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BARGAIN BARREL: These oil producers are lurking under $25m in a high price environment
Energy
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Oil prices have been soaring on concerns that the Russia-Ukraine conflict could further reduce already stretched crude supplies, though some commentators have already written off the 3-4 million barrels per day that Russia typically sells into the global market.
This has certainly not been helped by OPEC refusing to ramp up production beyond its planned and somewhat modest 400,000bpd in April.
The resulting volatility has sent oil prices up and down like a rollercoaster, though the benchmark Brent crude has been quick to pile the pounds right back on after losing weight earlier this month.
It is little wonder that several commentators have flagged that oil could climb as high as US$200 per barrel.
Hopes that US shale oil could expand quickly to fill the gap have also been rudely dashed with the Energy Information Administration flagging that production will creep up from 8.59 million bpd in March up to 8.71MMbpd in April in its new Drilling Productivity Report.
Speaking to Stockhead, Winchester Energy executive technical director Douglas Holland said he was bullish about oil prices in the foreseeable future and that another boom in American shale drilling like the one that occurred between 2008 and 2015, which would go a long way towards addressing the oil shortage, was unlikely to occur again.
This is due to a number of factors, first of which is the difficulty in hiring and retaining employees, especially in the current environment that sees people preferring to work remotely and to hold several side gigs rather than focusing on a single job.
Rig availability is also a lot lower with Holland noting that while there were over 2,000 rigs operating in the US in 2013, the number of service companies going bankrupt and scrapping rigs meant that just 650 rigs are available at the moment.
“And as we know, shale drilling is like a treadmill, they have such steep declines that you have to be constantly pouring capital in to maintain any kind of production rate,” he added.
“Couple those things with large institutional investors that are getting away from any kind of fossil fuel and uncertainty about the current US administration meaning that large companies are unwilling to go out and invest their retained earnings, you will see that there is no magical US oil bullet that is just going to reduce oil prices.”
In the longer-term, Holland believes that Russian-Ukraine war is likely to simmer down into a long-running conflict and that we are going to see higher than average oil prices, which is anything over US$50/bbl, for the foreseeable future.
He added that the energy transition would require more energy to fuel the move to solar, wind and batteries.
“There’s going to be a greater call for natural gas, petroleum products – as we transition than ever – and it is not going to be a short transition, so I see worldwide demand going up substantially,” Holland noted.
Five… no wait it’s six oil producers under $25 million
With oil prices likely to remain elevated for some time to come, companies with existing oil production are likely to enjoy their time on the market.
But there are still a few junior oil producers who have market capitalisations below the $25 million mark.
Winchester produced 9,278 barrels of oil equivalent during February (a little over 300 barrels per day) and pocketed a tidy US$813,652 ($1.09m) in gross revenue based on an average received price of US$91.75 per barrel.
This was despite February being a short month and the company experiencing a three-day shut-in of all its wells due to icy weather.
However, where the company really excels is its extremely low operating costs of about US$4.04 per barrel, which Holland attributes to the company being small and nimble, and thus able to acquire projects under a lower price environment and projects that “may not move the needle for a larger firm but which are very cost effective for us”.
“As far as an acquisition strategy goes, we are not so much interested in proved developed producing reserves, we are interested in buying the fields where work can be done on existing wellbores, how can those existing wellbores be utilised,” he added.
“A great example, our most prolific well to date was a project where we drilled through the entire immediate sand section instead of just trying to skim the top and used a different type of cement and a different type of completion technology.”
Holland is also excited about the Varn oil field, which produced 1.4 million barrels of oil between the 1950s and 1984 when it was plugged and abandoned with all signs of oil production removed.
He noted that while the historical production had exhausted the primary production potential of the field, there was still plenty of potential to carry out secondary recovery, which involves the use of enhanced oil recovery techniques.
There is plenty of proof that this will work given that there four other fields within a five-mile radius where water flooding has been successful in establishing secondary production.
“We get to pick the patterns that we are going to re-establish the field with without being held back by old wellbores. We are going to use a traditional ring pattern with injectors on the outside; the producers are on the high and middle,” Holland explained.
“We inject water to repressurise the formation because our calculations show that based on the porosity and saturation of the fields, which were logged and studied over the years, only about 19% of the total oil in place was recovered on primary production.
“With the analogues, they are averaging an S (secondary recovery) over P (primary recovery) of 95%. So we think we can easily get 95% of initial 1.4MMbbl again with water flood, which is great.”
The best part of course is that Winchester expects the total capital outlay to be minimal at under $6m.
“The exciting thing is that there are other opportunities like this all over the Eastern Shelf of the Permian Basin,” he added.
There is also potential for further growth at Winchester’s existing producing fields with Holland flagging secondary recovery potential for its White Hat wells while testing into different kinds of stimulation work is underway at its Ellenburger wells.
“We are excited even about what remains organically in our current portfolio,” Holland concluded.
Winchester Energy (ASX:WEL) share price chart
During the December 2021 quarter, Sacgasco reported oil and gas production of 35,071 barrels of oil equivalent to generate revenue of $796,000, up about 33% on the previous quarter.
Much of this comes from its 30% stake in the Red Earth asset and the 20%-owned Alberta plains projects in Canada with the rest coming from its gas assets in California, US.
Despite this, the company is not resting on its laurels, participating in an upcoming three oil development wells at Alberta Plains.
These wells are estimated to cost $2.7m ($540,000 net to Sacgasco) and are expected to increase its production by 40 barrels of oil equivalent per day.
At the current reference oil price in excess of US$85/bbl, production from these wells is expected to pay back capital and operating expenditure in less than 12 months.
Work is also underway to integrate a multi-spectral satellite imagery study over its Canadian assets that had identified a number of significantly above-background hydrocarbon, hydrogen and helium anomalies.
In the Sacramento Basin, California, the company is looking to monetise its Borba gas project and its hydrogen feasibility study along with other production and cashflow improvement opportunities.
Sacgasco has also acquired a 72.727% stake in the Cadlao oil field in the Philippines that had produced 11.1 million barrels before it was shut-in in 1991 by the operator at that time to utilise the surface facilities on another asset.
The company believes that the field has significant remaining potential reserves and previous wells have proven high productivity from the reservoir.
Sacgaso (ASX:SGC) share price chart
While shares in Whitebark Energy are currently in suspension, it is currently raising up to $4.37m through a non-renounceable entitlement offer of one share for every two shares held as one of the conditions for its reinstatement on the ASX.
Proceeds from this offer will be used fund exploration and development at its producing Wizard Lake oil field project in Canada.
During the December 2021 quarter, the company produced 5,863 barrels of oil and 79,714 mcf gas (19,148 barrels of oil equivalent) – or an average of 208boe/d – from Wizard Lake.
Since then production has averaged 198boe/d with the company continuing to pursue opportunities to optimise the field through minimising overheads and stabilising production.
Upcoming activity following the capital raising includes the drilling of the Wizard Lake Rex-4 development well that is expected to produce 300 barrels of oil and 1.4 million cubic feet of gas per day initially before declining to 85bpd and 630,000 cubic feet per day over the first 12 months.
Payback is expected in just five months at a US$90/bbl West Texas Intermediate price, leaving Whitebark with a source of free cash flow to fund future Wizard Lake wells such as the already permitted Rex-5 well.
Whitebark Energy (ASX:WEL) share price chart
Lion has a 2.5% participating interest in the SNB Production Sharing Contract on Seram Island, Indonesia, that contains the Oseil oil field and surrounding structures that have yielded cumulative crude oil production of more than 19 million barrels since production started in January 2003 through to December 2021.
During the December quarter, the company’s share of production from Oseil totalled 3,324 barrels, which appears modest compared to its peers.
However, Lion has been progressing operational planning and contractual negotiations for a planned 200km seismic program at its 60% owned East Seram PSC.
This survey is aimed at maturing the high-graded prospects and leads of the exciting Manusela fold belt play to “ready to drill” status.
Happily, most of the planned work will be funded by its partner OESC.
The company had previously completed a 664km marine seismic program that outlined a number of targets in the offshore portion of the PSC.
Lion is pushing hard on its green hydrogen strategy with a recent study it commissioned concluding that fuel cell electric buses (FCEBs) are a core zero emission bus technology due to the small footprint of hydrogen refuelling infrastructure, fast refuelling, no range restrictions and simpler depot management.
This follows on the company signing a partnership with Queensland based BLK Auto in November to collaborate on opportunities to grow Australia’s hydrogen transport and infrastructure capabilities.
BLK has already delivered Australia’s first hydrogen fuel cell powered coach and is in the process of delivering a further nine under contract with a leading WA based group.
Lion Energy (ASX:LIO) share price chart
Pilot Energy (ASX:PGY) and Triangle Energy (ASX:TEG)
Rather than break them up into two separate entries, we take a look at Pilot Energy and Triangle Energy together as they both draw their production from the Cliff Head oil field in the Perth Basin offshore Western Australia.
Cliff Head (TEG 78.75%, PGY 21.25%) currently produces 535 barrels of oil per day, though this is expected to increase to about 690bpd following the completion of generator repairs.
The joint venture is currently considering two short-listed options to export Cliff Head oil with the imminent cessation of the Kwinana export route.
Both options involve the trucking of oil produced from their Arrowsmith facilities, though this will allow for continued sales of crude from Cliff Head.
Technical work is also underway to further increase Cliff Head oil production. These include a workover of the CH-10 well and near-field drilling opportunities.
Besides Cliff Head, Triangle is also increasing its interest in the L7(R1) permit, which it considers to have potential for very attractive oil and gas prospects, to 100%.
The company is working to acquire 3D seismic over the L7 and EP 437 permits in the first half of this year.
It has also reached an agreement to increase its stake in TP 15 by 15% to 60% and take over as operator. Work over the next year will centre around evaluating the remaining potential within the licence with a focus on the West Xanadu, the South Xanadu and the Texel leads and to plan for seismic acquisition in the next permit year.
Meanwhile, Pilot has reached an agreement to farm-out a stake in either EP 416 or EP 480 to Advanced Energy Transition who will fund the drilling of an exploration well to test the natural gas potential of the Leschenault prospect.
The company is also in a consortium with APA Group and Warrego Energy to jointly undertake and fund the Mid West Blue Hydrogen and CCS Feasibility Study.
Separately, it has commenced the South West Carbon Management and Blue Hydrogen feasibility study that will explore the opportunity to capture and store the South West Western Australian region’s CO2 and flue gas emissions generated in the Kwinana Industrial Precinct.
This will also study the potential development of a blue hydrogen project.
PGY and TEG share price charts
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