Malcy’s blog – Oil prices, DEC, Union Jack. And finally…


WTI $110.49 + $4.36, Brent $111.55 + $4.10, Diff -$1.06 -26c, NG $7.66 -8c, UKNG 178.5p -11.5p

Oil prices

Oil was mixed last week, Friday’s sharp rise left WTI up 72 cents but Brent was down 84c over the period.

A number of EU countries are said to have breached sanctions against Russia by opening ruble accounts with Gazprombank to pay for gas, with Eni apparently on the list.

Diversified Energy Company (LON:DIEN)

Diversified Energy Company has announced the following trading and trading update for the quarter ended March 31, 2022.

Recent Strategic Highlights

• Interim dividend declared for 1Q22 of 4.25 cents per share, consistent with 4Q21: up 6% from 1Q21

• Acquisition of generation assets in the central region (East Texas), increasing the scale of operations (previously announced on April 26)

• Acquisition of midstream assets and processing facilities in the central region completing vertical integration to improve cash margins through higher prices and reduced expenses

• Acquisition of a second well plugging company in Appalachia, increasing capacity by 33% with two additional teams (8 in total)

1Q22 operational and financial highlights

• Production in exit rate of 136 Mboepd (816 MMcfepd); Average production in 1Q22 of 134 Mboepd (803 MMcfepd) including temporary impacts related to weather conditions

• 48%(a) realized cash margin (70% unhedged cash margin) with higher realized prices partially offsetting high price related and widely variable expenses

• Hedge additional natural gas volumes in 2023 and 2024(b) with an average NYMEX floor price 53% and 26% higher, respectively, than the Company’s portfolio average as of March 17, 2022

• After successful ABS financings in February, approximately 90% of borrowings are fixed rate, fully amortized, primarily investment grade bonds that insulate against rising interest rates

• Net debt / hedged adjusted EBITDA(c) leverage ratio of 2.2x as of March 31, 2022 pro forma for recent acquisitions

• ~$350 million in cash(d)

Recent Environmental Highlights

• Join the Oil and Gas Methane Partnership 2.0 (OGMP 2.0) to advance the company’s commitment to reducing emissions

• Decommissioning progress:

◦ Sealing of 49 wells until April 2022; on track to meet or exceed branching goals

◦ Expect to add a 9th crew by the end of 2Q22 (4Q21: 1 internal crew)

◦ Actively pursue third-party work with independent operators and state agencies

• Emission reduction initiatives until April 30, 2022:

◦ Completion of approximately 37,500 unique emissions surveys of Appalachian assets benefiting from the full deployment of 600 portable leak detection devices

▪ >80% of surveyed sites demonstrated no leaks with well offerings eliminating fugitive emissions on approximately an additional 10% immediately on site and scheduling remaining repairs

▪ Acceleration of the Company’s commitment to inspect its Appalachian wells by the end of 3Q22, well ahead of the previous commitment in mid-2023

◦ Completion of LiDAR aerial surveillance over 2,000 miles mid-course, fixing approximately 60% of identified leaks and advancing additional repairs

◦ Demonstrated commitment to early adoption of emissions sensing and measurement technology (as previously announced April 13, 2022)

Rusty Hutson, Jr., CEO of Diversified, commented:

“Following our four acquisitions in the Central region in the second half of 2021, I am pleased with the progress we are making to integrate and optimize these assets while adding to their scale and vertical integration to reduce costs. Mindful of cash flow and cash operating margins, we also increased our hedging positions to take advantage of the rise in the commodity futures price curve.

“We continue to deliver on our sustainability commitments and have made further investments to expand our in-house well reprocessing teams. With growing in-house well plugging capability, we plan to not only exceed agreed upon levels under state agreements, but also become a leading provider of well removal services to third party operators and Appalachian states alike. themselves.

“With our investments in emissions measurement technology gaining momentum and giving us the ability to proactively detect, measure and repair fugitive emissions across our upstream and midstream asset base, I am increasingly confident in our ability to meet our committed targets of reducing methane emissions intensity by 30% by 2026 and 50% by 2030 on our path to net zero greenhouse gas emissions by 2040 . »

A good trading statement from DEC today and with the Q1 dividend announcement showing a 6% increase over Q1 21, more good news for shareholders. Indeed, the company “continues to deliver” to use its own words and the model proves to be a great success.

DEC continues to make acquisitions adding to the scale of its operations while improving margins by reducing costs and maintaining its strong financial position through shrewd hedging and cash management. Indeed with c. 90% borrowing at fixed rates that “insulate from rising interest rates” and with around $350 million in cash, the company’s position is very strong.

Additionally, the company’s total commitment to reducing emissions and continuing to meet sustainability goals is ahead of schedule to reduce methane emissions intensity by 30% by 2026 and 50% by 2030 on track for net greenhouse gas emissions by 2040. Overall a very satisfying announcement and I would expect more of the same across the board from from DEC.

Union Jack Oil (Union Jack Oil PLC (AIM:UJO))

Union Jack Oil PLC (AIM:UJO) has announced its audited results for the year ended December 31, 2021.

Operational Highlights

• Successful proppant and coiled tubing compression exercise at Wressle achieved instantaneous throughput of over 1,000 barrels of high quality oil per day without water shut-off

• Analysis of the Wressle-1 pressure test by ERCE indicates that potential flows between 1,200 and 1,500 bpd are achievable

• Revised Wressle Field Development Plan submitted to the North Sea Transition Authority for approval

• West Newton EWT results confirm significant hydrocarbon discoveries in the Kirkham Abbey formation

• Independent RPS Group (LSE: RPS) review forecasts initial average production rates of up to 35.6 million cubic feet of gas and 1,000 bpd from a horizontally drilled well at West Newton

• Planning granted to West Newton for work on sites A and B and extension of the permit for three years

• Completed the purchase of an additional 15% stake in PEDL253 containing the Biscathorpe prospect, increasing Union Jack’s stake to 45%

• Carbon intensity study on the Biscathorpe project rated AA by Gaffney Cline

• Purchase of a 2.5% royalty on the North Sea Claymore, Piper and Scapa oil fields

• Appeal against the refusal of town planning in Biscathorpe submitted to the Town Planning Inspectorate

Financial Highlights

• Oil revenues increased by more than 1,000% in 2021

• First gross profit realized on oil sales

• Cash balances and short term receivables of £7,545,575 as of 9 May 2022

• The Company is currently funded for all operational and contractual or planned CAPEX costs, including all drilling activities budgeted for at least the next 12 months

• Debt free

• Early settlement payment made to Calmar LP for deferred consideration on the acquisition of 25% interest in PEDL180 and PEDL182, containing the development of Wressle

• The company’s lawyers are advancing the legal work on the capital reduction to allow the company to execute a share buyback program or the payment of dividends. Appropriate resolutions on this matter are included in the Notice of Annual General Meeting for shareholders to consider in the Annual Report.

• The Company’s AGM will be held at 11.00am on 23 June 2022, at the offices of Osborne Clarke, 2 Temple Back East, Temple Quay, Bristol, BS1 6EG

David Bramhill, Executive Chairman, commented:

“My confidence in the future of Union Jack remains very positive.

“In 2021 and to date, the company has advanced a number of its key projects, particularly at Wressle which, as previously reported, have been financially transformational with substantial revenues and indications that Wressle’s journey is only begin.

“The latest results at West Newton are very encouraging in terms of the prospects for the significant hydrocarbon discoveries made to date and their potential for development, following an extensive program of testing and investigations carried out by both sides of the Atlantic by leading geological and geochemical consultants.

“I remain confident that future news arising from our well-balanced portfolio containing relevant production, development, evaluation and exploration components will continue to justify the Board’s unwavering optimism regarding the strategy. target of our company.

“In conclusion, I believe that our company is in good financial health with a strong balance sheet. Union Jack continues to be debt free, with strong cash reserves and substantial future earnings expected.

“The company is currently funded for all contracted or anticipated G&A, OPEX and CAPEX costs, including all budgeted drilling activities, for at least the next 12 months.

“The future of the Union Jack remains bright.”

The picture at UJO is getting rosier, news from Wressle is getting better and at West Newton the ERCE report is positive on potential outflows and, based on the EWT, confirms significant “Hydrocarbon discoveries” in the Kirkham Abbey formation.

Since taking off at Wressle, revenue has skyrocketed, cash has increased and stood at over £7.5million on May 9, the company is debt free and fully funded for all costs over the next twelve months. As for the stock price, it is significantly undervalued, management has indicated that it plans to bring some sort of return to shareholders this year and that would be just one thing that would create the environment for a rise substantial share price.

As the demand for domestically produced hydrocarbons peaks and the government leans hard on helping to increase supply in any way possible, the UJO finds itself in a particularly strong position.

And finally…

Liverpool won the FA Cup final, again on penalties.

In the Prem, Noisy Neighbors lost points to the Hammers after trailing 2-0 and then saving a pen at 2-2. At the bottom of the table, Leeds drew but the Toffees and Burnley both lost, giving it all to play for this week.

In the second leg of the Championship play-off semi-final, it’s all to play for as the Terriers meet the Hatters for a place in the crucial final.

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