Oil Patch Insider: Thank you Jason Stellmach; Paul Craig pleased with Elixir/ Emerald House deal with Entek; WoodMac, Saudi minister upbeat

Kay Cashman

Petroleum News

On Dec. 13 Petroleum News received an email from long-time reader Wadeen Hepworth, who had something very nice to say about an Enstar employee that is appropriate to share in this holiday season.

“Today is a winter wonderland in Anchorage and the mail gal delivered a special letter from John Sims, president, Enstar Natural Gas. John wrote in response to a complimentary letter I wrote about Jason Stellmach, service supervisor, who provided an outstanding service to me that saved me over $1,000.

“I learned, through John’s letter, that Jason had a Hawaiian vacation departure date of Dec. 4, but, when the (Nov. 30) earthquake hit (Southcentral Alaska) he cancelled the trip. It was also nice to read that the president knew Jason ‘repeatedly exceeds expectations.’

“I send you this because I believe there are more positive people in this world than negative and that the Jason’s are out there every day caring. Too often we complain and forget to compliment the nice guys to their bosses, a nice tradition to begin in 2019.”

- Kay Cashman

Craig: Elixir/Emerald deal with Entek positive next step

Elixir’s wholly owned subsidiary Emerald House is the company’s operating entity in Alaska.

Elixir closed on 100 percent working interest in the 35,423-acre parcel on three leases in mid-November. The leases lie south of Armstrong’s Nanushuk discovery at Pikka and Horseshoe and south of ConocoPhillips’ Willow oil find, all west of the central North Slope.

ConocoPhillips’ projected expenditure on Alaska exploration in 2019 will particularly focus on the further appraisal of Willow, which is in the northeastern National Petroleum Reserve-Alaska, where the company plans to drill four to six appraisal wells this winter. (In a recent investor presentation, company officials said ConocoPhillips was assuming a West Texas Intermediate oil price of below $40 per barrel, noting that at $40 per barrel, the company’s cash flow would exceed the level of sustaining capital investment and dividend payments.)

Immediately after the closing with Craig, a coalbed methane prospect in Mongolia that Elixir had given up on due to bureaucratic obstacles got the greenlight from the government. The small independent immediately started negotiations with fellow independent Entek, which had cash but was looking for an investment opportunity.

“It was a logical next step,” Craig told Petroleum News Dec. 19. “I am very happy with the deal. If you had been sitting at the table you would understand. … Elixir thought its Mongolian project, which they had worked very hard at, seemed permanently mired down, so they made the deal with me. Suddenly they had two very promising projects, but not enough cash to fund the next step for both; Entek had the cash to move the Alaska project forward, but no prospects.”

Entek reported cash of approximately $4.2 million and no debt or substantial expenditure commitments in its September quarterly.

The deal between the two “small, scrappy independents” is a throwback to Richfield (predecessor to Atlantic Richfield/ARCO/ConocoPhillips), which was the company that initially pushed development of the giant Prudhoe Bay oil field, Craig said.

Entek and Elixir have entered into a binding agreement granting Entek an exclusive option to purchase the acreage through the acquisition of Emerald House. The proposed transaction allows Entek to acquire the Elixir subsidiary for up to 200 million shares, which Elixir will then distribute on a pro rata basis to shareholders.

The option agreement said any additional leases acquired by Emerald House would be included in the potential acquisition by Entek.

In the Dec. 12 BLM lease sale Elixir subsidiary Emerald House was high bidder on 10 more leases. Emerald House bid $1.1 million on 114,167 acres in NPR-A, giving it 149,590 total North Slope acres.

A Dec. 13 stock exchange filing said Elixir paid a 20 percent deposit to BLM of approximately US$225,000 which will be subject to a 25 percent uplift in value if Entek exercises its option to acquire Emerald House.

Elixir and Entek are “working towards the potential completion of the transaction in Q1 of 2019,” the filing said, noting later in the filing that it would close in March.

The recent BLM lease sale bidding “represents the last significant expenditure” Elixir expects to make on the Alaska acreage as its focus “shifts back” to its Mongolian CBM acquisition that it’s is in the process of completing.

According to Craig, per the example set by Armstrong, which has brought in several larger partners to fund oil developments on the North Slope, including those at Oooguruk, Nikaitchuq, Pikka and Horseshoe, “it can take billions of dollars to fund a really big North Slope development,” and that is likely what Entek will have to do as a logical next step.

It will take a major oil company or a really large independent, such the Australian independent Oil Search, currently the operator of Pikka and Horseshoe, to bring the Elixir/Emerald House and soon-to-be Entek leases into production, Craig said.

According to a Nov. 14 statement by Elixir, the price for Craig’s three leases was US$653,859, which had been placed in escrow awaiting confirmation that the lease assignments had been approved by BLM. Elixir had posted a US$300,000 cash backed bond with the agency.

Prior to Entek stepping in and the news from Mongolia, Elixir’s chief executive, Managing Director Dougal Ferguson, said Nov. 14, “With the acquisition of the Alaskan leases now completed (closed), work has begun on interpretation of all the existing data with significant progress being made on our Alaskan exploration strategy over the last two months.”

If the Entek deal closes, Ferguson will move to Entek as its GM.

In a July 15 Oil Patch Insider interview, Craig said he was negotiating with a publicly traded oil and gas company interested in completing a 3-D seismic program over the South Nanushuk prospect.

Stay tuned….

- KAY CASHMAN

Saudi Oil Minister upbeat on oil price

The current oil price is not linked to fundamentals and what happened to the oil market was political, macroeconomic and speculative trading, the energy minister of OPEC’s largest producer said.

All OPEC countries are committed to 3 percent production cuts in 2019 in order to draw down the global oversupply, with non-OPEC members, including Russia, committed to 2 percent cuts, al-Falih said.

A balance between supply and demand will occur in 2019, he said, assuring reporters that OPEC’s position is very balanced, measured and strong.

Al-Falih’s comments came the day after oil prices plummeted again amid market sell-offs and fears of oversupply as oil prices hit their lowest in the previous year. At market closing on Dec. 18, Alaska North Slope crude had dropped another $2.93 to $56.29, with West Texas Intermediate falling $3.64 to $46.24 and Brent crude dropping $3.35 to $56.26, with “We remain focused on fundamentals, I can tell you we will achieve balance between supply and demand in 2019,” al-Falih noted, as quoted by Reuters.

“What has happened in my opinion recently is a confluence of many non-oil fundamental issues including the geopolitical issues, especially around the sanctions and the waivers that were granted by the United States,” al-Falih was quoted as saying in a Bloomberg report on Dec. 19. “It also includes the trade tension between the U.S. and China.”

On Dec. 19 oil prices seemed to steady and had begun to crawl up at the time this issue of Petroleum News closed late morning.

WoodMac: Oil companies prepared to capitalize, build

In its recently published 2019 upstream and corporate outlook reports, WoodMac highlights how well prepared the industry is to adapt and thrive in tumultuous times.

“Oil and gas companies can cope with whatever’s thrown at them in 2019,” said Tom Ellacott, senior vice president. “Portfolios are set to weather low prices, and the recent slide in prices justifies the sector’s conservative mindset. In our view the commitment to capital discipline will not budge entering the new year.

“But the temptation to relax the purse strings will grow if prices bounce back,” added Ellacott. “If oil prices return to US$70/bbl or above, the cash windfall generated is huge and will inevitably drive sentiment back in favour of growth. It will also increase pressure to return surplus cash to shareholders.”

But companies will be cautious about raising shareholder distributions and investment too quickly, WoodMac said in a press release, noting, “many will favour deleveraging to absorb any future shocks, and keep their powder dry for opportunistic M&A (mergers and acquisitions).”

But one area where the capital will continue to flow is the U.S. tight oil, spearheaded by major oil and gas companies.

“Permian mega-deals defined 2018, and we expect more in 2019,” said Angus Rodger, upstream research director. “After spending nearly US$35 billion on tight oil acquisitions in 2018, the supermajors and bigger Independents are serious about ensuring long-term success.”

That said, above-ground challenges will moderate Permian tight oil growth in 2019 to just 650,000 barrels per day after eclipsing 1 million bpd of growth in 2018. WoodMac does not see relief for operators until third quarter 2019, when new pipeline capacity comes online to relieve infrastructure bottlenecks.

It is not known whether Alaska was mentioned in the report. WoodMac had not yet replied to a query about what was said about the state at the time this issue of Petroleum News closed on Dec. 19.

- KAY CASHMAN