Oilman Jim's Letter - 29 October 2023
IVZ.AX IVCTF HE1.L HLOGF NHE.AX HEVI.V HELI.V FHELF DME.V DMEHF EXR.AX EOG.V ECO.L MEN.L ORCA.L EEG.AX RECO.V RECAF
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This newsletter covers small cap oil, natural gas, helium and hydrogen companies trading in Australia, Canada, the United Kingdom and the United States.
Invictus Energy (AU: IVZ, US: IVCTF), currently drilling the Mukuyu-2 well, announced that strong gas shows (up to 157 times above background), fluorescence and elevated LWD resistivity had been encountered in multiple Upper Angwa reservoirs. Similar strong gas shows (up to 151 times above background), fluorescence and elevated LWD resistivity also were encountered in multiple Lower Angwa reservoirs, potentially opening up a substantial new play in the Cabora Bassa basin. The company is drilling ahead and and may potentially deepen the well beyond the planned 3,750m measured depth, before conducting wireline logging to evaluate results, with the aim of confirming the presence of moveable hydrocarbons in multiple zones and declaring a discovery. The well spudded on 20 September and drilling / evaluation was estimated to take approximately 50 to 60 days to complete. It is the second well in IVZ’s Cabora Bassa basin exploration program; the first, Mukuyu-1, which proved a working petroleum system and multiple hydrocarbon bearing reservoirs, de-risked future drilling. Per Invictus, Mukuyu-2, if successful, could be transformational for the company, Zimbabwe and much of southern Africa’s future energy needs. Per the latest announcement, the well remains within budget and on track to be completed within the previously guided 50 to 60 days total including any deepening.
Helium One Global (UK: HE1, US: HLOGF) also continues drilling through its primary reservoir targets to total depth of 1,100m. The company has stated that it will make a further announcement once total depth is reached and wireline tools are ready to run in the hole. Civils work is continuing for the second well in the Tanzania drilling campaign on its well pad and access road and Helium One says it remains on track to drill this well, Itumbula-C, prior to the wet season commencing. Recent soil gas surveys over the Itumbula prospect are said to have yielded helium concentrations above background levels.
Noble Helium (AU: NHE), which is drilling two helium exploration wells in Tanzania as well, announced that its first well, Mbelele-1, has been spudded at the company’s North Rukwa helium project. Noble sounds confident, stating that 14 basin margin fault closures have been drilled for oil and gas in the rift basins of the East African Rift System since 2006, with a 100% success rate, 14 discoveries from 14 wells, and it’s using a proven play to look for a new resource – helium.
Helium Evolution (CA: HEVI) announced an operations update. Spud date for the Test Well Area #1 is now on or before 30 November. Also expected before the end of November is the spud of Joint Well #2. In the meantime, testing and evaluation of Joint Well #1 continues. HEVI has a 20% interest in the wells. Helium Evolution claims to hold the largest helium land rights position in North America among publicly-traded companies, with 5.6 million acres of land under permit near proven discoveries of economic helium concentrations.
First Helium (CA: HELI, US: FHELF) announced that its oil production has now surpassed the 100,000 barrel milestone. Since coming onstream in Q1 2022, the wells have generated over $12.5 million in revenue which has helped fund ongoing helium exploration and development activities. In addition to the two low risk oil operations proposed this winter, one of which is targeting booked proven undeveloped reserves of over 160,000 barrels of light oil, the company is further prioritising its inventory of drilling locations for oil, natural gas and helium for future exploration and development. HELI’s Worsley land base is a historically active oil & gas exploration area, attractive for multi-product exploration, including oil, helium, and natural gas, with the area geology providing multi-zone and multi-product target exposure with each drill. To date, it has enjoyed a 100% success rate in drilling its first two oil discoveries and these, along with the 15-25 helium discovery, help confirm the exploration model. First Helium holds over 60,000 acres along the Worsley Trend in Northern Alberta and 276,000 acres in the Southern Alberta Helium Fairway near existing helium production.
Desert Mountain Energy (CA: DME, US: DMEHF) announced delivery of all necessary components for the West Pecos helium processing plant. Operational start-up is anticipated to take place in the first half of November. Recent sampling and historical data suggest an initial average of 0.50% helium grades with the commencement of helium production in the plant and the company says it is continually approached by additional helium end-user purchasers offering to buy all helium grades.
Elixir Energy (AU: EXR) announced a Daydream-2 update. Well site and access road civils work have been completed, the water well production casing is in place, the surface conductor has been installed prior to rig arrival and the well is due to spud in the first few weeks of November. Elixir recently raised A$8.7 million, in part to fund this. Daydream-2 is said to be the highest impact well in Elixir’s history and the company says it looks forward to providing the market with regular updates on progress in the weeks and months to come. The project has an initial contingent resource (2C) of 365 billion standard cubic feet of gas and 43.5% of the total Daydream-2 well cost will be paid for through the Federal Government’s R&D tax incentive mechanism.
Eco (Atlantic) Oil & Gas (CA: EOG, UK: ECO) announced director share purchases: 216,135 by Gil Holzman at 9.5p, 200,000 by Peter Nicol at 10.05p, 57,000 by Gadi Levin at CAD$0.175 and 60,000 by Alan Friedman at CAD$0.175. The share price has been sliding for some time, but firmed up slightly on these buys. Eco recently acquired from Tullow an additional 60% interest in the Orinduik block, Guyana, and now has a 75% interest, becoming operator. The company says it intends to drive the exploration process and focus on its strategy to attract new partners to join the licence and proactively engage in drilling. The other current project is Block 3B/4B, offshore South Africa in which Eco now has a 20% stake. A new competent persons report released by the operator earlier this year confirmed that the block contains estimated P50 prospective resources of approximately four billion barrels of oil equivalent and an application has been made to drill one well and one contingent well in the north of the block. Like Orinduik above, funding for the drilling again relies on a farm-out.
Molecular Energies (UK: MEN) announced a strategic update. On the oil and gas front, final on-site commissioning of the drilling rig is taking place and the repaired blow out preventer is currently expected to be on site at or around the end of the second week of November. MEN now targets spudding the Tapir x1 well later in November and says it will provide further updates as appropriate. The well, if successful, will potentially unlock a complex of prospects, estimated by the company to contain in aggregate over 260 million barrels of oil. Accordingly, while MEN stresses the exploration risks with the estimated chance of success of 17%, even using a conservative recovery factor of 5% and a conservative oil price of $70 per barrel, the potential of the prize makes this exploration well compelling it says.
Orcadian Energy (UK: ORCA) announced a two year Pilot licence extension from the North Sea Transition Authority, subject to assignment of an interest in the licence to the proposed operator and the appointment of the proposed operator as operator. It was announced last month that Orcadian had entered into a non-binding heads of agreement with a North Sea operator, which provided a period of exclusivity to execute definitive documentation for a farm out by 30 November. If the deal completes, ORCA will retain an 18.75% carried interest in the Pilot development with the operator paying 100% of the pre-first oil scope of work. After first oil, Orcadian will pay its working interest share of expenditure. There’s also an initial cash consideration of up to $200,000 from the operator, with a further $3 million being paid to ORCA on Pilot FDP approval.
Empire Energy (AU: EEG) announced it has received its A$15.6 million R&D tax offset (the current cash balance is now A$29.3 million) and anticipates that it is fully funded to progress to the EP187 Carpentaria pilot project final investment decision. Empire has completed a vertical frack and flow test of its first well, Carpentaria-1, and a successful horizontal well at Carpentaria-2H with a view to realising early commercial production using existing pipeline infrastructure. Carpentaria-4V and Carpentaria-3H will also be drilled this dry season, subject to logistics. The company claims to have the largest holdings across the Beetaloo-McArthur basins.
Reconnaissance Energy Africa (CA: RECO, US: RECAF) announced that it has entered into a definitive agreement for the sale of its Mexico operations. The deemed purchase price for the transaction is $7.5 million, but key is that it removes the legacy liabilities from RECO’s balance sheet in excess of $100 million. The transaction streamlines its portfolio and enables the company to focus its resources on progressing joint venture partnership efforts and preparing to execute the multi-well, high impact exploration program in Namibia, which is expected to commence in the first quarter of next year.
More in the Private Letter.