Member Info for Exploration

From current Private Eye - (part of article)

“Beyond Parsimony

More tightfistedness at the oil companies which coined it from rising oil and gas prices.This time it’s BP’s turn to tell its pensioners that, while profits soar and the bosses trouser record amounts they’re getting a real terms cut in their pensions of 11%.

BP’s profits more than doubled last year to $28bn with further stand-out results in the first quarter of this year. Chief exec Bernard Looney had no qualms cashing in on the good fortune afforded his company more by chance than his own performance, taking home more than double the previous year with a $12m pay package. Dividends and other payouts for shareholders were hiked by inflation-beating amounts.

So plenty of money to splash about then? Not for BP’s pensioners. This follows a similar move by Shell.”

This comes after Looney bragged BP was a ‘cash machine’ - quickly followed by CFO Murray Auchincloss stating ‘BP has money more than it knows what to do with’.

Of course its a cash machine, even a child can work that out. Looney slashed Capex around the world, laid off large numbers of E&P staff, yet continues to harvest value from depleting oil and gas fields. It’s a one-off stunt he cannot repeat - sell before analysts realise BP is becoming an investment illusion.

Dr P

Your board at Deltic did well to attract Shell, but after the departure of their founding CEO, it’s all downhill.

Deltic surrendered its position as Operator to Capricorn and reduced its interests in the licences. Deltic no longer controls communications about the ‘conveyor belt’ of opportunities in the form of four of five possible wells sponsored by Capricorn shown the March 2023 corporate presentation.

Deltic now has a 40% interest in licenses P2428 and P2567 and a 30% interest in licenses P2560, P2561 and P2562, and Capricorn was funding 100% of an agreed work program for each of the five licenses up to the point of making a drill or drop decision on each licence.

While the discovery of gas at Pensacola was expected to boost Deltic’s value, the fallout from Capricorn’s boardroom coup and withdrawal from North Sea had the opposite and equal effect.

Result? Value created < Value destroyed

Slights - its his ‘Hayward moment’ along with the ‘dull as a wooden chair leg’ CFO.

The legal issue is the BP (Auchincloss) is a ‘person of significant control’ of BP’s Trustees of the Pension Fund - but at same time is also blocking a small uplift in pensioners’ payments. Obviously even to a layman a massive conflict of interest affecting ten of thousands of BP pensioners.

May sound dull, but to earn what they do, the CEO and CFO should know what they’re talking about - which they didn’t at the AGM.

GP

The Colle Santo gas field was discovered by Forest more than a decade ago. Forest sold it to Avanti - a TSX listed E&P company. Forest submitted a development plan to Italian authorities in 2011, but it went nowhere which prompted Forest to sell.

Avanti Energy put a lot of work into a new development plan after a lot of work with local stakeholders over a 5 year period.

Avanti had to establish an Italian subsidiary, CMI Energia, according to Italian law which took time. There followed a protracted saga of ticking all the boxes of Italian legislation which everyone knows is cumbersome and slow. In fact the field became known as the ‘Adagio Gas Field’ due to its slow progress - whereas ENI developments raced ahead of foreign investments. Of course, there is a reason for this.

In 2016 CMI Energia submitted its development plan to the Ministry of Economic Development for the onshore Colle Santo block. The plan involved piping wellbore fluids to a gas treatment plant 21km away from the gas field in an established industrial zone. Quite complicated in terms of Italian bureaucracy.

More recently it seems LNEnergy has an option agreement with CMI to develop the field. So the big challenge is to actually make something happen in Italy - when there is a clear path to development.

Dr P

On the topic of ‘news’ from Deltic, as far as I can see they’ve lost control of their immediate plans because their main partners and sources of drilling funds (Shell and Capricorn) have reviewed their strategies since they farmed in to Deltic’s properties.

Thats not to say the fundamental attraction of Deltic’s assets has changed when viewed through Deltic’s lens. What has changed is the removal of drilling money.

CAPRICORN has fulfilled it’s commitments to Deltic by acquiring 3D seismic and earning an interest in several licences. But Capricorn announced the new seismic had written off the Plymouth prospect and therefore would not be proceeding to drill. Capricorn is now trying to salvage some value by selling its interests and while that is going on, Deltic must watch and wait. And in recent months Capricorn’s strategic review has handed cash back to shareholders, closed their Edinburgh office, reduced staff and cleared out the previous board. Capricorn’s future is now solely E&P in Egypt.

https://dailybusinessgroup.co.uk/2023/04/capricorn-selling-uk-assets-seeks-capital-office/

SHELL is making radical changes, completely unforeseen since farming in to Deltic’s properties more than 3 years ago.. The Groningen gas field will be shut down completely in 2024, all Shell’s small onshore and offshore gas fields, pipelines etc in Netherlands are up for sale.

https://www.reuters.com/markets/commodities/exclusive-shell-exxon-launch-sale-major-dutch-gas-venture-document-2022-09-06/

Same for Southern North Sea. Obviously Shell’s commitment to Selene depends on the ‘small print’ of their agreement with

https://www.reuters.com/business/energy/exclusive-shell-moves-sell-british-north-sea-southern-gas-fields-sources-2022-02-15/ .

In summary, Deltic has found itself in the wrong place at the wrong time. It’s partners have left them in a creek without a paddle - and nothing they can announce without partner approval!

GP

The Colle Santo gas field has remained undeveloped for more than a decade. I’m not sure if Avanti from Canada still operates it.

The Italian government changed the foreign investment law last year in response to Russia’s invasion of Ukraine. This was a new development in the Foreign Investment Regulation (FIR) landscape as investors and multinational groups establishing a new presence in Italy via a NewCo now need to factor in the timing necessary for the FIR notification and governmental clearance to set up the new presence. This is similar to what investors and multinational groups already had — and still have — to factor in if they were to acquire an already existing company holding strategic assets in the Italian territory. It just takes time.

Maybe this is why the recently registered LNEnergy only has an option on the gas field - and Reabold has an option on LNEnergy’s option! Presumably no money has changed hands yet and progress depends on due diligence.

Dr P

In terms of capital allocation, major companies constantly review their options, most of which are hard wired in terms of agreements with host governments. And strategies change - with Capricorn switching discretionary spending to Egypt rather than UKCS.

BP has simply pulled out of discretionary spending everywhere and abandoned huge projects in West Africa which now have new owners.

But these changes take years to emerge on balance sheets although if implemented ruthlessly can deliver immediate results.

In doing so, over two or three years, exploration write offs vanish and project Capex declines dramatically. And, guess what - profits increase. There is no need to replace reserves, nor replace production except in a few areas.

North Sea; Selling NAM, which has underpinned the Shell/Exxon JV in Europe, including North Sea, since the 1950’s is a turning point in their corporate enterprise, although it doesn’t extend to Norway. But Shell is reported to be selling Norway’s business to Harbour Energy. And Shell/Exxon is selling UKCS assets.

What does this mean for Deltic?

Funding for Pensacola appraisal by Shell jeopardized

Funding by Shell for Selene depends on new ownership of Clipper/Bacton export system

Funding for exploration by Capricorn unlikely unless new partners found to take on Capricorn’s positions

As I’ve said before, finding oil and gas is easy - but finding the money to do it is much harder.

Dr P, I appreciate you balanced posts, but tell us where the money will come from to realise the rosy outlook you describe for Deltic?

FD

The article, which is more than a year old, is about Shell/Exxon selling NAM and all their UKCS JV projects.

Shell operates the Clipper South system and the Bacton terminal which, in turn, is connected to Barque which would receive gas from Selene - if there gas is discovered there next year.

Shell (and BP) have only produced super-normal profits in recent months because they’ve scaled back exploration and project developments. There are a few things which can’t be stopped, but looks like Shell will fulfill commitments and that’s all.

Also, Capricorn is saying they are ‘Egypt-focused and reading between lines are out of North Sea exploration. Same result as BP and Shell - stop investing and move into ‘harvest’ mode as the industry slowly declines.

The good news is that the morphing of the majors and big independents opens opportunities for entrepreneurial companies although I can’t see Deltic competing in this new space.

Moneybunch

This story about the huge discovery of oil near Cizre on the Syrian border is 'old' news.

It's only in the news because President Erdogan needs a 'good news' story to bolster his flagging popularity in the part of Turkey affected by the recent earthquakes. He's desperate for votes.

He's using state oil company TPAO's results to make voters think 'Vote Erdogan, find big oil and huge gas'

https://edition.cnn.com/2023/05/01/middleeast/turkey-general-election-explained-mime-intl/index.html

Quite a contrast to UKOG where the slogan is 'Vote Sanderson, Find nothing'

This 'new' discovery has been known about for years. It's near the Syrian border and 100s of kilometres from Sanderson's oily smell at Pinarova. It's old news recycled by Erdogan's PR team - and, if you disagree, his men will arrest you and you can enjoy 10 years in a nice Anatolian prison.

December 2022 report.

Sehit Esma Çevik-1 (SEÇ-1) Exploration Well in Mount Gabar Area, Sirnak, Southeast Türkiye, drilled on 10 May 2021, has resulted in a discovery with 36 API oil. After the oil discovery in SEÇ-1 Well, till mid-December 2022, 6 wells were drilled in the field, of which 5 are now producing 5.350 b/d oil in total, and 1 is expected to be in production shortly. The cumulative oil production reached 840.000 barrels, while there are ongoing drilling operations for 2 more wells.
After the generation of the geodynamic model of the SEÇ Field by the evaluation of the geological and 3D seismic data sets; petrophysical studies of the producing zones have been carried out to set up the reservoir models. The models are further approved by the well data, tests and analysis. From the above mentioned evaluations, oil in place in the field is determined as 250 million barrels, while the recoverable reserves are calculated as 150 milion barrels oil. The reserves are being updated with the results upon the completion of each well in the field.
In 2023, TPAO is planning to drill 12 more appraisal and production wells. The oil production from the field is expected to reach 25.000 b/d by the the end of 2023.

Sometimes companies assert they are ‘appraising’ discoveries - hence the fantasies of Loxley, Arreton etc.

Investors are trading on an intangible virtual commodity called ‘hope’. Unfortunately ‘hope’ is a powerful drug to which many have become addicted.

Now ‘Spring Meadow 1 in Turkey enables yet another ‘appraisal’ programme lasting years.

If UKOG board found oil on their garage floor they'd put photos on twitter and raise money to appraise it!

XYZ

The rig in the photos is actually a water-well rig. It’s mounted on an AWD chassis with a single engine to provide power to road wheels and the rotary table. There are a number of similar rigs in the Siirt area which is hot and dry in summer. Irrigation from wells brings water to the farmers.

The clue is in the name of the well - ‘pinarova’ means ‘spring meadow’ in Turkish as the lush grass in the pictures demonstrates. Several of these rigs operate in the Siirt area.

The rigs commonly use oilfield bits and tubulars for convenience, so they’ve started with 13 3/8” bit and I hope there is a cement unit available. There is no well-head or pressure control capability - presumably because the risk assessment says its not needed.

Electric Logging? Not needed.

http://www.basaksondaj.com/en/home/all-products/1/products/5/water-drilling-machine-bsm-600

Penguins

As you say, a likely of the ‘small 3D’ survey might be to eliminate the entire Loxley ‘discovery’ which only exists in UKOG’s geotechnical fantasy world.

Remember the Arreton fiasco which Isle of Wight councillors booted out when they realised the so-called ‘discovery’ was a tiny bitumen stain in one of two dry wells at the location proposed by UKOG. When UKOG claims were 'found out' the licence was relinquished.

As for Loxley, the lack of uphole surveys to constrain the ‘static’ corrections needed for datum corrections suggests the whole Loxley ‘discovery’ in UKOG’s maps may not exist at all.

And, given the depth of the target Portland-age reservoir, its likely multiplicity of 3D coverage will be more than 3 or 4 fold.

Penguins

The GDPA - Turkey’s regulator for O&G may have agreed to allow Pinarova to qualify as an ‘exploration well’ which will enable Aladdin to hold the licence for another year.

Hence no need to map the ‘prospect’ or estimate volumes. Besides, it’s too shallow for seismic and will just be another headache if it flows, because Turkish law requires the licence to be ‘held by production’.

Another initiative from NSTA to accelerate transactions between licensees who are bogging down progress on exploration drilling.

https://www.nstauthority.co.uk/news-publications/news/2023/nsta-acts-to-speed-up-north-sea-oil-and-gas-production/

With UKCS acreage becoming more and more fragmented, licensees should pool their interests to drill, say, one well on a prospect or lead which extends over block boundaries. For example, the area between Breagh and Cygnus where Deltic has licences needs to be explored and developed as a single ‘unit’ rather than in a piecemeal fashion.

This approach to ‘pooling’ is State law in the USA which has kept their industry going for over 150 years despite extreme fragmentation of mineral rights.

See example from Colorado

https://cogcc.state.co.us/documents/about/Help/Pooling%20Pamphlet.pdf

Dr P

In most natural resource industries the paradox is that the less you know about a deposit the better it can be. Apparently reasoning from acceptable premises, leads to a conclusion that seems logically unacceptable or self-contradictory.

At Pensacola an area half the size of Central London has been derided by a hole roughly the diameter of a lamp post near Euston station. Really?

It’ll cost more to appraise than it’s worth.

Dr P - yes, the Deltic saga will have many more twists and turns.

But I think you understand that although finding oil and gas is relatively easy, finding the money to do it is extremely difficult.

Capricorn has made their decision and will leave it to their lawyers to sort out the mess.

I suppose that clears to way for Deltic to farm it out again if they end up with 100% interest as result of Capricorn’s departure - as long as they can do it before licences run out!

Dr P

If you recall, Capricorn’s farm in was a two stage affair.

1) Aquire 3D which is done
2) if prospects emerged, commit to drill

So far Capricorn has written off the Plymouth prospect, which was supposed to be another’reef’ but is actually a salt swell as shown on 3D.

With obligations fulfilled Capricorn has no liabilities to Deltic as far as I know and therefore can walk away. Also, Capricorn is letting most of their staff in Edinburgh go and will probably relocate any worth keeping to London.

This is all the handiwork of new directors Richard Herbert and Hesham Makawi who was previously working for Amoco in Egypt before the BP merger when he ended up as top dog in Cairo.

None of the new board has much North Sea experience.

Announced couple of days ago. Capricorn getting out of all non-Egypt exploration.

Dr P

Capricorn is pulling out. That’s why price has collapsed today.