Member Info for Exploration

Project has been around for 15 years, but never happened -

https://www.eib.org/attachments/pipeline/20090488_nts_en.pdf

Penguins

I agree there is no such thing as the ‘Loxley Field’ - but in the UKOG fantasy world, let’s pretend it does exist and look to the future.

Gas producers in UK must sign up to the ‘Network Code’ and specify quality of the gas, daily and annual quantities entering the transport system and so on. See this link for details; www.gasgovernance.co.uk

In the unlikely event gas is discovered in commercial quantities at Loxley, its not just a matter of ‘plugging in’ to a nearby NTS pipeline, but rather just a start to a long process to qualify as a gas producer.

It’s inconceivable that UKOG could qualify in a five to ten year period taking into account the need for appraisal and requirement for finance.

FD

Deltic managed to wipe £5 million off our market cap with a clumsy announcement about ‘delays’ and will have learned a lesson only to announce firm information.

It follows Deltic will only announce firm drilling dates when officially informed by Shell exactly when it plans to deploy Volaris 122 to drill the Pensacola prospect.

Even then, we won’t hear much about drilling results because Deltic is constrained by a confidentiality article in the farm out agreement requiring Shell to approve any announcements.

Having said that, it would be something of an achievement not to encounter gas shows in the Zechstein or deeper Carboniferous at Pensacola. But what really matters is the result of a well test, (say >96 hours duration) if gas or condensate is discovered - and such a test must be authorised by NSTA. Also, I don't know if testing costs are carried by Shell or whether Deltic is liable for a share.

So we’re in for a very long wait for definitive results in my view.

It's a little more complex than you think - see link below.

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2022/03/Insight-111-Explaining-European-gas-prices-in-2021-the-role-of-the-traded-gas-hubs.pdf

Wizard

I think SS needs steering wheel - road map comes later

Three previous wells on the licence encountered reservoir objectives between 4000ft and 6500ft SS.

All found gas shows - hence the high chance of geological success.

See 2015 CPR for geological review of previous drilling.

https://www.rns-pdf.londonstockexchange.com/rns/7920H_-2015-12-2.pdf

Harmonica

Good points on symmetry. But the main point is that oil companies no longer ‘own’ the commodity - governments do - and they call the shots. History shows that oil companies which do not maintain alignment with governments and share benefits are forced out - as happened to BP in Iran, Iraq and Nigeria in the 1960s and 1970s before ‘resource nationalism’ became popular in governments. Remember BNOC, Wedgewood-Benn and Harald Wilson’s talk of UK joining OPEC?

But these are extreme examples, and BP’s success over the last 35 years has been down to skillfully navigating the labyrinth of international politics (except for Russia perhaps). And UK is no different - all I’m saying is that a windfall tax in UK must be a fair way of sharing the ‘luck’ of super-normal profits between producers and consumers (i.e. you and me).

Sure, beat up oil companies in public, but don’t penalise them over the ups and downs of oil/gas prices.

moniman

Agree. My view is that a windfall tax on UKCS gas production for all companies is already priced in.

And I think we can be sure BP and others' commercial analysts have been working on this alongside HMG treasury specialists for the last few months to enable a smooth roll-out of new legislation.

moniman

Windfall taxes. There’s a lot of hysteria in the news from politicians and the quality of the debate has tumbled. Windfall profits are, by definition, not planned as part of normal business, but there is a fundamental, strong case to tax them and share the gains with the owners of the oil and gas I.e. you and I.

Under almost all jurisdictions oil & gas belong to the state. The exception is the USA where the oil & gas belongs to the landowner at the surface, be it an individual or the federal government.

Most importantly in UK, oil & gas belongs to the Crown i.e. you & me - NOT the oil companies. The Crown licences companies as contractors to explore for and produce the oil & gas.

So, why should contractors be allowed to produce OUR oil & gas and then sell it to us while enjoying unexpected gains resulting from ‘lucky’ circumstances? Surely we, as 'owners', should enjoy the upside - not the contractors.

Windfall profits are large, unexpected gains resulting from lucky or unexpected circumstances. Such profits are generally well above historical norms and may occur due to unpredictable factors such as a price spike or supply shortage that are either temporary in nature or longer-lasting. Companies that benefit from windfall profits had not planned for them, but they would be naturally pleased to receive them. On the other hand, commodity businesses constant test their portfolios are robust to low prices.

To you and I, a ‘windfall profit’ could be an income spike as a result of a one-time event, such as winning the lottery or inheriting money. Funnily enough, in UK lottery winnings are tax free but inheriting money is ‘pre-taxed’ thanks to Inheritance Tax which must be paid before probate is granted and an estate distributed.

Finally, I have a substantial holding in BP. From a commercial standpoint I don't support windfall taxes. But morally, there is a strong case which I trust BP will easily build into its ESG agenda. Otherwise, its reputation will suffer from the mud-slinging going on today.

FD

Mercer is one of the most commonly used consultancies with huge data-bases on numerous industries - not just energy. And they generate very good returns.

Obviously they receive guidance from clients, but then conjure up a package within limits defined by their world-wide data bases. Their brand adds a veneer of respectability & good governance to many AIM companies.

So the notion of remuneration committees making up the remuneration numbers is far from the truth. All they do is rubber-stamp Mercer’s numbers and take a view about whether it passes a ‘smell test’ by investors.

In this case there is a bit of a whiff, but the operator has not risked any of our money so far on non-commercial exploration drilling. On there other hand, being paid so much just for doing your job seems excessive i.e. it stinks!

FD. The answer to any queries about compensation will be that they use Mercer-Keplar to assess and benchmark salary, bonus and other elements of a package. The Remuneration Committee will then endorse the numbers in a meeting taking a few minutes.

https://www.uk.mercer.com/what-we-do/workforce-and-careers/salary-benchmarking.html

Tittmnttn

News is that Swindells and Nunn hiked their salaries to >£350,000 pa + shares + options for 2021 - see Annual Report just out.

FD

The recent ‘’delay’ faux pas just emphasises the care required when releasing price sensitive information. There was simply no need to see 10% wiped off the share price. But let’s give the CEO the benefit of the doubt since Pensacola is the first UKCS offshore exploration well he has ever been directly involved with. I think same applies to COO.

On a positive note the CEO has followed the first rule of exploration by independent companies. i.e. never spend your own money on exploration drilling. Or at least minimise your own contribution. I believe the CEO has an eye for financial and contractual detail and pulled off two important farm outs where much of the grunt work is conducted by experienced farm-in-ees, thereby avoiding the need of an expensive cast of thousands st Deltic.

So ‘full marks’ for business acumen and ‘could try harder’ for communication with shareholders.

Fairdealer

My impression is that the recent decline in share price could be self-inflicted. Timing of petroleum operations is notoriously unpredictable, especially for a non-operating partner. Deltic could do better by using the phrase “Assuming there are no unforeseen delays” ahead of “the well is scheduled to be drilled in 2Q”. I concur with Southeast18’s comments to stay calm re Pensacola.

Shell has only one rig on contract in UKCS so there is every reason to expect Valaris 122 is nominated to drill Pensacola, supported by supply vessels, helicopters and so on. Their supply base in Aberdeen will likely be stocked with long-lead items such as casing, cement, mud etc. And no doubt there is a long term contract with a mud logging company, electric logging outfit etc. As Deltic points out, continuity of operations improves efficiency of operations and associated logistics. It appears the drilling contract provides Shell with an option to extend on a well-by-well basis. These contracts require the client to notify the contractor to extend by one well, provided the nomination is made a certain number of days before completion of the current well being drilled by Valaris 122. So everyone is ‘spinning plates’ and it’s not for Deltic to make any timing announcements, which would have to be cleared by Shell anyway.

Shell’s withdrawal from Egdon’s Resolution and Endeavour licences does make geological sense. The reservoir is fractured Roker dolomite - equivalent to the Z2 Zechstein cycle. It’s the same lithology as the Kirkham abbey Formation being evaluated by Rathlin/Reabold onshore where there is plenty of gas in a very tight dolomite reservoir which has failed to flow after 2 wells when tested earlier this year. Yes - plenty of gas in place at Resolution and Endeavour - but a lot will remain in the reservoir.

Also, the gas at Resoloution/Endeavour is dry gas sourced by a couple on inliers of Westphalian coals, whereas any gas in Pensacola must have been generated by namurian shales - older than Westphalian - which yielded the wet gas (gas with condensate) such as found at the Breagh field and the Pegasus trend to the east.

I was basing timing on Valaris’ news release. But now looks like Pensacola is late August/September - and that’s assuming there are no more delays.

“According to Valaris, the owner of the jack-up drilling rig, Shell has extended the contract with a one-well option with an estimated duration of 97 days.

According to a Kingfisher Bulletin notice from early March, the rig will be conducting drilling operations at the Edinburgh field on the 30/14a-Edinburgh well.

The Valaris 122 will be drilling at a standalone location in the Edinburgh field on a single well campaign. The total duration of drilling and completion activities is expected to last approximately 160 days, with the end date set for August 31, 2022”.

Oilriches

Could be that ‘news’ (i.e. arrival of rig at Pensacola) is priced in. It’s fairly common knowledge that Valaris 122 is drilling the Shell/Capricorn Diadem Prospect at the moment prior to moving to Pensacola.

Deltic can’t tell us much about their plans because they’ve surrendered control of newsflow to Shell and releasing information requires a coordinated approach.

However, we should all be careful about getting carried away with the Pensalcola prospect. ~Three wells on P2252 have been drilled before - all dry, but with gas shows in the Zechstein primary reservoir target plus a sniff of gas in the deeper Carboniferous. Deltic should let us know why the outcome of the forthcoming well on Pensalcola will be different from from the previous wells.

Also, bear in mind the recent flurry of enthusiasm about the Zechstein play hasn’t come to much. The Ossian/Darach discovery on 43/4 tested oil and gas, but watered out and doesn’t feature in an appraisal programme.

Nine tails

I was referring to your comments;

“Why waste time and money on fracking, which has had no meaningful results in over 10 years”

But I do agree with you that all these pompous politicians don’t have a clue about what they’re talking about.

Nine tails

Fracking has been used in UK for years. It works.

In recent years technological advances have enabled successful Southern North Sea ‘tight gas’ offshore field developments: Ensign, Chiswick, Babbage, Clipper South. A combination of horizontal and hydraulic fracturing technology was applied to exploit these reservoirs with average permeability values ranging from as low as 0.01 to 1mD.

Fracking existing tight Rotliegendes reservoirs has been ‘imported’ by German operators with extensive experience accumulated over decades in German gas fields. Only since ‘fracking ships’ have become available have UK operators realised the benefits with none of the drawbacks seen onshore UK.

bobat

Exploring the Rotliegendes feather edge did work for the Cygnus gas field.

But the Cairn 3D does look risky. See link below.

https://www.delticenergy.com/wp-content/uploads/2020/12/Deltic-Presentation-PROSPEX-2020.pdf

https://www.delticenergy.com/wp-content/uploads/2020/12/Deltic-Presentation-PROSPEX-2020.pdf

Wizard

Are you living in ibug’s ‘real world’ too?

There is no ‘site’ at Arreton which you mention. And UKOG’s licences are administered under the Petroleum Production Act which doesn’t cover geothermal activity. Yes, there is jurisdiction to allow exclusive rights to geothermal work, but it’s unrelated to petroleum operations.

Besides - the previous two dry holes at Arreton didn’t report temperatures suitable for geothermal abstraction.

And what about Licence rentals? The IoW Licence is well into its second term with rentals heading for £200 per sqkm. That’s >100,000 per annum. Why retain a licence with no plan to explore it? Answers on a (very small) postcard please.