Just the right vintage, the junior oil and gas producers that could shine if prices climb again. Pic: via Getty Images
Bargain Barrel: These oil and gas producers under $20m are poised for a breakout
Energy
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It wasn’t that long ago when concerns about the Russian invasion of Ukraine, OPEC’s refusal to boost production, and other factors led some commentators to flag the potential that oil prices could climb as high as US$200 per barrel.
Fast forward a little less than a year and that particular fear has yet to occur with the benchmark Brent crude hitting a peak in June 2022 before slipping down to the US$80 to US$90 range.
Meanwhile, gas prices that had remained elevated through most of 2022, which have seen local gas majors such as Woodside (ASX:WDS) and Santos (ASX:STO) report record profits, have also slipped locally, though that might be due in part to the Government’s $12/gigajoule gas price cap.
Reuters reported that the downturn is part of a cycle in manufacturing activity and energy prices, noting that the impact of sanctions on Russian exports, a milder than expected winter and a slowdown in manufacturing and freight transport are all influencing factors.
It added that should the current slowdown prove to be a mid-cycle soft patch, prices are likely to rise strongly later in 2023.
Given this forecast, what are some of the junior oil and gas producers (or near-term producers) with market capitalisations below the $20m mark?
We’re glad you asked.
ASX junior producers
With strong acreage positions in South Australia’s Cooper Basin, Victoria’s Otway Basin, the McArthur Basin in the Northern Territory as well as production assets in Queensland’s Surat Basin, Armour Energy is well positioned to help address the expected gas shortage on Australia’s East Coast.
Its Surat Basin assets have already generated 3.5 terajoules of gas and 90.5 barrels of oil and condensate per day, delivering sales revenue of $3.4m in the second quarter of the 2023 financial year.
While Armour is currently developing its Surat Basin subsurface work for 2023, it recently signed a heads of agreement to supply at least 7 petajoules of gas from its Glyde discovery in the McArthur Basin to Australian Natural Diamonds’ Merlin Diamond project over a 14-year period.
The company is also progressing planning of its Enterprise North-1 well in the Otway Basin and its 2023 work program for its Cooper Basin assets – including the viability of the Permian deep coal play.
AXP Energy’s operations in the Illinois and Appalachian basins generated gas revenue of $2.5m and oil revenue of $1m in the December 2022 quarter, down 21% and 39% respectively due to a fall in realised commodity prices.
To address the softer commodity prices, it has sought to manage and reduce fixed and operating costs, achieving a quarter-on-quarter reduction on overhead charges of 14% and field and lease operating expenses of 28%.
Further reductions are expected in the coming quarter.
It also plans to maintain new natural gas liquids production arrangements where there is no requirement to purchase NGLS for blending – which the company considers to be uneconomic – restore and maintain oil production and sales volumes by improving the oil logistics function, and increase gas output through new well completions.
The company has already scheduled five well reworks this financial year, all of which are outside the main production area.
Indonesia-focused Lion Energy has a small 2.5% stake the Seram (Non-Bula) production sharing contract which grants it 2,897 barrels of oil as its share of output, generating revenue of US$321,699.
This project is poised to get a gas component as well with the Lofin-2 gas well producing at rates of up to 14.8 million standard cubic feet per day, taking the joint venture another step closer towards exploiting the 1.5 trillion cubic feet best estimate contingent resource.
On the exploration front, it completed 2D seismic operations on the East Seram PSC, which it holds a 60% interest in.
This survey is designed to mature the high-graded prospects and leads of the exciting Seram fold-belt play including the Jurassic age Manusela Formation fractured carbonate reservoir objective which has already been proven by the Oseil oil field and Lofin gas field.
Lion is also refining its green hydrogen project, which seeks to establish a hydrogen production and refuelling station in Western Australia.
Cliff Head oil field partner Pilot Energy reported production of 12,560 barrels for the quarter ended 31 December 2022, generating revenue of $1.3m from its 25% stake.
While the continuing production is certainly welcome, it also paves the way for the joint venture to repurpose its offshore facilities for the proposed Mid West Clean Energy carbon capture and storage project.
The field is expected to have the ability to sequester about 9.7 million tonnes of carbon dioxide.
Pilot is also close to completing the reprocessing of about 2,000 line km of vintage 2D seismic at WA-481-P to provide better imaging of faults and stratigraphy with a focus on the highly prospective eastern in-board, shallow water area of WA-481-P, which also leverages off 800km of existing 2D reprocessing carried out in 2018.
Planning is also underway for a 3D/2D seismic acquisition to satisfy the licence commitments.
Sacgasco reported oil and gas production of 39,882 barrels of oil equivalent from its non-operated Canadian assets, which brought in cash receipts of $850,000.
It is working with operator Blue Sky Resources on a number of new opportunities that could deliver production growth.
This is welcome as it continues to progress its offshore exploration projects in the Philippines.
It has completed geophysical site surveys in preparation for drilling the Cadlao oil field and the Nandine prospect in the North West Palawan Basin in mid-2023.
A successful oil discovery could be quickly brought into production under Phase One of a development program using an extended well test.
Winchester produced oil and gas at an average rate of 130boe per day during the December 2022 quarter, down from previous quarters due to freezing events, to deliver revenue of $1.3m.
However, production volumes started to improve since the end of the quarter and production is likely to be boosted further by the unexpected primary production of oil from the Varn oil field.
The company’s drilling of the first producer well under the field’s waterflood program had produced oil at an initial rate of 80bpd before levelling out at 30-40bpd plus gas.
This was unexpected as the field had reputedly depleted all primary oil production – that is oil produced under natural reservoir energy – in the 1980s, which was what led the company to plan a waterflood program to recover a further 1 million barrels of secondary oil.
Winchester is unsurprisingly pleased at this development as it will add further to revenue and bodes well for further bonus primary production from the next producer wells to be drilled at Varn.
Canada-focused Whitebark produced 10,324 boe from its Wizard Lake oil and gas field during the December 2022 quarter, generating revenue of $312,000.
This production could increase substantially in the coming quarters due to the contribution from the Rex-4 development well, which was brought online in December following the successful completion of a 50-stage hydraulic fracture stimulation – the most ambitious yet at the project.
Clean-up flows are currently at about 500 barrels of fluid per day with the oil cut making up about 20% of this and increasingly steadily.
While stabilised initial oil production is expected soon, the flows have already resulted in Wizard Lake production increasing from about 50boe/d to about 180boe/d.
Whitebark expects the well to produce about 300 barrels of oil per day with associated gas.
Preparations are also underway to drill additional wells to address existing Proved Reserves of about 2.3 million boe.
Xstate recently acquired 25% interests in two oil discoveries and multiple prospects in Alberta, Canada, adjacent to its existing Red Earth Oil Areas.
Both discovery wells are completed and ready to be brought into production, which will boost its existing output, which totalled 44,000boe during the December 2022 quarter to deliver net receipts of $404,000.
It also recorded a further 1,297boe from its share of production from the Anshof-3 well in Austria, which was brought online under an extended production test in October.
Besides the potential upside at the Anshof field, the new acquisition also brings 10 new prospects which are analogous to the existing discoveries and nearby oil fields.
Near-term ASX oil and gas producer
Also positioned to take advantage of the anticipated increase in energy prices is Red Sky Energy (ASX:ROG), which is due to receive production revenue from its Yarrow-3 gas well in the third quarter of 2023 after reaching an agreement to proceed with pipeline connection into the Santos grid.
The well had produced up to 5 million standard cubic feet of gas per day during testing and preliminary analysis of pressure data indicates connected volumes of about 1.7 billion cubic feet of gas.
It will also allow for the tie-in of future wells.
Red Sky is also planning to start production from its DW-1 oil well from existing pay zones as well as new perforations at DW-1 and SE-1.
This work includes mobilised a rig to the Killanoola oil field while topside equipment is being purchased.
