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Does EV and battery tech really sound the death knell for Oil and Gas?

Future of Oil and Gas

In an era of rising demand and hype for electric vehicles (EV) and battery technology, commodities and ETFs linked to oil and gas have managed to hold their prices. EV stocks like Tesla and Nio have increased by 71% and 100% respectively in the past year. The price of WTI Crude Oil has also increased by 76%, while prices of micro-cap oil stocks like #ECHO Echo Energy and #MSMN Mosman Oil and Gas have increased by 58% and 13% respectively.

This clearly signifies that even after the rise in demand of EVs, commodities like oil and gas are here to stay in the short and long term.

Consumers are under the impression that they could be in an oil-free world by 2030 and most consumers perceive batteries and electricity as the primary source of energy. However, this is highly unlikely and nothing but a series of myths planted in our brains due to effective marketing.

The International Energy Agency (IEA) that analyses trends in energy industry, released its annual World Energy Outlook in November 2019. It looks at potential energy demand and supply under different scenarios to explore different possible futures. The IEA scenario stated a global increase in energy demand by 24% by 2040 of which, oil and natural gas will supply 64% of the world’s energy needs. In accordance with the Paris Climate Agreement, if based on the Sustainable Development Scenario, the oil and natural gas will still supply 47% of the world’s energy by 2040.

More than 15% of oil demand goes into non-combusted use including petrochemicals which is expected to grow to 20% by 2040. Even if the demand for gasoline and other fuels may hypothetically be on the decline, the petrochemical sector, in contrast, still has room to grow. Some major companies have even pledged some $100bn into the petrochemical industry over the next decade.

Developing countries like India have one of the most aggressive renewable power capacity roll-out programmes worldwide. However, its access to affordable fossil fuels remains a priority for its government because its needs for cheap oil, gas and coal continue to rise to meet energy demand that is forecast to more than double by 2040. India’s petroleum minister Dharmendra Pradhan believes the world’s third-largest oil consumer could be the “golden goose” for crude suppliers as it buys more than 80% of its oil needs from foreign crude purchases.

The graph below demonstrates that the forecasted oil demand for 2040 is higher than present day with non-combusted being the driver to increase the demand. While in the primary energy consumption chart, oil is forecasted to maintain its consumption as a primary source by 2040. Whereas the primary consumption of gas is forecasted to rise.

 

(Financial Review, 2020)

 

Texas Oil Wells

In 2018, companies in the Permian Basin – “an ancient, oil-rich seabed that spans West Texas and South Eastern New Mexico — were producing twice as much oil as they had four years earlier” whilst forecasters expected the production to double again by 2023.

The International Energy Agency (IEA) had also predicted that American oil mostly from the Permian will account for 80% of growth in global supply over the next seven years.

Some small companies already had presence in the Permian Basin before these predictions and report in 2018. In 2017, Mosman Oil & Gas (MSMN) acquired several oil and gas leases comprising the Welch Permian Basin Project for a consideration of $310,000. Although the Welch project contributed to a gross profit of $167,000 in the year ended 30 June 2020, recently Mosman sold this Welch Project for $420,000 receiving a premium of 40% from the sale of the project alone.

Mosman is steadily growing its working interests across a number of projects in Texas, including Stanley, Falcon-1, Winters and Galaxie. These have produced a gross profit of over $500,000 in the 2020 year. Stanley also has a 100% success rate with oil production from four wells drilled to date.

Texas wells are providing high returns to oil companies, and with a growing number of projects and acreage, Mosman is well placed for future growth.

South Argentina Oil Wells

Many companies own wells in Argentina and Latin America as it is considered a region rich in resources with 4% of natural gas reserves and 20% of world oil reserves. They are also often undergoing positive development in macro conditions. A strong demand outlook for energy consumption and economic growth coupled with underdeveloped – but lower cost – onshore plays, makes Latin America a favourable region for companies like Echo Energy (ECHO) to deploy its expertise in support of an exploration-led growth strategy.

For the financial year ended 31 December 2020, Santa Cruz Sur at the south-eastern tip of Argentina helped Echo Energy to increase its revenue fourfold to US $11.1mn. This was also due to Echo securing new gas sales contracts at premium rates to the prevailing spot markets in early Q1 2021.

The increase in revenue drove an significant increase in the Echo Energy (ECHO) stock price by 51% from 55p to 83p between December 2020 and January 2021.

Major and Small Suppliers of Oil and Gas

The difference between the barrels of oil supplied can be huge when major suppliers are compared to the small suppliers. But all that glitters is not gold. High supply and production would require a higher demand to be profitable, if the demand of oil stagnates in the future it will affect the major suppliers before the small suppliers.

The big 10 companies accounted for 28% of global oil production in 2020 as shown below.

When this is compared to small oil producers like Echo Energy and Mosman Oil and Gas,  Echo Energy produced a cumulative of 94,000 barrels of oil in Santa Cruz Sur in South Argentina. While Mosman Oil and Gas produced a gross of 90,000 barrels of oil in the year ended June 2020. Based on available data, the production of Echo and Mosman combined is 0.2% of the global oil demand.

This is effective during times of recession or when the global demand is low as during unprecedented times a major oil supplier to generate profits and work at full capacity would need to sell between 5-12% of oil demand while small suppliers of oil would need to fulfil a negligible percentage of global demand of oil to turn profitable. This is due to high storing and inventory costs for major oil suppliers as well as higher fixed costs due to bigger operations.

Conclusion

Therefore, even though the oil demand is perceived to be lower in the future due to alternative resources, the demand doesn’t seem to be in decline due to oil having uses other than fuel and gas for cars and transportation like non-combusted petrochemicals. Even if the demand for oil is on the decline it would not affect small oil suppliers; as working at full capacity they fulfil just a small percentage of global oil demand and still manage to make hefty profits.

These among many, are the reasons keeping the oil prices buoyant and in the mix, not only for the present day but also for the future.

#KAV Kavango Resources – Kalahari Suture Zone (KSZ) – drilling update

kavKavango Resources plc (LSE:KAV), the exploration company targeting the discovery of world-class mineral deposits in Botswana, is pleased to announce that the Company has requested Mindea Exploration and Drilling Services (Pty) to extend Hole TA2DD002 to 1,000m depth, which is the technical limit of the drill rig on site within acceptable safety margins, to assist in further developing and refining the Company’s model of the KSZ.

At end of shift at 0500 today, 17 September,  Hole TA2DD002 was at 821m. So far the Company has encountered 170m of continuous Proterozoic mafic/ultramafic rocks. Kavango’s senior field geologists have continued to make visual inspection of the core and have reported visible alteration and interstitial blebs of chalcopyrite in different sections of the hole. The lithologies range from coarse grained to extremely pegmatitic, the latter logged in zones that extend 20-30m in thickness.

The Company advises shareholders that thorough analysis is required of all core samples retrieved from the Proterozoic Complex in Hole TA2DD002, before any conclusions can be drawn as to what has been encountered so far. This analysis will include (but not necessarily be limited to) assay testing and whole rock analysis.

The Company will make further updates as necessary.

————————————————————————————————————

Further information in respect of the Company and its business interests is provided on the Company’s website at www.kavangoresources.com and on Twitter at #KAV.

For additional information please contact:

Kavango Resources plc

Ben Turney

bturney@kavangoresources.com

+46 7697 406 06

First Equity (Joint Broker)

+44 207 374 2212

Jason Robertson 

SI Capital Limited (Joint Broker)

+44 1483 413500

Nick Emerson

Mosman Oil & Gas #MSMN – Winters Lease and Winters-2 well update

Winters Lease and Winters-2 well update

Mosman Oil and Gas Limited (AIM: MSMN) the oil exploration, development, and production company, announces an update on the Winters lease in Polk County, East Texas including increasing its Working Interest in the lease and the timing of drilling the Winters-2 well.

 

Winters Lease

Mosman acquired a 23% interest in the Winters lease as part of its recent purchase of Nadsoilco LLC, (“Nadsoilco”) in June 2021. Nadsoilco is now a subsidiary of Mosman and is the Operator of the Winters lease.  The Winters lease is held by production with circa 969 bbls of oil sold in the last 12 months from the Winters 1 well.

Mosman has now agreed to farm-in to acquire an additional 6% working interest in the Winters lease. The key terms are payment of US$12,000 for past costs, and Mosman to pay 8% of the next well costs. This will increase Mosman’s interest in the lease (including the Winters-1 well) from c23% to c29% (before royalties).

Winters-2 well

Nadsoilco is now preparing to drill the Winters-2 well on the Winters Lease. Due to the well location, the Winters lease holders have agreed to share the participation in the Winters-2 well (not the lease) with the adjacent lease holder (“Arcadia”). The Winters lease holders will have 78% and Arcadia will have 22% of the well. Therefore, Nadsoilco will have a c29% x c78% = c23% working interest in this well.

Winters-2 is a development well targeting the Wilcox formation, the same zone that is producing in adjacent wells (on other leases not held by Mosman). The well will be drilled as soon as site preparation has been completed, and the drilling rig is available, which Mosman anticipates will be in a few weeks’ time.  The Budget to drill and case the Winters-2 well has been set at cUSD600,000.

Funding of the farm-in and the drilling costs of c USD 150,000 will be from existing cash resources. A positive drill result, in line with an existing adjacent well which is producing at c190bopd,should result in the well costs being recovered from production this calendar year.

Qualified Person’s Statement

The information contained in this announcement has been reviewed and approved by Andy Carroll, Technical Director for Mosman, who has over 35 years of relevant experience in the oil industry. Mr. Carroll is a member of the Society of Petroleum Engineers.

Market Abuse Regulation (MAR) Disclosure

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (‘MAR’) which has been incorporated into UK law by the European Union (Withdrawal) Act 2018. Upon the publication of this announcement via Regulatory Information Service (‘RIS’), this inside is now considered to be in the public domain.

 

Enquiries:

Mosman Oil & Gas Limited John W Barr, Executive Chairman Andy Carroll, Technical Director

jwbarr@mosmanoilandgas.com acarroll@mosmanoilandgas.com

NOMAD and Broker

SP Angel Corporate Finance LLP

Stuart Gledhill / Richard Hail / Adam Cowl

+44 (0) 20 3470 0470

Alma PR

Justine James / Joe Pederzolli

+44 (0) 20 3405 0205

+44 (0) 7525 324431

mosman@almapr.co.uk

Joint Broker

Monecor (London) Ltd trading as ETX Capital Thomas Smith

020 7392 1432

Echo Energy PLC (ECHO) – Further re Issue of Warrants

Echo Energy, the Latin American-focused full cycle energy company, announced on 22 December 2020 that, in connection with a subscription and warrant issue then announced, the issue of 83,921,568 warrants to subscribe for new ordinary shares in the Company would be subject to receipt of share issuance authorities.

As a result of the Company having sufficient share issuance authorities to allow the issue of the Warrants ahead of the Company’s 2021 annual general meeting, the Board has now issued the Warrants. The Warrants expire two years after the date of issue, with 50% of the Warrants exerciseable at 0.7 pence per new ordinary share and 50% of the Warrants exerciseable at 0.75 pence per new ordinary share.

For further information, please contact:

Echo Energy

Martin Hull, Chief Executive Officer

via Vigo Communications

Vigo Communications (PR Advisor)

Patrick d’Ancona

Chris McMahon

+44 (0) 20 7390 0230

Cenkos Securities (Nominated Adviser)

Ben Jeynes

Katy Birkin

+44 (0) 20 7397 8900

Shore Capital (Corporate Broker)

Jerry Keen

+44 (0) 20 7408 4090

Echo Energy Plc #ECHO – Argentina: VAT Update

Argentina: VAT Update

Echo Energy, the Latin American focussed energy company, is pleased to provide an update on the  Argentine value added tax (“VAT) reclaim process, and the successful monetisation of a further proportion of the Argentine VAT owed to the Company.

Disbursements totalling Ars$ 48.4 million (approximately US$ 0.5 million), consisting of Ars$ 33.1 million plus interest of Ars$ 15.3 million of PP&E VAT owed to Eco Energy TA Op Limited (the “Subsidiary”), the Company’s subsidiary which holds a 25% interest in the Santa Cruz Sur assets (of Echo’s total 70% interest), have now been received. This cash payment demonstrates the continuing successful processing of VAT refunds owed to the Company by the Argentine authority, AFIP, as it resumes normal activity following months of COVID – 19 related shut down.

Following these most recent disbursements, historical reclaims regarding VAT owed to the Echo group  related to operations at Santa Cruz Sur totalling approximately US$0.7 million remain in progress.

The Company is also pleased to announce that the 2020 PP&E VAT claim of Ars$ 54.8 million (approximately US$ 0.6 million) for Eco Energy TA Op Limited has been accepted by the Argentine VAT office.  The Company’s subsidiary, Eco Energy CDL Op Ltd, which holds Echo’s remaining 45% interest in Santa Cruz Sur, has also had its 2020 PP&E VAT claim of Ars$ 8.1 million approved. Further processing of these claims will now take place ahead of future expected reimbursement.

The Argentine VAT office has also separately now approved the Free VAT application Eco Energy CDL Op Ltd of Ars$ 9.5 million and Echo have completed a sale of this VAT credit in exchange for cash.

The unlocking of the Argentine VAT refund process is, and is expected to continue, to provide material cash funds in the coming months and provides further evidence of the normalisation of in country activities following delays in 2020 caused by COVID 19 restrictions.

For further information, please contact:

Echo Energy

Martin Hull, Chief Executive Officer

via Vigo Communications

Vigo Communications (PR Advisor)

Patrick d’Ancona

Chris McMahon

+44 (0) 20 7390 0230

Cenkos Securities (Nominated Adviser)

Ben Jeynes

Katy Birkin

+44 (0) 20 7397 8900

Shore Capital (Corporate Broker)

Jerry Keen

+44 (0) 20 7408 4090

Market Outlook – A Conservative sense of relief

The shock election result, that saw former LibDem leader Paddy Ashdown and former Labour spin doctor Alastair Campbell commit to eating hat and kilt respectively has produced an almost audible sigh of relief across financial markets. The blue chip FTSE100 had all but factored in a coalition as it closed out 0.1% higher at 6,933.74 Wednesday, buoyed by better-than-expected PMI index scores from the eurozone & UK.

But as the threat of Labour driven policies on energy and banking evaporated with Thursday morning’s shock result, the prospect of continued recovery under Tory stewardship brings several sectors into focus as investment opportunities.

Shares in part state-owned Lloyds Banking (LLOY) and RBS (RBS) rocketed on the prospect of the new Tory Govt pressing ahead with plans to sell it’s remaining stake. In particular with Lloyds, where the taxpayer stake has already dipped below 20%, there is also the prospect of a retail offering.

Labour had been aiming to inject more competition into the banking sector – which is already being subjected to a Competition and Markets Authority review – by calling for the creation of new challenger banks and a market share test. There could also have been a bankers’ bonus tax to help pay for its compulsory jobs guarantee.

Shares in energy & water companies such as Centrica (CNA), SSE (SSE) and Severn Trent (SVT) added gains, having underperformed for some time as Labour’s threat to freeze gas and electricity bills until 2017 weighed heavily on sentiment.

And shares in property companies, including housebuilders such as Taylor Wimpey (TW.) and Bovis (BVS) and estate agents Foxtons (FOXT) and Countrywide (CWD) all shot higher, again having been shackled by Labour’s pledge to cap rent increases in the private sector and to introduce a mansion tax on homes worth more than £2m.

Other winners include outsourcing firms such as Capita (CPI) and Serco (SRP) – the Conservatives have long been committed to cutting public spending and outsourcing, plus transport firms such as Go-Ahead Group (GOG) and Stagecoach (SGC) – again recent underperformers as Labour’s threat to return to a system approaching full nationalisation weighed heavily.

Expect further opportunities and enhancements to current tax breaks such as the EIS / SEIS schemes for investment into early stage companies.

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