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Geo,
Nope. It is not true that 2P volumes can only be produced with drilling new wells. Mnazi Bay is not a mature north sea oil field with a typical bow-wave production forecast, all depending on the succes of future sidetracks and exploration/appraisal wells. Mnazi Bay is a greenfield producing a simple, lean gas, with an easy to predict behaviour. The last well was drilled many years ago. Yes, my background is in oil and gas, and I do not agree with your statements regarding the reserves.
I do agree with your comments regarding the BOD. WEN's management doesn't do anything at all, and after burning ~100 mln or so, shareholders are silenced with a small dividend. Unless somebody forces managment to change, nothing with happen. And why would they change anyway as long as they get away with it? Salaries are sky high; G&A spending is outragious. All this stuff about being a "pseudo operator" is a fabrication. M&P is the operator, they invoice WEN for their work. WEN’s team in Tanzania doesn't even employ any engineers/geoscientist. When Bob finally retires for real (in 2023?) things may change, but personally, I doubt it. They only care about a licence extension, nothing else. Shareholders must unite and force change at an AGM. This has become a money grab issue unfortunatley. Comparable, indeed, with many other AIM listed companies…..
Agd50,
The Kinyerezi extension will actually add 185 MW capacity in total, which is 35-40 mmscf/d. Saying that, I think you need to assume a 50/50 split between Songo Songo and Mnazi Bay, so it should add 17-20 mmscf/d to production, when running at full capacity. Best chance of that is in the dry season (second half of the year).
But very positive news that the commissioning seems to be really happening now. We've been waiting ~5 years or so! Does anybody know who is doing the commissioning?
Geo,
In the real world, 1P and 2P volumes are defined by international standards, and in the case of WEN, the 1P reserves are 221.7 BCF and the 2P reserves are 423.3 BCF (100%). If you don’t believe or understand these numbers (independently verified, annually) then then that is your problem. Annual production is also not 40 Bcf but 30 Bcf, but that aside. WEN will invest in the compression project to unlock the 2P reserves. Reserves are not a problem for the company. A much bigger issue is that after compression is installed, management can continue do nothing at all (while pretending to be busy), as they will never recover the 2P volumes before the end of the current licence….
Geowiz,
You surely must be glad to have seen that the PD (and PDP) volumes are significantly higher than 2 years ago: 82 vs 70 bcf (PD) and 82 vs 58 Bcf (PDP). And you know what? No new drills, no new hook-ups, no compresson, no 3D seismic..... nothing at all. J
Must surely be a very bad reserves report therefore, even though it is prepared by some independant experts, no?
Amazing how clueless you really are. You know absolutely nothing about petroleum engineering or reserves accounting. Go away.
Very solid report, I like it a lot. 1P, 2P and 3P reserves all dropped less than expected (3P showing a big increase in fact!). If I look at the P/z plot for the upper MB (figure 4-28) then I wonder if there could not be a lot more in the ground.... MB-2, MB-3 and MB-4 all start to deviate from the decline curve, in a very positive way..
Also, very important, compression costs have come down, from 44 mln to 20 mln. Wow, that's 24 mln more cash (100%).
Mnazi Bay clearly continues to perform better than expected, and it would not surprise me to see even bigger positive adjustments in future. Could the Upper Mnazi Bay be connected to a larger volume offshore?
All in all, an excellent report in my view, it basically saves the company. Te dividend looks absolutely secure for the next 9 years..... Not sure if it is enough to convince more investors, but time will tell.
Highyield,
Thanks for posting!
hmm....
Using the averaged out CPI for 2021 is fine of course (is indeed 4.7%, see link below), but was the gas price in 2021 3.2825 $/mmBTU (as in her email to you) or was it $3.35/MMbtu (as per the RNS)?
The Opex estimate of $0.54/Mscf was for the whole of 2022 (see RNS), so what has any cost-backloading to do with it? Why is it higher
It remains vague and disconnected.... as so often before. Ultimately, it's all about how much you trust WEN's management and unfortunately, I don't.
https://cpiinflationcalculator.com/2021-cpi-and-inflation-rate-for-the-united-states/
On 31/12/2021, based on the M&P estimate, 1P reserves are 221.9 Bcf or 7 years of production at the current flow rate (so until mid 2029). 2P reserves are 425,1 Bcf, or 14 years' production (until 2036). The only big CAPEX investment required for either case cases is the inlet compression project that is currently in de FEED phase. MB-5 will add even more volumes (~200 BCF), which is the 3P scenario.
Stop twisting my words Geo. I said that you can consider the reserves as essentially infinite FOR THE CURRENT LICENCE PERIOD, so until 2031. The company can bring forward MB-5 if demand is permanently increased and produce at 130 MMscf/d (or higher even) until 2031. We are demand constraint, for years to come.
It looks as if you don't understand the CPR Geo (or can't be bothered to read it properly), yet you continue to post repetitive and false comments. So that's not trolling?
Lol… if you think that WEN will pay 22 mln for the SCIR% then buy SCIR and don’t buy WEN! Why on earth would WEN pay so much to a distressed seller? There is no competition, SCIR has tried to sell its stake for years now without luck. Sorry but I really can’t see it happening.
No answer from Katherine I guess?
Encouraging news! The commissioning of the Kinyerezi extension should be a real boots for WEN as a higher production rate will dramatically increase profitabilty while it will also trigger discussions about the further development of Mnazi Bay. Will we see 130 MMscf/d in 2023? Once the compression work is completed, it should be possible I would say. Drilling of MB-5 in 2024?
In the absense of an M&A deal (or a significant cost reduction), it may be our only hope to see a higher share price....
Nice find Mikkel. I see the 1P volumes can be derived as well:
2021 Mnazi Bay Gross production: 29.8 Bcf
31/12/2020 -> 1P gross reserves: 240 Bcf
31/12/2021 -> 1P gross reserves: 221.9 Bcf
Reserves revision at year end 2021: +11.7 Bcf
So the 1P volumes are enough for 7 years production at the current flow rate.
Take note Geowiz and stop the idiotic trolling...
Good email HighYield, and thanks for sharing.
Well spotted about the operational costs, that's indeed a big increase.
Regarding the OPEX/CAPEX question: I would say that the $12.8 million field operating costs should correspond with the $0.54/Mscf, and the field development work is the CAPEX element (compression FEED work?)
Hope you'll get an answer; please share if you do!
Nikky, I have not. I think I am on Katherine's "ingore list"... she doesn't like my questions I think.
"the contracted price for gas produced at Mnazi Bay production has increased from $3.35/MMbtu to $3.44/MMbtu in line with growth in the United States Consumer Prices Index ("CPI"); effective from 1 January 2022"
Very surprised to read this. This is an increase of just 2.7% and well below the US CPI as far as I know. A big disappointment, and Katherine should really clarify this better. If we don’t follow the US inflation rate, then the value of the company will gradually evaporate, at the current inflation rate.
Very nice to read that a record production of 91.5 MMScf/d was achieved in Q4. If we need ~70 MMscf/d to break even on costs, then every scuff above that rate goes directly towards profits.
Overall, total capital return to shareholders was $5.9 million in 2021. Net cash increased by 5 mln (17,8 -> 22,8 mln), so in total 10,9 mln of value was "created". Let's see in next month's CPR update how this compares with the loss in NPV… if NPV drops more than 10,9 mln, then the costs of running the company have been underestimated in the CPR…
Agreed Damofari,
But I fear that the reality will be quite different. WEN has never cared much about shareholder returns, and I expect them again to try to get away with a lousy dividend increase of 10-15% max, and starting only with the second payment this year (October).
If the company reduced their excessive spending they could easily double the dividend sustainably. The cash pile should be distributed gradually amongst the shareholders with a separate special dividend.
Sweet dreams…. it will however never happen I’m afraid. Management prefers to silence shareholders with a fairytale about “value accretive M&A opportunities” instead….
The Mnazi Bay gas sales price is linked to the US CPI and corrected annually so prices are up 7% this year; see link below. Quite incredible.
As a result though, given the 7.5 mln shares buy-back (or 4% of share capital) WEN can increase the dividend approx. 10% without losing any revenue. Given the progressive dividend policy and the fact that 2021 has been a "transformative year" for the company, I feel that shareholders should expect (and demand) a dividend increase of at leat 20%. Personally I'd like to see a doubling of the dividend, but obviously that won't happen without a restructuring of the company focussed on minimising costs.
Just for info!
https://www.bloomberg.com/news/articles/2022-01-12/inflation-in-u-s-registers-biggest-annual-gain-since-1982
https://www.bloomberg.com/news/articles/2022-01-12/inflation-in-u-s-registers-biggest-annual-gain-since-1982
You're welcome Damofarl. Quite funny that for some people here I'm too negative in my comments while for others I'm pulling the wool on things... But good to see that some people simply find it useful! :-)
But reading back my own post, I see that I made a small mistake unfortunately. WEN uses three reserves categories within the 1P estimate: PDP (proved developed producing), PD (proved developed not producing, aka PDNP) and PUD (proved undeveloped). the volumes behind the SSD's fall in the PDNP category it seems. On page 65 of the CPR (link below) you see what work is needed to unlock the PUD volume: primarly connect the lower Mnazi Bay sand in MB-2 to the well (additional perforations).
Overall the conclusion is the same though: the 240 BCF 1P estimate seems robust.
By the way: The annual update of the CPR should be published next month (February) so it will be interesting to see how the wells perform. Last year the 1P volumes dropped more than the annual production in the year before (-48.3 BCF vs 23.9 BCF production). On the other hand the subcategory PDP+PD showed a sharp increase (+63.4 BCF) which clearly shows that some sands were brough online.
https://wp-wentworth-2020.s3.eu-west-2.amazonaws.com/media/2021/03/10165249/Mnazi_Bay_Resource_Evaluation_WW_Final_Jan21_2021_s-002.pdf
Geowiz,
You are wrong, yet again. If you don't understand the difference between the PDP volumes and the 1P volumes, why do you not simply ask? Instead, you come up with some very bold, untrue, statements and pretend that you are an expert. In fact, reading your comments with other LSE companies, you seem to do that everywhere, so were you in fact ever a WEN shareholder? I doubt it. Glad that you sold out!
But I'll answer your question for one final time (i.e. what is the difference between PDP and 1P volumes)
The Mnazi Bay wells are completed with selective completions: dual string in MB-1 with SSD's (sliding side doors), smart single completions with SSD's in MB-2, MB-3, MB-4 and MS-1X. It means that you produce only from certain zones, while keeping other zones closed. (commingled production is not always possible). If you look at the production history you see that they have switched between zones in the past. To come back to the volumes: the PDP volumes are the volumes in sands that are currently flowing. Close an SSD, and the volumes in that zone move from PDP to proven undeveloped. Given the long history of the field, with annual pressure surveys and flowtests of the separate sands, I see no reason to doubt the P1 volumes: so 240 BCF as a minumum, which at the current rate of 80 MMscf is 8 years of production.
The only difference between the 2P and 1P volumes is that the volumes produced beyond 2031 (the licence expiry date) have been included in the 2P reserves, not in the 1P case. See page 68 of the CPR. So to repeat this for the 5th time or so: NO, no further drilling is needed for the 2P case.
This really is my final comment on this issue, and I won't reply to any further comment from you, so don't bother.
Good luck with your other investments
Wrong again Geo. For various reasons even: you now ignore the undeveloped reserves (you clearly don’t understand this bit) and your understanding of 2P reserves is wrong as well. Have you heard of a normal distribution? In fact, do you know anything at all about reserves estimation and accounting?
Sell your shares and move on. I’m tired of this discussion.
Astrol,
My comments are not "evil and vicious". They are realistic and fair, and you can only blame the poor management of this company for the continuing share price decline, from 86p in March 2021 to the 20 p that we have today. The main thing that management has produced the last few years is a massive value destruction in terms on NPV, with a huge write off in Mozambique and a continuing focus on self reward, neglecting shareholder value. The dereliction of duty of the entire board regarding their fiduciary responsibilities has essentially led to failure of the company.
I think that you are an amazingly naieve investor if you can't see this. With a lot of hyping up and a lot of luck you might be able to reach a price of 40p perhaps. On the other hand, if the company accepts their non-operating role, reduces costs and focusses on share-holder returns, then 1 pound should be achievable. In the end Mnazi Bay is a great asset, and that is the only reason why I am a shareholder.