President Energy has now released its interim results for the year ending 2016.
Revenues were broadly flat year on year, increasing by just $36K and although depreciation fell by $373K, well operating costs grew by $2M, $1.5M of which was the expense of the Argentine well workovers, to give a gross loss $1.6M above that of last time. Salaries declined by $703K and share based payments fell by $607K but other admin expenses grew by $676K and the operating loss grew by $991K. There was a $358K reduction in the realised gains on forex hedges but loan interest and fees fell by $187K and after tax income grew by $312K the loss for the period came in at $4.7M, an increase of $852K year on year.
When compared to the end point of last year, total assets declined by $5.8M driven by a $7.3M fall in property, plant and equipment related to forex movements, partially offset by a $908K increase in cash and a $418K growth in receivables. Total liabilities also increased as a $2.3M decline in deferred tax liabilities was more than offset by a $5.6M growth in borrowings and a $1.3M increase in payables. The end result was a net tangible asset level of $24.9M, a decline of $10.3M over the past six months.
Before movements in working capital cash losses widened by $2M to $2.8M. There was a modest cash inflow from working capital due to an increase in payables and loan fees were slightly lower to give a net operating cash outflow of $2.7M, an increase of $1.4M year on year. The group then spent $411K on exploration along with $1.7M on development and production to give a cash outflow of $4.8M before financing. They took out a $6M related party loan to give a cash flow for the period of $1.1M and a cash level of $1.1M at the period-end.
These results reflect the significant work streams and associated costs preparing for the H2 operational campaign in Argentina. Group production for September is about 670boepd, a growth of 23% year on year with the benefit of the current drilling, coiled tubing campaign and Louisiana production still to come on stream. The September Argentina figure was 500boepd, a growth of 66%.
Taking into account the investments made to date at Puesto Guardian, the group has now invested the level of the mandatory financial commitment required under the pilot plan, meaning there is no further mandatory investment requirements under the concession until it expires in 2050. The macro investment climate in Argentina is also improving.
Louisiana continues to provide net cash flow, albeit at significantly reduced levels due to the oil price decline and shut-in wells. Current progress suggests that production will recover moving towards the end of the year.
Argentine production in the period increased by 39% and the extensive workover campaign of existing wells are now starting to bear fruit in H2 and the coiled tubing intervention and stimulation campaign has now started on old shut in wells. The average realised price was $58 per barrel ($70 last time) but the profit effect was offset by the Peso devaluation of 64% – the current realised price is $56.
The group will revisit their plans in Paraguay in the first half of 2017 after the current Argentina work programme. They have received an environmental license on the Putamayo Block, next to the Pirity concession and have made an application for prospection, exploration and exploitation of that area.
The current level of Louisiana production is about 170boepd and is projected to increase in October to over 200boepd compared to 209boepd in the first half of last year with the decline due to well shut-ins and natural declines. The average realised oil price was just $35 per barrel compared to $52 last year but is currently above $42 per barrel.
On a like for like basis, the well operating costs before DD&A are $43.5 per boe (similar to last year) but these costs are expected to come down as production rises as there is a large component of fixed costs, particularly in Argentina. At the period-end the group had $5.8M remaining on their revolving loan facility.
On the 29th September the group released an operational update. The Well DP1002 S/T in the Dos Puntitas field in Puesto Guardian remains on target to reach full production around the end of the first half of October but certain cementing issues were encountered causing delay but subsequent drilling has proceeded satisfactorily. They have now intercepted the target Yacoraite producing formation at a depth of 3740, and the expected increase in C1-C5 hydrocarbon gas readings were seen through the mud logs. The well was then drilled down to the casing point of 3,756m with the continued presence of these elevated gases. The hole is now being prepared for running casing down to the Yacoraite whereupon the production horizontal leg will be drilled at and the well completed.
Daily production in Puesto Guardian for the first 25 days of September was about 500bopd. A coiled tubing unit has been contracted and is ready to be mobilised awaiting final regulator permission for road transport, expected to be obtained shortly. The CTU is due to start work soon and will be combined with a stimulation programme on four non-producing wells. Management estimates that the CTU work will yield an increase in total field production in the region of 20%.
In Louisiana, the A55 well has now come on stream. The group is waiting for the non-operated Triche well, previously producing 60-70boepd net to President, to come back on stream after being out of effective working commission for about six months due to pipeline issues. They expect the well to come back on stream in two weeks, at which point they should see their share of total net production in the region increase to the 200-250boepd levels.
On the 6th October the group announced that it had been forced to temporarily suspend well DP1002 S/T so that the drilling rig can be mobilised to their neighbour for drilling their well. This was due to the significant difficulties encountered in running casing in the drilled well due to a twist off of a 1000m section which was lost downhole and not practical to recover within the timeframe. The mobilisation of an appropriate workover rig to fish the casing out is now being considered.
There have been significant service quality issues encountered in this well and the challenges presented have been huge. Issues with the rig were followed by a fractured drill pipe and then two failed cement plugs through compressive strength issues. Whilst they continued to drill through all these difficulties and intercepted the target formation, the attempt at casing this well has proved an issue too far at this present time.
The decision has been taken to temporarily suspend further attempts at completing this well. They are reviewing further action on both the well and the drilling programme. As well as the fishing operations being considered, the well remains available for a further side track to re-intersect the producing formation. In the interim the group is therefore releasing the drilling rig.
On the 20th October the group released another operational update. In Argentina the coiled tubing programme is progressing and operations have just started on the second of the expected five well campaign. The intervention on the first well, a previously producing well shut in since 1993 has provided valuable information on the Yacoraite reservoir and has flowed a limited amount of oil to surhace. Although the stimulation and extended testing could not be carried out due to a tubing leak, the operation demonstrated that the Yacoraite remains without significant depletion and is capable of flowing oil without artificial lift. The well will now be a candidate for a follow-up workover campaign that is being planned.
The analysis and investigation as to the circumstances surrounding the drilling of DP1002 S/T continues but meanwhile a resumption of drilling remains suspended. The mechanical failures on the well were not related to geological factors and the horizontal landing of the well demonstrated that the target was robust.
Current production from Louisiana is about 220boepd with oil prices becoming more robust and gas prices showing an increase of over 73% over the last six months. The group is estimating about $150K per month profit from this operation in Q4 which also represents the free cash generation back to them.
In Paraguay, the group holds a prospection permit and has received environmental license on the Pilcomayo Block, adjacent to the Pirity Concession. They have decided to move forward and have made a contract application for prospection, exploration and exploitation of that area. The application is being considered by the Ministry and a response should be received before the end of 2016.
On the 15th November the group announced their intention to raise about $20M through the issue of new shares at a price of 6p per share with certain existing and new institutional and other investors. The placing price represents a discount of about 14% to the closing price on the day before.
The proceeds of the fundraising will be used as follows: About $10M will be used to fund the initial ten well workover programme of shut in wells in Argentina in order to increase production and the other $10M will be used to strengthen the balance sheet, provide critical mass and enable the pursuit of additional growth opportunities.
On the 18th November the group confirmed they expect to receive about $55 per barrel for its production in Argentina until the end of the year. The Argentinian government intends to match international pricing going forward which is likely to take place in 2017, although the exact timing is not known.
The group expects that the IRR of their planned well workover programme in 2017 will not be materially impacted so don’t expect there to be a material difference in their expected year-end cash position in 2017.
On the 11th January the group announced that they had entered into a contract for a workover rig in relation to the forthcoming workover campaign. The rig will be based at Puesto Guardian for a year and it is expected to be mobilised in the next four weeks after thorough acceptance testing. First operations will start in February with workovers of two producing wells which are presently under maintenance, together with the creation of a new water injector in a currently abandoned well. Workovers on old shut in wells are due to start in March and include a frac programme on at least three of the wells. They reaffirm their target of 1,200bopd production from Argentina by the end of summer 2017.
So, a lot has happened with the group since my last update. The results are now so out of date they are largely irrelevant but they are pretty poor, not helped of course by the low oil price in the period and devaluation of the Argentinian Peso. The results of the drill campaign was pretty catastrophic. Once again, the drill was beset by problems – President is really not very good at actually drilling wells! Then we get hit by the dilution in the huge placing. Quite a tale of woe.
This is all in the past, however, and now the placing cash is on hand and the group are embarking on workovers rather than actual drills there is I think some hope that things might improve. Added to this the fact that Argentina is moving over to market pricing, which is a good thing in the long term I think, and the slightly improved oil price, these shares are looking better than they have in a long time. Whether they are still overpriced is the question, however, but I am tempted to take a punt here.
On the 10th March the group released an operations update. The first workover of a previously producing well, DP12 at the Dos Puntitas field has been completed on time and on budget. The workover of DP12 went to plan with minimal non-productive time and the well, which had previously had a leak in the production packer and a faulty jet pump bottom hole assembly has been treated with an acid stimulation and is achieving an initial production in excess of 120bopd, in line with expectations.
The rig has now moved to workover the second of the previously producing wells, DP1001 at the Dos Puntitas field and operations have now started on that site.
On the 15th March the group released an Argentina reserves update with 1P oil reserves increasing by 9% to 12MMBOe and 2P reserves increasing by 10% to 19.9MMBoe. The increase reflects the impact of frac and stimulation campaigns on previously non-producing carbonate zones in the Cretaceous formations which they are looking to replicate and enhance in this year’s programme.
On the 29th March the group released an Argentine operations update. The second workover of DP1001 has achieved production substantially ahead of rates prior to it being shut in. It is achieving initial flush production which has elevated current Puesto Guardian concession production, to about 750bopd although this is expected to reduce to the range of 600-650bopd after initial flush production from this well recedes. The rig will shortly move to the first well of the initial three well frac programme of old shut in wells. This is expected to start next week as there has been a delay due to heavy rains affecting inter-field roads. The first results are now expected in June.
On the 4th April the group released another operations update. DP1001 has performed stronger than expected, steadily free flowing without pump on continued testing at rates in excess of 350bopd, contributing to concession production over 800bopd. Whilst natural decline from these initial rates should be expected, the current flow rates are greater than expectations. Continued heavy rain has prevented the rig moving to the next location but it is expected that it will be there during the next week.
On the 19th April the group announced the acquisition of incremental production in Louisiana. They already had a 3% gross override and a 12% working interest, and a 9% net revenue interest in the Triche Well. They also process the oil and gas for the well through their field facility under a production handling agreement. They have agreed to acquire the ownership of the well together with an incremental 50% working interest and a 37.5% NRI for $2.25M in cash plus a further $400K earn-out based on future production.
Current gross production at the well is running at about 400boepd meaning 150boepd is being acquired by the group. The life of the well is estimated at seven years and is expected to pay back in some thirty months at the $50 per barrel oil price. The result of the acquisition means the average group production in April to date would be about 1,100boepd.
On the 12th May the group announced an update on ongoing disputes with two service providers. The group is of the view that it has valid claims in relation to the DP1002 S/T well against two service providers, both multinational well-known companies, totalling more than $10M but these claims are being denied by the companies. The group is confident that if the well had been completed in accordance with the pre-drill plan, it would have been successful so they intend to claim compensation for loss and damages suffered as a result of its non-completion.
The group has claimed substantial amounts from WFT in relation to the well and has rejected claims from WFT that they owe them any monies in respect of the well. The group consider that their claims on a full liability basis against WFT to be in excess of $10M. The claims against WFT include the approval of drill pipe and other equipment of the drilling contractor to ensure it was fit for purpose, the lost bottom hole assembly, the failed cement plug and the loss of casing after the well was finally drilled into the reservoir.
The parties to date have failed to resolve their differences through a mediation process that continues. If no amicable solution is reached, the claims will be pursued through the courts which may be a lengthy progress.
The group is in dispute with H&P, who provided drilling services for the well. A material part of the dispute surrounds the circumstances of the lost in-hole bottom hole assembly. A visual inspection report from a lab has been received by both parties and the next step is for testing to take place. After having received the visual report, H&P objected and refused any further testing of the drill pipe and requested the return of the pipe, which President has refused.
In addition the group’s claims against H&P include the readiness and faults of the relevant drilling rig, the equipment provided and the dropping of a drill bit down the hole but H&P have denied all claims. The parties are currently negotiating with a view to arriving at a formula to permit the relevant testing to take place.