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Today’s Oil and Gas Update – Wentworth Resources; Zephyr Energy; Tower Resources


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Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below


Market Update: Thursday 14 January 2021

Wentworth Resources (AIM:WEN): Trading update, strong balance sheet and consistent production confirmed  

Zephyr Energy (LON:ZPHR): State 16-2 reaches TD in only 19 days

Hurricane Energy (LON:HUR): Water cut at Lancaster remains under control

Tower Resources* (AIM:TRP): £1.25m placing underlines shareholder support


Energy Prices         

Brent Oil US$55.9/bbl vs US$56.8/bbl yesterday

WTI Oil US$52.6/bbl vs US$53.5/bbl yesterday

Natural Gas US$2.77/mmbtu vs US$2.75/mmbtu yesterday


Oil Price News 

Saudi Aramco has sent a strong signal to the market with its February 2021 official selling prices, surpassing market expectations

All Asia-bound grades were materially increased by 20-70 cents/bbl, with steeper increases in the light range (Arab Light saw the biggest month-on-month move)

Combined with turnaround in Japan and China assumed to take place in February and Saudi Arabia’s unilateral commitment of cutting production by 1mbpd in February-March 2021, the assertiveness of Saudi Aramco might lead some refiners to rethink their regional purchases

In addition, contango seems to have disappeared from the markets so storing crude in hefty storage tank farms no longer makes commercial sense

Saudi Aramco reacting to Dubai backwardation extending to its widest since July 2020 was to be expected, boosted by robust demand from China and India throughout December, the Dubai M1-M3 increased as high as 92 cents/bbl on 16 December, though it has declined since

However, as the market moved closer towards the end of December 2020 the extent of the backwardation eased to 20-30 cents/bbl, meaning that all the while Middle Eastern NOCs were expected to increase their February OSPs

Elsewhere, we are now in the last of the annual five-day rebalancing of portfolios which could attract as much as US$9bn buying into crude oil contracts, putting upward pressure on oil prices

The rebalancing of indices to adjust the weighting of assets in portfolios is being done every year so that target allocations or risk levels are restored

However, the rebalancing this year could attract more than usual buyers into crude oil contracts because of the 20-percent decline of oil prices during 2020

The next five days could see a buying spree in oil futures that could be as high as US$9bn to adjust the weighting of the major commodity-linked indices

The market will likely see long positions into another 80 to 100MMbbls oil futures contracts, which could drive oil prices by US$2-US$3/bbl

It’s not a given that the market will see US$9bn of new buying into oil futures because some investors and traders may have already done it ahead of the rebalancing period

Even if the buying spree is not so high, the rebalancing will likely to continue to support oil prices


Gas Price News

Natural gas prices moved lower yesterday ahead of today’s Energy Department report on inventories

Warmer than average weather forecast to cover most of the US over the next two weeks On Thursday, the Energy Department will release its inventory report

Expectations are for a 131Bcf draw in stockpiles according to survey provider Estimize

US exports rose to a new record in December




Company News

Wentworth Resources (AIM:WEN): Trading update, strong balance sheet and consistent production confirmed  

Share Price: 22p, Market Cap: £43m

In line with much of the sector, Wentworth has provided an operational update and set production guidance for FY 2021 across its core Mnazi Bay assets in Tanzania.

2020 full year production averaged 65.36MMscf/day (gross), within the annual production guidance range of 60-70MMscf/day (gross).

December 2020 production averaged 82.93MMscf/day (gross), with five days reaching 103MMscf/day (gross), and a record high of 103.36MMscf/day achieved on 15 December 2020.

Production guidance for full year 2021 has been set at 65-75MMscf/day (gross)

Mnazi Bay remains fully operational, with no adverse impact on supply due to COVID-19.

The Company remains debt free with a US$17.8m cash balance as at 31 December 2020.

Total dividend distributions paid to shareholders during the 2020 calendar year increased to US$3.2m.

During 2020, the Company undertook a strategic review of its ESG priorities and will publish its inaugural Sustainability Report this year.

Our take: Despite strong hydropower generation from a heavy rainy season during the first half of 2020 and a slowdown in industrial demand in Q2 2020 due to COVID-related restrictions, Wentworth has seen a swift return to normal trading conditions in recent months. The Company’s outlook remains strong in our view, with strong cash flow generation underpinned by a stable production base, and consistent dividend policy also ensures a supportive shareholder register. The underlying production at Mnazi Bay is solid, whilst economic growth for Tanzania is forecast at 5.2% notwithstanding the commitment by the Government to deliver ‘universal energy access’ by 2030 which will require significant additional gas resources. The Government has invested substantially in pipeline and power generation infrastructure and a complex grid and transmission system in country of which Wentworth will directly benefit. It is also worth noting that the energy mix in Tanzania is split 50% gas, 35% hydro and 15% oil and the latter two are firstly unpredictable and secondly sometimes inefficient. Nevertheless, we remain of the view that the Company will need to diversify its asset base (potentially outside of Tanzania) to include some further element of exploration/appraisal to attract material capital growth in the share price.


Zephyr Energy (LON:ZPHR): State 16-2 reaches TD in only 19 days

Share price: 1p, Market Cap: £7m

Zephyr has provided an update on its project in the Paradox Basin, Utah, and progress with the State 16-2 well.

The Company confirms that the State 16-2 stratigraphic test well was successfully drilled to a measured depth of 9,745ft TD.

Zephyr’s primary objective was to drill and set casing at 6,437ft measured depth in order to provide a host wellbore for a future horizontal sidetrack. 

Zephyr’s secondary objective was to acquire new data to improve the understanding of its Paradox acreage position. 

The Company recovered c.113ft of continuous whole core across the historically productive Cane Creek reservoir interval.

In addition, the Company obtained Rotary side wall cores in seven shallower exploration targets and wireline log data across the bulk of the Paradox Formation, all of which add new petrophysical information to its existing suite of geologic data.

The 113 feet of Cane Creek core, believed to be the first whole core ever retrieved in the northern part of the Paradox Basin, has been shipped from the well site to a laboratory where detailed analysis will now commence.

Initial indications show similar log responses to offset wells, suggesting the presence of hydrocarbons in multiple reservoir intervals. 

The Company will now begin the work to integrate all log and core data to fully explore the initial findings in these complex reservoirs and then be combined with Zephyr’s existing 3D seismic data.

Now that drilling and data acquisition operations are complete, the State 16-2 well will be temporarily plugged back at 6,437 feet TD. 

This provides Zephyr the opportunity to economically re-utilise the existing wellbore as the sidetrack host from which a future horizontal appraisal well can be drilled. 

Planning for this horizontal lateral is already underway, and it will seek to target a series of features identified by the Company’s 3D seismic data. 

If successful, the State 16-2 lateral would deliver first commercial production from the Company’s Paradox project.

Our take: So far so good for Zephyr, the Company achieved TD within 19 days of spud, a marked improvement over historical drilling efforts in this part of the Paradox Basin. The reduction in drilling time represents solid operational success and demonstrates that the cost of future development wells can be significantly reduced from earlier estimates, thereby improving the overall project economics of the Paradox project. Whilst it is still early days with regards to core analysis, the language in today’s release is very upbeat, suggesting that management believe the well to be economic with initial indications showing similar log responses to offset wells, suggesting the presence of hydrocarbons in multiple reservoir intervals. 


Hurricane Energy (LON:HUR): Water cut at Lancaster remains under control

Share Price: 2.9p, Market Cap: £57m

Hurricane has released a trading and operational update ahead of its results for the year ended 31 December 2020.

Production for the final four months of 2020 averaged 12,500bopd, within guidance

Production and oil sales for the year ended 31 December 2020 were 5.1MMbbls (13,900bopd average) across 12 cargoes.

This generated FY20 revenue of US$179m on a realised annual weighted average oil price of US$35/bbl, or a US$7/bbl discount to Dated Brent, including transportation costs

Year-end net free cash was US$106m, compared to US$87m at 30 November 2020.

Oil production in the fourth quarter of 2020 averaged 12,700bopd, which was lower than the third quarter primarily due to a decision to limit production from the 205/21a-6 well to c.12,000bopd in November 2020 for reservoir evaluation and management purposes.

Oil production for the period 1 September 2020 to 31 December 2020 averaged 12,500bopd, within the previously announced guidance range of 12,000 – 14,000bopd.

The Lancaster field continues to produce from the 205/21a-6 well alone, with current production of c.12,100bopd on artificial lift and a water cut of c.25%.

Our take: Following an extremely challenging year for Huricaine, today’s update is much more positive on outlook. Production is in line with expectations, and a December lifting from Lancaster, and higher oil prices combined to deliver a US$19m million increase in net free cash at year-end compared to end November 2020. A continued recovery in oil prices would further enhance the value in the Company’s West of Shetland portfolio. It is also encouraging to note the continued control of the water cut at the Lancaster EPS which is now below Q3 levels through what appears to be strong reservoir management.


Tower Resources* (AIM:TRP): £1.25m placing underlines shareholder support

Share Price: 0.4p, Market Cap: £4.4m

Tower has confirmed that Company has raised £1.25m through a placing of 384m new ordinary shares at a price of 0.325p/share with each placee receiving 1 warrant exercisable for two years at 0.65p for every 3 shares subscribed.

The Company will use the proceeds of the placing to terminate and repay the US$500k loan facility from Shard Capital when or before it falls due on 28 February 2021, without triggering the conversion options in the facility agreement, and to cover working capital requirements going forward.

The proceeds will also contribute towards the cost of the seismic reprocessing and interpretation being undertaken by the Company’s partner and license operator, NewAge, in respect of the Algoa-Gamtoos license in South Africa.

In addition, Tower will now fund the maintenance expenditure in Cameroon to maintain the long-lead items inventory ready for the commencement of drilling and testing of the NJOM-3 well on the Thali license.

The Company is currently in discussion with Pegasus Petroleum (whose ultimate beneficial owner is the Company’s Chairman and CEO, Jeremy Asher) regarding a further extension of the US$750k Pegasus Loan Facility which also becomes due on 28 February 2021.

The Company is continuing discussions with potential farm-out partners for its Thali license in Cameroon, including OilLR and several others, and hopes to have a more substantial announcement to make in due course.

Tower is expecting to receive an updated interpretation of prospectivity on the Algoa-Gamtoos license, offshore South Africa, based on further reprocessing of existing 2D seismic data, from the operator, NewAge, in the near future.

The Algoa-Gamtoos license is immediately adjacent to Total’s blocks 11B/12B where Total’s Brulpadda and Luiperd discovery wells were drilled approximately 150kms to the East, in the same Outeniqua basin that passes through the deep-water section of the Algoa Gamtoos license.

Last year NewAge identified a substantial Deep Albian prospect in this deep-water section of the Algoa Gamtoos license, and on the basis of the data then available, they estimated this prospect to contain 364MMbbls of unrisked prospective resources.

NewAge is working with Envoi on a farm-out process to bring in a third party to the Algoa-Gamtoos license, which is currently held 50% by NewAge and 50% by the Company, to fund the next stages of 3D seismic acquisition and potentially a new well on the license.

This process has resulted in a number of well-known companies reviewing the data room and they will also be shown the new interpretation when available.

Our take: A positive development for Tower, underlining shareholder support for the Company significant African acreage position. The ensure sufficient working capital to remain drill-ready in Cameroon, as soon as circumstances permit, and also allows the Company to contribute to the current work programme at Algoa-Gamtoos. The Company also remains confident that it will drill the NJOM-3 appraisal well and also bring in a partner for further 3D acquisition in Algoa Gamtoos. Significant upcoming drilling activity in Namibia will also provide a direct read across to Tower in our view. We are also of the view that Tower’s enviable high interest South African acreage position will come into additional focus following recent drilling results on behalf of key industry explorers. Indeed, much like Namibia (where Tower has a material position), South Africa has emerged as a significant frontier region with giant structure being mapped through latest technology. Tower and New Age will now look to advance further 3D seismic-led exploration, to more accurately map and unlock a number of newly defined leads on existing 2D and 3D seismic data. Of these, the five primary leads alone are estimated capable of containing a combined block-wide STOIIP of over 1.4Bnbbls (and an upside of over 2Bnbbls STOIIP), with a mean prospective resource potential in excess of 500MMbbls (recoverable) and a significantly bigger upside, which the new 3D is expected to better quantify. A farm-out process has commenced to seek a partner for a material share of the licence working interest in return for funding the 3D seismic survey planned for the most prospective parts of the licence.

*SP Angel acts as Nominated Advisor and Broker to Tower Resources

Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037



Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  


SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London



+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.


Sources of commodity prices

Oil Brent, WTI


Natural Gas




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Recommendations are based on a 12-month time horizon as follows:


Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

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