During the first quarter of 2020, XCD Energy Ltd has taken steps to prepare the company to weather the low price environment and uncertainties thrust upon oil and gas markets by falling demand due to the COVID-19 pandemic, coupled with breakdowns of supply restraints by OPEC and related parties.
XCD - which is publicly traded on the Australian Securities Exchange, ASX - is the owner of Project Peregrine, a Nanushuk play within an area of 195,373 acres made up of 17 leases within the National Petroleum Reserve-Alaska.
XCD “immediately reacted to the change in circumstances that have been the result of recent global macro events,” the company said in an April 9 quarterly activities report for the period ended March 31 which was filed with the ASX.
“Although the short term impact to the company of these events has not had a material effect on the business, the changes to the investment environment and global energy demand and therefore energy prices has necessitated the company to review its exploration programme and expenditure over the intervening period,” the company said.
XCD said its most significant expenditures for the year - being the balance payable for four additional leases it acquired late last year and its 2020 annual lease rental fees - have already been made, adding, “the assets of the company are now secured through to March 2021 with no further expenditure commitments.”
The company said it remains focused on cost discipline and will continue to closely monitor and reduce its cost base.
XCD’s non-executive directors have agreed to defer 50% of their fees effective from April 1, and the managing director has agreed to use accrued annual leave equating to approximately a 50% net deferment of salary over the next two months.
The company said its board is committed to re-assessing the situation prior to May 31, “in what is a rapidly changing environment.”
“All other non-essential costs have or are being eliminated from the business over the coming months,” it said.
Farmout campaign suspended
XCD said it has decided to temporarily suspend its current farmout effort for its Alaska prospects until there is further visibility on the direction of both oil prices and capital markets.
The company commenced its farmout campaign in February, in Houston at winter NAPE.
It said its offering was “well received with several significant oil and gas companies not currently exposed to the Nanushuk play in Alaska visiting XCD’s booth.”
“Clearly however, the investment climate for all oil companies has changed significantly over the last month,” the company said.
XCD maintains that the circumstances it is currently facing are temporary, and that the company may likely emerge in a stronger position.
“The longer-term outlook for oil prices and the potential shift away from unconventional shale drilling in the United States over a sustained period of low energy prices may ultimately be to the company’s advantage, however the current environment is dynamic and there is little visibility at present on what will be the long term effect on the company,” XCD said.
Regional drilling activity engenders optimism
XCD has been closely watching drilling activity in the region by Oil Search and ConocoPhillips, for clues to the prospectivity of the Nanushuk formation.
On March 31 Oil Search announced it had completed the testing of the Mitquq ST1 and the Stirrup 1 exploration wells, both targeting the Nanushuk formation.
XCD said: “the headline flow rates of 1,730 barrels of oil per day and 3,520 bopd respectively from single stimulated zones is highly encouraging and is a further validation of the prospectivity of the Nanushuk play in Alaska.”
XCD said that drilling by ConocoPhillips in NPR-A will provide further insight into XCD prospects. “Of most relevance to XCD is ConocoPhillips’ previously announced intention to drill up to three exploration wells on its Harpoon prospect which lies approximately 15 km to the north west of XCD’s Harrier prospect,” the company said. “XCD interprets the Harpoon Prospect (based on USGS 2D seismic data) to be on the same sequence boundaries as the Harrier Prospect and success at Harpoon would likely materially upgrade XCD’s Harrier prospect.”
ConocoPhillips Alaska said April 8 that it terminated its off-road winter drilling season in NPR-A early - after completing Tinmiaq 18 and 20 exploration wells, as well as a rank exploration well in its Harpoon prospect, Harpoon 2.
ConocoPhillips had hoped to complete up to three wells at Harpoon and four Tinmiaq wells this season.
- STEVE SUTHERLIN
