the North Slope of Alaska, offering significant financial and operational advantages in the event of a commercial discovery.

The contract secures the use of Rig #3 for the upcoming Talitha #A well, which is the same rig which successfully drilled the Winx #1 and Charlie #1 wells for another operator on the Alaska North Slope in the last two winter seasons. 

Our take: The Company continues to gear up to explore the prospective resources at Talitha seemingly with or without a farm-in partner and last week’s US$30m placing will go some way in supporting that strategy. In terms of resource scalability, Talitha has scope for further resource improvement as Pantheon matures its work over the coming weeks and months to include the Slope Fan System, and the entire structure across the SMD, which will now include the downdip section.

 

Falcon Oil & Gas (AIM:FOG): Kyalla 117 N2-1H ST2 still awaits measurable gas breakthrough

Share price: 6.6p, Market Cap: £64m

Following the successful hydraulic stimulation of the Kyalla 117 N2-1H ST2 well, Falcon has provided a comprehensive update on exploration the Company’s ongoing activity in the Beetaloo Sub-basin, Northern Territory, Australia

Flowback operations of the fracture stimulation fluid commenced in early October before the well was shut in and production tubing was installed, with flowback operations recommencing in late October.

The well continues to flow back fracture stimulation fluid, with some gas shows; however, a measurable gas breakthrough that would allow the commencement of extended production testing to assess the extent of the resource that may be present has yet to occur.

Data collected and analysed to guide ongoing operations is showing greater pressures in the horizontal section of the well than in the surrounding reservoir, due to the saline content and density of the flowback fluid and the hydrostatic column weight of this fluid in the vertical section.

Operations are now being planned to re-enter the well with coiled tubing and apply nitrogen lift techniques to lower pressures in the well and assist with achieving and sustaining gas breakthrough that, if successful, will allow extended production testing to commence.

This technique is not uncommon and was applied to the successful Amungee NW1-1H well in 2016.

If a decision is made to temporarily shut-in the Well, operations will resume in early 2021.

Management maintain that other data collected to date remains positive.

In particular, core analysis indicates mature hydrocarbons and good permeability (natural pathways for gas to flow) and mud logs indicate liquids rich gas.

The fracture stimulation of the well was successful and the integrity of the well remains.

Our take: Today’s update is clearly not the news shareholders have been waiting for. The pressure difference can prevent the flow of gas from the reservoir into the fractures and then to surface and it is not unusual in shale plays to observe the salinity and density of the flowback fluid to increase as salt easily migrates from the formation. With the minor gas breakthroughs observed, the remaining fluid could consist of completion fluid, broken frac fluid, hydrocarbon condensate, reservoir water, or a combination of all. Nevertheless, shareholders can take some comfort that Falcon intend to install coiled tubing and apply nitrogen lift techniques to lower pressures in the well and assist with achieving and sustaining gas breakthrough that, if successful, will allow extended production testing to commence.

 

Mosman Oil & Gas* (AIM:MSMN): FY20 results, revenues and cash flows continue to grow

Share price: 0.16p, Market Cap: £4m

Mosman’s FY20 results underline a strong year for the Company against a challenging sector backdrop with revenues increasing 35% to US$1.49m from US$1.12m in FY19.

In addition, gross profit in increased by 149% to US$710.9k from US$285.1k in FY19.

The Company’s net loss for the year of US$4.8m is primarily attributable to a non-cash $4.1m impairment on the carrying value of assets following the fall in oil prices during the year with management taking a very conservative approach.

Operationally it has been a successful year at the Company’s Champion project.

Falcon-1 well was successfully drilled and cased post year end in September 2020.

The wireline logs indicate good porosity and hydrocarbons in the primary and secondary Frio sandstone target zones interbedded with shale between circa 7100 to 7550 feet TVD.

The mud logs also showed hydrocarbons in these zones with an increase in mud gas readings from a background of circa 30 units to over 3000 units in the primary zone.

Oil and gas were produced at rates up to 80bopd and 2.78MMcfd (463boepd) equating to a combined total of 543boepd.

The well is now shut in to obtain more pressure data, and Mosman is now planning the next well at Champion.

Elsewhere, Stanley-3 is still producing from the original completion zone.

On two wells, workovers have been undertaken to improve production rates, with mixed success.

Stanley-2 is shut-in waiting on artificial lift to be installed, and Stanley-1 is currently shut-in following an unsuccessful workover. In September 2020, a new well was drilled at Stanley-4 and was immediately placed on production.

The interest in Greater Stanley was acquired in 2020, as part of the plan to focus on the East Texas area.

The Duff lease, is Held By Production as there are two wells and nominal production. The first activity will be to workover one existing well.

At Challenger, the Cinnabar Lease is “Held By Production”.

Two wells drilled in the Lease have produced significant quantities of oil but are now usually shut-in. 

Mosman will become the Operator of the Cinnabar Lease, will review operations and the possible workover of one or both of the wells to increase production. 

There are four development drilling locations identified using 3D seismic on the Cinnabar Lease. Contract operator services will be provided by a Contour E&P who has the right to acquire a 12% WI in the Lease.

Performance at Welch in the year was sound and the asset remains for sale at an appropriate price.

The sale of the asset will continue the shift in the Company’s focus to East Texas operations.

A sale was agreed in May 2020, however, the purchaser failed to complete the purchase, and the buyer forfeited the US$90,000 deposit.

In the current year, US$60,000 was received, with US$30,000 post year end. The purchaser is now seeking the return of the deposit and the matter is scheduled to be heard in Court in due course.

Mosman has continued to conduct technical work on its Central Australian exploration projects, focused on the 100% owned EP-145, in the Amadeus Basin. 

Due to the pandemic all non-essential access was refused and therefore the team has been unable to make progress.  

Our take: Mosman continues to advance what has already been an active year for the Company across all three Projects. The Company continues to focus on its production led growth strategy with further development upside possible given recent analogous success. With the highly encouraging drilling results at the Falcon-1 well on the Champion project, the Company’s move to higher equity in larger prospects accelerates Mosman’s strategy in our view.

*SP Angel acts as Nominated Advisor and Broker to Mosman Oil & Gas

 

Tullow Oil plc (LON:TLW): Strategic update ahead of CMD

Share Price: 37p, Market Cap: £480m

Tullow’s latest update ahead of the CMD currently taking place is set to announce a new strategic plan to generate US$7bn of operating cashflow over the next 10yrs.

Over 90% of future capex will be pumped into the Company’s West African producing assets.

The first phase of investment is scheduled to begin in Q2’2021 with the commencement of a multi-well drilling programme in Ghana.

The US$7bn of operating cash flow is predicated on an oil price of $45/bbl in 2021 and US$55/bbl in 2022.

2020 production averages 75,000bopd and Full year guidance remains 73,000-77,000bopd.

In Kenya, Tullow is reassessing Project Oil Kenya, while working alongside the government to get an extension to their exploration licenses out to the end of 2021.

Tullow remains open to further asset sales but with reduced urgency after offloading its Ugandan assets for

US$575m. 

In Suriname the prospective Goliathburg-Voltzberg North-1 well is scheduled to spud in Q1’2021.

Focus will also centre on Tullow’s plans for offshore Guyana, with its partners financed and ready to drill on the Orinduik Block, with time of the essence for the Company to update the market on timing.

Our take: The Company’s shares continue to languish at current levels due to a series of production downgrades and continuing delays to key African projects. Current production is well below the guided 89,000-to-93,000bopd given at the end of 2019, which had also been downgraded at the time. The TEN field in Ghana is also a concern, with production impacted by the suspension of a well. The Company’s precarious financial position (notwithstanding a significant net debt position) has led to a material curtailment in forward investment, against the backdrop of declining asset performance and weak oil prices.

 

Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

[email protected]

 

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

 

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

 

Oil Brent, WTI

ICE

Natural Gas

NYMEX

 

 

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