Today’s Oil & Gas Update – Mosman Oil & Gas and more…

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Market Update: Thursday 1 April 2021

Victoria Oil & Gas (AIM:VOG): Comprehensive operational update, watercut issues at well La-108, Cameroon

Mosman Oil & Gas* (AIM:MSMN): Forecast update and TP change

 

Energy Prices         

Brent Oil US$63.6/bbl vs US$64.5/bbl yesterday

WTI Oil US$60.1/bbl vs US$60.8/bbl yesterday

Natural Gas US$2.61/mmbtu vs US$2.63/mmbtu yesterday

 

Oil Price News 

• Oil prices have dipped slightly ahead of today’s OPEC+ meeting on reports that a large increase in Iranian oil production pushed overall OPEC oil output higher in March compared to February, suggesting that higher supply from members exempt from the OPEC+ cuts could spoil the cartel’s efforts to rebalance the market
• OPEC’s crude oil production increased by 180,000bopd from February to stand at 25.07MMbopd in March
• The biggest contributor to the higher OPEC production this month was Iran, whose supply increased by 210,000bopd to 2.3MMbopd, offsetting cuts from other OPEC members
• Iran’s production rise was also the single-largest jump in production among OPEC members
• The second-biggest increase came from OPEC’s second-biggest producer, Iraq, which boosted production by 40,000bopd
• Libya and Venezuela, the other two OPEC members exempted from the OPEC+ cuts along with Iran, also saw small rises in their respective production
• Last month, total OPEC oil production averaged 24.85MMbopd, a drop of 650,000bopd compared to January, thanks to the extra cut from top producer and de facto leader Saudi Arabia, according to the cartel’s Monthly Oil Market Report (MOMR) for March
• In February, all three OPEC members exempted from the OPEC+ cuts had also increased their oil production
• In March, the Saudis achieved the 1MMbopd additional cut, the Reuters survey found
• In recent months, Iran is estimated to have started to increase its oil production and significantly raise its oil exports to China, the world’s top oil importer
• Currently, Iran is masking the crude it sells to China as originating from other countries to avoid US sanctions
• It is also undermining the efforts of its fellow OPEC members to keep prices stronger

 

Gas Price News 

• Natural gas prices moved lower yesterday ahead of today’s inventory report from the Department of Energy
• Expectations are for stockpiles to climb by 4Bcf, according to survey provider Estimize
• This reading comes a week ahead of the unofficial injection season
• The weather is expected to be warmer than normal over the next two weeks, which is likely to reduce heating demand
• Natural gas in storage was 1,746Bcf as of Friday 19 March, according to the EIA. This represents a net decrease of 36Bcf from the previous week
• Expectations were for a 10Bcf draw according to survey provider Estimize
• Stocks were 263Bcf less than last year at this time and 78Bcf below the five-year average of 1,824Bcf
• At 1,746Bcf, total working gas is within the five-year historical range
• According to the National Oceanic Atmospheric Administration, the weather is expected to be warmer than normal in the US and Europe over the next 8-14 days which should boost demand

 

Company News

Victoria Oil & Gas (AIM:VOG): Comprehensive operational update, watercut issues at well La-108, Cameroon

Share Price: 4.5p, Market Cap: £12.9m

• VOG’s latest operations update outlines that weekday production has been between 5.5-6.0MMscf/d gross, but with the usual daily and weekly fluctuations, with one customer returning having paid off aged debt, and one customer increasing its consumption for both power and thermal.
• Well La-108 was brought online on 15 February, initially producing on its own and more recently in combination with another well to ensure that operations could be managed given contrasting wellhead pressures. 
• However, management has confirmed that the well started producing significantly more water than the other wells, and above what might be expected as water of condensation.
• Analysis of this water suggests it is significantly fresher than formation water and thus likely composed of drilling and completions fluid lost from the drilling (which started in 2016), through to the attempted remediation in 2019 and then successful remediation in 2020.
• The water-gas-ratio stabilised at around 50bbls/MMscf and has fallen below this in the last week.
• This level of water production (up to 200bbl/d) is being managed by the operations team.
• At West Med, VOG signed a non-binding term sheet with a potential buyer of the Company’s wholly owned subsidiary, ZAO SeverGas-Invest (SGI), which owns the West Medvezhye (West Med) licence.
• This buyer has instructed recognised third-party specialist advisors to conduct what we hope will be final, confirmatory due diligence on the asset.
• This potential buyer has a period of exclusivity which runs to 31 May 2021.
• The asset was fully impaired in VOG’s accounts in 2014.
• At the end of December 2020, VOG notified the Republic of Kazakhstan of its intention, failing an amicable settlement with the Government, to commence an investment arbitration under the Energy Charter Treaty.
• VOG has retained counsel and the arbitration is fully funded by specialist disputes funder Therium.
• The dispute arises out of a series of actions and omissions by the Government and its courts which ultimately deprived VOG of the value of its investment in the Kemerkol oil field located in Atyrau Oblast. 
• After investing over US$35m into the Kemerkol Field, Kazakhstan invalidated VOG’s rights to the Kemerkol Field, seized assets on site, and VOG was forced to suspend oil production in June 2008. 
• In the event the Parties are unable to make concrete progress towards resolving their dispute amicably by the end of May 2021, VOG will commence proceedings.
• Kemerkol was fully impaired in VOG’s accounts in 2009.
• At Matanda, well planning, procurement of long lead items and rig selection are underway, and the farmout process has been started with several parties registering interest.
• The Environmental and Social Impact Assessment (ESIA) has been delivered for the Ministry’s consideration. 
• Follow up meetings have been held with the Ministry of Environment to plan the second phase of public hearings which form part of the ESIA process.
• Elsewhere, the Letter of Intent with New Age, which was originally announced on 5 February 2020, expired on 31 March 2021. 
• In consultation with SNH, GDC and New Age agreed to let the LoI lapse and expedite discussions with SNH on the way forward on the project in line with the Gas Code of Cameroon and the Country’s Gas Master Plan. 
• As part of the process, GDC has offered to offtake up to 25MMscf/d from Etinde, subject to a number of conditions. 
• The whole project still remains conditional upon securing FID on the upstream project and award of an Independent Power Producer licence.
• Recent public statements suggest that the Etinde partners are now likely to secure FID in 2022, before which they will need to renew their Exclusive Exploitation Agreement (EEA) and seek approval for a revised development plan.
• An ICC Arbitration panel will hear the substantive matters raised by RSM (GDC’s joint venture partner in the Logbaba field), and GDC’s counterclaims, in the third week of April (rescheduled from January).
• The UNCITRAL arbitration will be heard in London under Cameroon Law and is scheduled for hearing at the end of September 2021. 
• Arbitrations under ICC and UNCITRAL rules are confidential processes and  the Company is not permitted to provide detailed comments on them, beyond saying that the amounts of claims and counterclaims are material to the Company and that it continues to vigorously defend the claims raised by RSM.

Our take: Whilst there appears to be a number of legal issues the Company is working through on a corporate level, VOG continues to make operational progress in Cameroon. The company now has a well stock of four wells at Logbaba, albeit with very different production characteristics, but shareholder will view the increased watercut as a concern. In the Matanda license, VOG continues to progress the ranking of prospects and the start of the well planning phase ahead of a potential farm-out of the licence.

 

Mosman Oil & Gas* (AIM:MSMN): Forecast update and TP change

Share Price: 0.15p, Market Cap: £5.6m

TP: U/R

• Mosman recently confirmed that the Falcon-1 well in East Texas, USA, has reported a recent increase in water production alongside a fall in pressure at Falcon-1, we have
• To manage this, the well head choke size has now been reduced.
• These developments have resulted in significantly lower reported oil and gas production rates at Falcon-1.
• The Operator is assessing the situation and has indicated that it intends to run downhole logs to gather more information in order to recommend an appropriate course of action.
• Mosman has a 50% working interest in the well and will provide further updates as appropriate.
• In light of these developments, we have suspended our financial forecasts ahead of an update on production levels from this well.

Our take: Whilst the latest developments at the Falcon-1 well will come as a disappointment to shareholders, Mosman and the Operator have historically proven to be technically adept in overcoming technical challenges and there are many options at their disposal to reduce water cut. The Company continues the implementation of its successful production led growth strategy against the backdrop of a commodity price recovery in the US. Mosman will embark on an aggressive drilling programme in 2021, with an ambitious target of drilling one well per quarter. This is likely to include further wells on the Champion and Challenger leases in the US. Our model ascribes 0.07p/share to the Falcon-1 well of the previous total of 0.42p/share target price (c.16%). On this basis, we reiterate our BUY rating but place our target price Under Review.

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

 

Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

sam.wahab@spangel.co.uk

 

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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Sources of commodity prices

 

Oil Brent, WTI – ICE

Natural Gas – NYMEX

 

 

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Recommendations are based on a 12-month time horizon as follows:

 

Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%