Member Info for MountTeide

What is remarkable is the low OPEX of the North West Shelf Oil fields considering their age and production profile.

The Catcher field in the North Sea has a BW FPSO on charter at a cost of circa $210m a year for the initial 10 year fixed charter period - which at circa production of 26k bopd in 2020, indicates an operating cost JUST for the FPSO of $26.7/bbl. At a production level similar to the circa 14k bopd for the assets JSE has just acquired, it would increase to $41.2/bbl, just for the FPSO.

The North West Fields have a current OPEX of $21-22/bbl INCLUSIVE of the finance and operating cost of the new FPSO deployed in the field in 2011 with a minimum 20 year operating life.

FPSO Okha is a double hulled former tanker and the first converted FPSO to be built with hydrocarbon tank blanketing, primarily to reduce corrosion rates in the cargo tanks of a converted vessel - by replacing the conventional inert gas cargo tank blanketing.

In addition, hydrocarbon tank blanketing reduces an FPSO's emissions and overall environmental impact......so, I'm sure all the environmentally conscious shareholders JSE has on it's ownership register will be delighted to know the company has bought into an asset with a fully WOKE FPSO!

The design specifies that fuel gas is used for cargo tank blanketing in line with Australian regulatory requirements....this meant it became necessary to implement a totally enclosed flare system collecting all continuous hydrocarbon releases – a first for Australian production facilities.

At the time of the conversion - Offshore Mag presciently said: "In an effort to reduce greenhouse emissions, countries are increasingly imposing regulations that require flare-less oil and gas operations.

Flare-less operations can be implemented with relative ease if required from the beginning. With drivers that include environmental regulations, emissions reduction, production optimization and improved working conditions, it is expected that flare-less designs will become the new standard for FPSOs and platforms."

This deal provides a blueprint for the industry to provide Governments/Regulatory Authorities with the comfort necessary to enable the future transfer of large company mid/late life O&G assets to smaller players.

By implication, it also means from a competition perspective that only smaller players with considerable cash resources and industry experience are likely to be considered for such assets ....... meaning a very small pool of potential buyers for a very large pool of mid/late life assets.

Great news for a well respected, cash rich company like Jadestone that has a very hearty appetite for high quality mid/late life assets!

Last Tapis price premium to dated Brent was around $15/bbl - Montara and PM production is sold off this.

Last Stag heavy sweet crude premium was circa $23.75/bbl to dated Brent - but this will have increased to a circa $35/bbl premium going by the premiums achieved in the latest round of auctions for Australian heavy sweet crude.

Using a blended $17 premium to dated Brent across the production - sees JSE in a current position at $98 Brent of having circa 45% of its market cap in cash, while generating circa $180m a quarter in revenue and circa $144m a quarter( a third of its market cap and 55% of its enterprise value) in operating cash flow (pre capex).

AIMHO/DYOR

Exxon are a company with a reputation for decisiveness - taking business decisions and then cracking on with implementing their plans and delivering results.

With the deal sorted with Savannah and a handover in place on the ground, to then be frustrated when they attempt to get the formality of a final sign off made, through an attempt to shake them down for an extra $15m would have surely infuriated the World's largest O&G company.

So, direct by nature, it would not be a surprise if they had a quiet word in the ear of the top man in Chad as to what his so called representatives were doing with respect to this deal and had been getting up to over the years - which resulted in this clean out of the stables.

The brief given to the Minister by the top man could not have been simpler - get the Parenco and Savannah deals over the line asap, the cash back flowing into the treasury and the new asset owner's investing in new production.

To attempt to delay the transfer of ownership at the last minute by demanding another $15m of cash was a huge mistake - particularly when it's probably as certain as night following day that were Exxon to have paid, the proposed recipients of it, will have likely seen nothing more than loose change.

AIMHO/DYOR

You come across as a near petrified nickel and dime trader worried about losing money - any investor with a 3-5 year investment outlook would describe the current valuation as a once in a generation investment opportunity.
Observation of L2 over the last few weeks among stocks trading on SETS(allowing DMA) suggests there is, an invisible hand pressing down on the valuations of the entire O&G sector, such that even news extremely positive to the business case almost without exception does not generate any valuation upside never mind what would be reasonable to expect.

However, what that invisible hand is unable to do is impact the FCF generation of the sector which was at an all time record in Q4/2021 when Brent averaged $73/bbl, and is in the stratosphere this year with Brent averaging $34/bbl more at $106.92/bbl YTD.

One way or another value investors will see the benefit to the business of this cash generation either via s/p progression and/or enhanced dividends, special dividends and share buy-backs. So, similar to Buffet and Monger but unlike the overwhelming majority of the market, I see current O&G market valuations as a major buying opportunity - offering with rising interest rates much better value over a 2-3 year investment outlook than any other sector, as a result of its incredible FCF yields YTD at an average Brent price of $106.92/bbl, and all time record FCF generation down at $73/bbl.

The concept of 'value' investing has proved the test of time over 95 years, yet bizarrely, is probably as unfashionable today as it's ever been.

With an investment in SAVE/JSE/AXL/PTAL/TXP you get icing(Production Growth) on the 'Value' Cake as well!

On average, US value stocks have outperformed growth stocks by a 4.1% annual average rate since 1927 - this is a massive difference in terms of Capital Growth returns when compounded over 95 years.

hTTps://www.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/37667-source/exhbit-when-its-value-vs-growth.png

Long Stockmarket history has shown investors are best served by making decisions based on sound economic principles supported by high quality research/evidence. Value investing is based on the premise that paying less for a set of future cash flows is associated with a higher expected return. Its one of the most fundamental tenets of stock market investing - and the current O&G industry is offering investment value based on FCF yields at $73 oil superior to any time seen in its long history.

AIMHO/DYOR

The Callizales Norte Prospect(CN) - scheduled for drilling in late 2022.

Some comments from the Nov 2021 Investor video presentation given by Marshall, as to why "we are very excited to drill the CN prospect":

ARROW EXPLORATION CORP - Investor Presentation
hTTps://www.youtube.com/watch?v=fGT_psE3Q0Q&t=2743s

"The Carrizales Field Complex (immediately to the south of the CN prospect) has produced just under 9m bbls to date, peaking at 7,500 bopd. The discovery well which is only 1.5km away from our block boundary came on at 2,500 bopd. CNC Energia drilled this field and ultimately sold it for US$500m.

CN has three zones on the way down to 10,000ft these are HIGHER and THICKER than what was encountered in the Carrizales Field Complex. We are only budgeting for 360 bopd net coming out of these pools."

Video Presentation - CN section starts at 24m 40s.

Well worth revisiting the Tapir Block part of the presentation too - "we like drilling for oil where it already exists" which starts at circ 20m 00s and in particular the Rio Cravo Este(RCE) section(starts 22m 30s), to see how the infill well drilling results have exceeded the original expectation/geological modelling significantly to the upside, leading to Arrow recently submitting a full field development plan for RCE.

Part 2

While Petro’s electoral victory has, rightfully so, unnerved financial markets, investors, and Colombia’s petroleum industry, his plans to end oil exploration the immediate fallout is likely to be minor because of his intentions to allow existing contracts to continue operating.'

Part 1

Colombian Oil Industry - Matthew Smith / Latin American based O&G Investment Management Professional who writes for Oilprice.com

'Petro’s policies have sparked a frenzied debate in Colombia about the future of the Andean country’s oil industry which is a key driver of the economy. For the first four months of 2022 petroleum exports generated $6.6 billion, making crude oil responsible for 36% of all export earnings for that period.

Total petroleum and derivative products exported represent around 70% of Colombia’s petroleum production. According to Colombia’s peak hydrocarbon industry body, the Colombian Petroleum Association(ACP), crude oil is responsible for nearly a fifth of the central government’s fiscal income. Those numbers emphasise how critical the oil industry is to Colombia’s economy and for ensuring the crisis-driven country’s energy security.

A key aspect of Petro’s plan for Colombia’s oil industry that is often overlooked is his plan to allow existing contracts to continue operating for as long as Colombia’s proven reserves are sufficient to justify commercial operations. That means, over the short to medium term, there will likely be little to no material impact on Colombia’s oil production.

Indeed, there are signs that with the oil rally driving greater investment in Colombia’s industry that production will expand even after Petro takes office on 7 August 2022. The ACP stated at the start of 2022 that forecast investment in oil and natural gas production will reach $4.4 billion during the year, which is 42% greater than a year earlier.

According to the industry body spending on hydrocarbon exploration during 2022 will reach $1.1 billion, which is 2.2 times greater than in 2021 and the highest since 2014. This is reflected by the forecast 2022 budgets of drillers operating in Colombia. National oil company Ecopetrol, which is 88.5% owned by the state, announced plans to invest up to $5.8 billion in 2022, which represents a 45% increase over 2021.

Colombia’s largest privately owned oil producer Parex Resources boosted 2022 capital spending by 98.6% year over year to $550 million with most of that amount directed to exploration and development drilling.

That marked increase in exploration and development drilling is reflected by the latest Baker Hughes rig count, which shows that at the end of May 2022 there were 29 operational drill rigs in Colombia. While that is one less than a month earlier it is significantly higher than the 16 operational rigs for the same period a year earlier and the 25 rigs operating at the end of May 2019.

Those numbers indicate Colombia’s oil production will grow over the immediate future, even once Petro takes office and is able to successfully implement his plan to end contracts for oil exploration. It is likely that Colombia’s crude oil output will return to over 800,000 barrels of crude oil per day at some time in the immediate future.

The Commodity Cycle at Work:

Average Brent Price - adjusted for inflation

$75 - 1975 to 1990 - led to supply heavily outstripping demand

$35 - 1990 to 2000 - led to demand heavily outstripping supply

$96 - 2000 to 2014 - led to supply heavily outstripping demand

$57 - 2014 to 2021 - led to demand heavily outstripping supply

$104 - 2022 - tight supply situation likely to continue for years

'Louis-Vincent Gave of Gavekal estimates that a $40 drop in the price of a barrel of oil would release $400bn of liquidity into the global economy. This in turn should reverse the recent strengthening of the dollar. Lower fuel prices in 2023 could bring not just lower inflation but also higher living standards, a weaker dollar, improved liquidity, a pick-up in growth and corporate profits and rising equity markets.'

That size drop in the oil price would simply return Brent to a level in Q4/2021, when the industry generated an all time record level of FCF.

'Longview Economics is almost a lone voice arguing that a coming oil glut will drive prices down again. “If oil prices remain at current levels, there will be a significant supply response over the coming 12-18 months which will generate a global supply surplus /rising oil inventories in 2023,” say analysts there.'

If this were the case the oil majors would have already been investing heavily in large, 'long cycle barrels' offshore projects - outside of Guyana there is little market evidence to support this view, certainly not on the scale necessary to deliver a material supply response over 12-18 months. Few, if any on the oil price bear case has been able to realistically demonstrate where this massive short term supply response is going to be coming from.

The only two times in history when oil hit an inflation adjusted price of $100/bbl, 1979 and 2010, it went on to average around that price for 4-6 years before new supply caught up and went on to outstrip demand, leading to a long period of falling oil prices. Is history likely to be any different this time around? When considering the oil market fundamentals and the deteriorating geopolitical situation, then, on the balance of probabilities, I suspect the smart money will probably be on history repeating itself.

AIMHO/DYOR

You're wrong ....... If that was the case the Classification Society, Flag State and NOPSEMA would have responded in a totally different way !

The Commodity Cycle at Work:

Average Brent Price - adjusted for inflation

$75 - 1975 to 1990 - led to supply heavily outstripping demand

$35 - 1990 to 2000 - led to demand heavily outstripping supply

$96 - 2000 to 2014 - led to supply heavily outstripping demand

$57 - 2014 to 2021 - led to demand heavily outstripping supply

$104 - 2022 - tight supply situation likely to continue for years

'Louis-Vincent Gave of Gavekal estimates that a $40 drop in the price of a barrel of oil would release $400bn of liquidity into the global economy. This in turn should reverse the recent strengthening of the dollar. Lower fuel prices in 2023 could bring not just lower inflation but also higher living standards, a weaker dollar, improved liquidity, a pick-up in growth and corporate profits and rising equity markets.'

That size drop in the oil price would simply return Brent to a level in Q4/2021, when the industry generated an all time record level of FCF.

'Longview Economics is almost a lone voice arguing that a coming oil glut will drive prices down again. “If oil prices remain at current levels, there will be a significant supply response over the coming 12-18 months which will generate a global supply surplus /rising oil inventories in 2023,” say analysts there.'

If this were the case the oil majors would have already been investing heavily in large, 'long cycle barrels' offshore projects - outside of Guyana there is little market evidence to support this view, certainly not on the scale necessary to deliver a material supply response over 12-18 months. Few, if any on the oil price bear case has been able to realistically demonstrate where this massive short term supply response is going to be coming from.

The only two times in history when oil hit an inflation adjusted price of $100/bbl, 1979 and 2010, it went on to average around that price for 4-6 years before new supply caught up and went on to outstrip demand, leading to a long period of falling oil prices. Is history likely to be any different this time around? When considering the oil market fundamentals and the deteriorating geopolitical situation, then, on the balance of probabilities, I suspect the smart money will probably be on history repeating itself.

AIMHO/DYOR

The Commodity Cycle at Work:

Average Brent Price - adjusted for inflation

$75 - 1975 to 1990 - led to supply heavily outstripping demand

$35 - 1990 to 2000 - led to demand heavily outstripping supply

$96 - 2000 to 2014 - led to supply heavily outstripping demand

$57 - 2014 to 2021 - led to demand heavily outstripping supply

$104 - 2022 - tight supply situation likely to continue for years

'Louis-Vincent Gave of Gavekal estimates that a $40 drop in the price of a barrel of oil would release $400bn of liquidity into the global economy. This in turn should reverse the recent strengthening of the dollar. Lower fuel prices in 2023 could bring not just lower inflation but also higher living standards, a weaker dollar, improved liquidity, a pick-up in growth and corporate profits and rising equity markets.'

That size drop in the oil price would simply return Brent to a level in Q4/2021, when the industry generated an all time record level of FCF.

'Longview Economics is almost a lone voice arguing that a coming oil glut will drive prices down again. “If oil prices remain at current levels, there will be a significant supply response over the coming 12-18 months which will generate a global supply surplus /rising oil inventories in 2023,” say analysts there.'

If this were the case the oil majors would have already been investing heavily in large, 'long cycle barrels' offshore projects - outside of Guyana there is little market evidence to support this view, certainly not on the scale necessary to deliver a material supply response over 12-18 months. Few, if any on the oil price bear case has been able to realistically demonstrate where this massive short term supply response is going to be coming from.

The only two times in history when oil hit an inflation adjusted price of $100/bbl, 1979 and 2010, it went on to average around that price for 4-6 years before new supply caught up and went on to outstrip demand, leading to a long period of falling oil prices. Is history likely to be any different this time around? When considering the oil market fundamentals and the deteriorating geopolitical situation, then, on the balance of probabilities, I suspect the smart money will probably be on history repeating itself.

AIMHO/DYOR

The market is waiting with bated breath for Art's take on today's news !

Since there are water ballast tanks below the oil cargo tanks - the damage will have occurred to the shell plating below the water line on one the side of the FPSO, not to the bottom plates.

The FPSO duringconversion from a tanker will have had its entire shell plating undergo ultra sonic testing to detect the level of corrosion and any plates with greater than 10% corrosion will have been replaced - in practice, very few if any plates will have more than 5% corrosion even at 20 years of age.

Its very difficult to see how this type of damage could have occurred other than by weakening of the shell plating in that area due to impact with a fixed underwater object, possibly while leaving the dry dock, or on the lay-by berth the vessel would have sat on to complete the conversion after leaving the dry dock.

The structural integrity of the damaged area could have then deteriorated after having its coatings removed from the impact damage to the extent that salt water corrosion eventually did the rest to create a small hole.

Very localised point contact shell plating damage is extremely rare and not the type of damage that could generally be foreseen, and for which cargo and ballast tanks are routinely inspected during Class Inspection Surveys - these inspections are carried out to examine for corrosion and structural deformation. The size of the tanks generally prevents close inspection for damage caused by a heavy point contact of the hull with a fixed object above or below the waterline.

I was informed after putting a ship in for a routine dry docking that over a third of the bottom plating would need to be replaced. As a result of the ship having gently touched bottom some three years previously which deflected some of the bottom plates gently upwards to the extent it was missed on a ballast tank inspection carried out shortly afterwards where a Class Surveyor was in attendance!

With respect to insurance cover, it should cover the inspection and repair costs, although not loss of earnings unless additional business interruption insurance was taken out.

NOPSEMA are primarily involved in safety and environmental issues - it is the Classification Society surveyor who will determine/agree the nature of the damage repair with the FPSO owner and guide NOPSEMA accordingly.

The Montara Venture was converted into an FPSO in 2009 in Jurong Shipyard, Singapore. The conversion process of the tanker involved extension of life for continuous in-water service for a minimum of 20 years without dry docking.

What this means in practise is that subject to the cargo and ballast tanks and machinery undergoing a continuous 5 yearly inspection and plan maintenance programme, the FPSO will not need to be dry docked before 2029 at the earliest, and subject to evidence of continuous compliance in this respect shown to the Class surveyor during routine on site inspections, the FPSO's extension of life for continuous service on site could be extended beyond 2029.

Since the FPSO's hull plating will have undergone ultra sonic testing during shipyard conversion to determine its condition for suitability for at least a further 20 years of in-water use, the Montara Venture will have departed the Jurong dry dock with its hull plating, cargo and ballast tanks in a structural condition similar/very close to that of a new ship. It cost $107m to convert the tanker into a FPSO for use at the Montara Field........back then the cost of a new tanker of this size was around $70m.

If, as it appears from the information in the public domain, that the shell plating damage occurred while the FPSO was being operated in full compliance with the Classification Society's 5 yearly Inspection and Plan Maintenance Programme of Work, then it would be considered by Class to have not been 'foreseeable'.

Notwithstanding the FPSO incident currently under investigation, considering the fact that NOPSEMA and the Classification Society are fully conversant with the Thai NOC's operating performance of the Montara Venture during their field operatorship, from what I've since read, in terms of field uptime performance and compliance with Class and IMO Rules, it would be difficult to judge Jadestone's performance to date as anything other than a step change improvement.

AIMHO/DYOR

In my long experience, external or internal corrosion is extremely unlikely to create a breach of the shell plating of a well maintained ship - unless the area has been severely weakened from heavy contact damage.

Jadestone will arrange to effect repairs as determined by the the Classification Society surveyor who will attend, so as to ensure their P&I Cover is not prejudiced on the basis of a breach of Class Rules.

In these circumstances, it would be normal for Montara Venture's Class to have been at least partially suspended - meaning the FPSO should cease operating as it would not be insured, or able to meet the IMO's Statutory Requirements enforced by the vessels Flag State.

Surprisingly, prior to Jadestone acquiring the Montara asset the field FPSO was operated out of Class by the owners the Thai National Oil Company for a period of 8 months WITH the agreement of NOPSEMA. Shortly before completion of the acquisition, Jadestone, with the co-operation of the owner, Class, the Flag State and NOPSEMA, put staff onboard the FPSO to help the Thai operators carry out the work required to ensure Class compliance was reinstated - with Jadestone's input this was achieved in about 4-6 weeks.

For an incident of this nature, in addition to Class and NOPSEMA, Flag State administration will have been notified, who will satisfy themselves that the measures planned meet compliance with the IMO's statutory requirements.

Once Jadestone has effected repairs to the satisfaction of the Class surveyor and Flag State, Class will lift suspension enabling Jadestone to advise NOPSEMA that the FPSO is back in full compliance with Class and Flag State Rules.

Following which, in receipt of documentation confirming rectification of the FPSO's structural and watertight integrity issues NOPSEMA will be in a position to lift the temporary enforcement action.

As an observation this general oil market 'sell-off' has not been driven by high transaction volumes, and so could easily reverse with modest buying pressure just as quickly as it declined.

L2: moved up to 3 v 2 / 13.5p v 14.5p (rest between 15p and 18p)

L2: strengthened to 3 v 1 / 13.5p v 14.0p (rest between 14.5p and 18.0p)