Malcy’s Blog – Oil price, Union Jack Oil, Challenger Energy Group & Serica Energy

WTI (Feb) $73.56 -40c, Brent (Mar) $76.30 -21c, Diff -$2.74 +19c.

Author @mgrahamwood

USNG (Feb) $3.68 +32c, UKNG (Feb) 116.51p -6.54p, TTF (Feb) €46.77 -€2.23.

Oil price

Oil was weak yesterday as some economic stats were weak and political issues were added to by the resignation of Justin Trudeau adding to the Spring elections…

Today though more positive news and thoughts of stocks turned a few heads and oil is better again.

Union Jack Oil

Union Jack has announced that it has been informed by the Operator, Reach Oil and Gas Company Inc that the Moccasin 1-13 well, located in Seminole County, Oklahoma, USA has been spudded.  Union Jack holds a 45% working interest in this well.

A completion programme update on the Taylor 1-16 well is also provided, in which Union Jack holds a 45% working interest.

Moccasin 1-13

Moccasin is an untested 3D seismic supported Hunton and Wilcox structure with secondary targets in Pennsylvanian Channel Sands and Base Pennsylvanian Unconformity Sand.  The Moccasin structure is a compressive feature, associated with the regional Wilzetta Fault.  This strike-slip fault was active through the Ordovician to early Carboniferous periods and is responsible for several large oil accumulations.

The Woodford Shale, the main source for light oil across the region is present within the Moccasin structure and between the primary reservoir targets.

In the area of the Moccasin well, a deviation in the fault has caused compressive forces forming numerous dome and fault structures which have led to proven oilfields, such as the adjacent productive North-East Shawnee and North-West Redhill fields.

Reach assesses a high chance of finding movable hydrocarbons in the Base Pennsylvanian Sands and an approximate 50% chance of success in other target zones.

Moccasin will be drilled to a Target Depth of 5,500 feet.

Moccasin drill and completion costs have already been funded from the Company`s existing cash resources.

Taylor 1-16 Completion Programme Update

Further to the announcement of 26 November 2024, Taylor was drilled to a Total Depth of 4,577 feet and three potential production zones were encountered, the Hunton, Misener and Cromwell.

Operations on Taylor are proceeding through the completion and testing phase in the three prospective zones named above.  The deepest formation, the Hunton has been perforated and the reservoir fluid is light oil with no water, however, to achieve maximum flow a vacuum pump will be deployed to increase the rate at which this zone will be pumped.

The vacuum pump is expected to be delivered to site within 14 days and in the meantime the well will be perforated this week to test the next reservoir target up-hole, the Misener zone.  Ultimately, it is anticipated that the production from all three reservoirs will be co-mingled.

Taylor drilling and completion costs have already been funded from the Company`s cash resources.

David Bramhill, Executive Chairman of Union Jack, commented:

 “We look forward keenly to the drilling results from the Moccasin well that, if successful, has the potential to be significant for Union Jack and its future.

“I am pleased to report that the Company remains in a robust financial position having paid all major outgoings including drilling and completion costs for its current USA activities.

“We continue to generate material revenues in the UK from our flagship project at Wressle (Union Jack 40%) that is awaiting approvals to proceed with the next stage of development.  These revenues are expected to be bolstered in the near future from Keddington (Union Jack 55%) by the expected restart in early 2025.

“Cash generation in the UK is complemented by our entry into the USA which we announced in early 2024, with cash flow from the two Andrews’ wells discoveries (Union Jack 45%), plus additional revenues from our US Mineral royalty portfolio that provides a constant and pleasing return on our investment.

“Notably, we have meaningful interests in all our principal projects that we believe will assist in being able to deliver on our stated growth strategies in both the UK and USA.

“We look forward to reporting in due course on the drilling results from the Moccasin well and following completion, production rates from Taylor.”

Once again Union Jack is announcing a spud in its exciting programme in the USA with the Moccasin well another potentially significant opportunity in Oklahoma. They also update on the Taylor 1-16 which encountered three potential production zones and where operations are continuing with completion and testing in those zones. 

The deepest of those, the Hunton has been perforated and the reservoir fluid is light oil with no water and will require a vacuum pump to achieve flow rate. This looks very positive and the campaign is all paid for from self generated funds.

Elsewhere Wressle continues to generate ‘material revenues’ and is awaiting approvals to proceed with the next stage of development.  These revenues are expected to be bolstered in the near future from Keddington (Union Jack 55%) by the expected restart in early 2025. They more than fully deserve to make UJO a candidate for the Bucket List as the company is full of value.

Challenger Energy Group

As 2025 begins, I write to thank you, our shareholders, for your support throughout 2024, a milestone year for Challenger Energy, during which we made significant progress in our two prime offshore exploration blocks in Uruguay. 

AREA OFF-1

2024 saw the successful farmout of the AREA OFF-1 block to Chevron announced on 6 March 2024. This transaction was a result of our high-quality technical work, that established the licence area’s multi-billion-barrel prospectivity. Chevron’s commitment to fully carry the Company’s share of costs for a 3D seismic campaign – and 50% of the costs for an initial exploration well should Chevron move forward with it – positions AREA OFF-1 for significant progress in the coming year, but with reduced financial risk.

Successful completion of the farmout also delivered a $12.5 million cash payment to Challenger Energy and, at the same time, we retain a 40% non-operating interest in the block, affording us enormous flexibility in how we participate in this block’s future.

AREA OFF-3

On 11 March 2024, we formalized our AREA OFF-3 license, marking the start of an initial four-year exploration period. This highly prospective 13,252 km² area, located in relatively shallow waters about 100 kilometers off the Uruguayan coast, benefits from extensive 2D and 3D seismic coverage and, like AREA OFF-1, has multi-billion-barrel resource potential from multiple play types. 

We have since commenced our technical work program for AREA OFF-3, which centers around reprocessing 3D seismic data. This critical activity, set to conclude in the first half of 2025, will refine the prospect inventory, identify potential drill locations, and support a formal farmout process targeted to commence in mid-2025. The anticipated costs of our work program, projected at $1-1.5 million, reflect our commitment to a disciplined and value-driven approach to early-stage exploration.

Trinidad & The Bahamas

We are currently reviewing our assets in Trinidad and The Bahamas, and anticipate making a decision on their future in the first half of 2025.

Financial

The funds received on completion of the Chevron farmout means that we are fully funded for the foreseeable future – both in terms of corporate overhead and all planned work programs – with no debt, a healthy cash surplus, and no unfunded commitments or obligations. Thus, as we exit 2024 and head into 2025, I believe our Company is in the best financial position it has been in for many years.

2024 underscores Challenger Energy’s ability to navigate complex projects, partner with leading industry players, and leverage our assets to create value for shareholders. As we look ahead to 2025, our focus remains steadfast: advancing exploration activities in Uruguay, optimizing our portfolio, and continuing to execute on our business strategy.

Once again, thank you for your support. I’m proud to reflect on what has been a transformative year for Challenger Energy, and we are excited for 2025 and beyond.

Sincerely,

Eytan Uliel – Chief Executive Officer

Challenger Energy Group Plc

I don’t normally comment on Eytan’s letters but I do commend this to all shareholders but perhaps more importantly those who have yet to take the plunge. With Chevron signed, sealed and more importantly paid up for AREA OFF-1 and the recent addition to the shareholder list of Charleston things are indeed looking positive. 

Next stop AREA OFF-3 and the technical data, there is no reason to believe that the company cannot repeat the exercise and that makes Challenger a very exciting play indeed, watch this space.

Serica Energy

Ahead of a trading update on 21 January, in which the Company will provide guidance for 2025, Serica has today announced production figures for 2024.

Production into the Triton FPSO resumed on 27 December with a phased restart of the producing and new wells ongoing. Importantly, following extensive root cause analysis and remedial work, the export gas compressor was restarted successfully and gas exports commenced on 29 December.

The process of restarting Triton was at the longer end of expectations communicated on 5 December, and we also experienced a short period of unscheduled downtime on the Bruce platform related primarily to a subsea intervention to ensure enhanced production reliability on the Rhum field. These factors meant that our 2024 production averaged 34,600 boepd across the year.

As of 5 January 2025, overall production net to Serica totalled 46,400 boepd. With the planned phased restart of the Triton fields, we expect this rate to increase, ramping up to full run-rate production as all wells, including new production from the Gannet GE05 well (SQZ: 100%), are brought online. The resumption of operations with two-compressors at Triton, which the Company has not seen since Q1 2024, remains on schedule to be achieved in Q1 2025.

Drilling and completion operations and requisite steps for hook-up on the next well in the campaign, EC1 on the Guillemot North West field (SQZ: 10%), have now concluded, with similarly positive initial data to that seen on the B6 and GE05 wells. The EC1 well is expected to enter production in Q1 2025. The COSL Innovator rig is now set to move to commence drilling operations on EV02 on the Evelyn field (SQZ: 100%), the next potentially high-impact well, with first production expected in Q2 2025.

Chris Cox, Serica’s CEO, stated:

“Production in the second half of 2024 was clearly disappointing and well below the potential of our asset base. We and our partners are working to improve planning and procedures to optimise maintenance and maximise production resilience going forward. At Triton the key issue has been operating vulnerabilities associated with reliance on a single gas export compressor, and we have stayed in touch closely with the FPSO operator as they worked through root cause analysis in relation to the repeated issues seen in H2 2024.

We understand what has caused these issues and, together with our partners, are implementing improvements to support better and more reliable future performance. As the Triton operations continue their ramp-up, we look forward to seeing both enhanced production as the new wells drilled during 2024 contribute fully, and more resilient operations, as we resume operations with two compressors in Q1.”

After all we heard at the end of last year regarding compressor issues this comes as no surprise and eyes turn to 2025, with numbers already picking up sharply and the problems at Triton hopefully are now behind the company, with the extra comfort of a second compressor set to be online this quarter. 

With production ramping up and with Gannet GE05 coming onstream and EC1 on Guillemot imminent there is also the COSL Innovator rig which is now set to move to commence drilling operations on EV02 on the Evelyn field, all adding to the production in 1H 2025. 

Finally there is a silver lining to this particular cloud, with none of the production problems down to reservoir irregularities the missed production last year was at a time of lower commodity prices, at the moment prices are considerably higher and there has been no loss of reserves yet revenue will increase. 

So with production rising strongly and in the short term bringing additional revenue, 2025 has started well and with much to look forward to, sound management, strong finances, some tax breaks and potential M&A activity Serica certainly deserves inclusion in the upcoming Bucket List.

Serica will host a live presentation on the Investor Meet Company platform on the day of the trading and operations update, 21 January 2025, at 0900 GMT. The presentation is open to all existing and potential shareholders. Questions can be submitted prior to the meeting up until 20 January 2025, 0900 GMT, and at any time during the live presentation. Investors can sign up to Investor Meet Company for free and add to meet Serica Energy plc via: https://www.investormeetcompany.com/serica-energy-plc/register-investor.

Author @mgrahamwood

Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. The writer may or may not hold investments in the companies under discussion.