PXEN Prospex Energy Plc

Prospex Energy Plc / Index: AIM / Epic: PXEN / Sector: Energy

2 October 2024

Prospex Energy plc

("Prospex Energy" or the "Company")

Viura-1B Development Well Successfully Reaches Reservoir Horizon

Better than Expected Results Leads to the Decision to Drill Deeper

Prospex Energy plc (AIM:PXEN), the investment company focused on European gas and power projects, is pleased to announce that initial drilling of the Viura-1B development well (the 'Well') in northern Spain has delivered better than expected preliminary results, successfully reaching the reservoir and prompting the decision to appraise a deeper section of the well.  This deeper appraisal has the potential to significantly increase revenues and create further value at a fraction of the cost compared to drilling a standalone well.  The Well is being drilled by HEYCO Energy Iberia S.L. ("HEI") and is one of three wells targeted for drilling at the producing Viura gas field, which has estimated gross remaining reserves of 90 Bcf (2.5 Bcm), of which 6.5 Bcf (0.18 Bcm) is net to Prospex as Prospex owns 7.2365% of the Viura field through its 7.5% ownership of HEI.

Overview

·    Drilling of the Viura 1B well commenced on 22 June 2024.

·    The Well encountered the main Utrillas-A reservoir unit 50 metres high to prognosis and encountered the top reservoir indicating good quality reservoir rock which was also confirmed by the logging while drilling tools.

·    There have been significant gas shows throughout the drilling and coring of the main reservoir target.

·    The Well will be connected to the existing gas processing facilities on site, thus generating revenues immediately, with production income expected by the end of October or early November.

·    Based on these positive results, HEI and its investors have unanimously approved deepening the well to appraise the deeper sections of the reservoir, including the so far undrilled Utrillas-B formation below Utrillas-A.

·    An extra 200-300 metres will be drilled to appraise the Utrillas-B formation.

·    Prospex is fully participating and has paid its 15% share of the costs to deepen the well as well as, in a success case scenario, to test and complete this exploratory section.

Mark Routh, the CEO of Prospex, commented:

"I am extremely pleased to be announcing the successful results from the Viura-1B development well, which were better than expected and have subsequently prompted the decision to drill deeper into the reservoir providing us with the opportunity to create further value.  Prospex's participation in this project was recommended by our technical team and accordingly they deserve credit for this initial success.

"Likewise, the operator deserves a huge degree of praise for delivering an extremely successful well and close to the original budget.  The Viura field contains gas at high pressure and high temperature, so this well could have been extremely challenging to deliver with a total depth of 4,100m MD and a maximum deviation of 45 degrees.  HEYCO Energy has utilised its significant experience and expertise to deliver a safe and competent development well, which will be connected to the existing gas processing facilities on site, thus generating revenues immediately.  Production income is expected by the end of October or early November.

"Deepening the well to appraise the hitherto undrilled Utrillas-B formation unit is a unique opportunity to add significant value at a fraction of the cost of a standalone well.  By drilling ahead now the operator delivers for €1 million, or €2.5 million in the success case, an exploration well which would otherwise have cost over €25 million as a standalone well.  Given the significant upside potential of this formation, it is too good an opportunity to miss.

"I look forward to updating shareholders with further results from the drilling as we have firm data to share."

Further Information

About Viura:

The Viura producing gas field onshore in northern Spain has an estimated gross original gas in place of 211 Bcf (6 Bcm) and estimated reserves of 105 Bcf (3 Bcm).  To date, just 16 Bcf (0.5 Bcm) of gas has been produced from Viura meaning that the remaining reserves are 90 Bcf (2.5 Bcm) which is 6.5 Bcf (0.18 Bcm) net to Prospex.

In Spain there are only three producing onshore gas fields: El Romeral, Viura and Marismas.  Prospex currently owns a 49.9% share in El Romeral.  HEI currently has a 58.7964% interest in Viura.  The other participants in the ownership of the Viura Field Development are Sociedad de Hidrocarburos de Euskadi, S.A. ("SHESA") (owner of the 37.6901% of the Concession) and Oil and Gas Skills, S.A. (owner of the 3.5135% of the Concession).  On 5 April 2024, HEI entered into an asset purchase agreement with SHESA for the acquisition of the participation of SHESA in the Viura Field Development, which is subject to the fulfilment of certain conditions precedent.  Prospex through its 7.5% shareholding in HEI will indirectly own 7.2365% of the Viura concession, its reserves and the existing surface production facilities of the Viura gas plant, which is connected to the Spanish national grid.

HEI acquired its interest in the Viura gas field and became operator in 2022.  A new 3D seismic survey was acquired in 2013.  There is one well in production in the field, which produces intermittently as water production is managed.  There is a workover planned on an existing well to convert it into a water injection disposal well.  HEI has permits in place to drill two wells, Viura 1B (currently drilling) and Viura 3B, scheduled to start in the second quarter of 2025.  Permits have been submitted to drill a third development well on the concession Viura 3A back-to-back with Viura 3B well.

The Viura 1B well commenced drilling operations on 22 June 2024.  The new investors (including Prospex) into HEI are funding 31.58% of the development costs to earn 15.79% ownership of HEI.  Prospex is funding 15% of the development costs of the HEI development programme comprising the current well in 2024 and the proposed 2025/2026 two well drilling programme to earn 7.5% ownership of HEI and indirectly up to 7.2365% of the Viura asset.

Other new investors are funding 16.58% of the development costs to earn an 8.29% ownership in HEI.

The two wells to be drilled in the second half of 2025 are to be funded from revenues from existing and new production from Viura or from new funds if required.  Viura 1B is expected to be generating revenues from production as early as the end of October 2024.  The 2025 & 2026 development programme is to be funded by future cash calls or from Phase 1 production or both.

There is a preferred pay-back mechanism for Prospex and all participants (including HEGI and new investors) of this new investment in HEI, the ("HEI Investors").  The HEI Investors will enjoy a 10% interest on their capital investments paid out from the existing and future production from Viura.  Until the HEI Investors have recovered their full capital commitments, plus the 10% preferred interest return, HEGI will not receive production income on their other 50% ownership of HEI over and above operating expenses and an allowance for Spanish taxes and royalties.  The three phase, three-year Viura development programme is estimated to cost a total of £55.4 million ($70.4 million).  HEGI is funding over 50% of that programme and the new HEI Investors are funding 31.58% through their interest in HEI which earns them an indirect 15.2368% ownership of the Viura asset (net 7.2365% to Prospex).

Qualified Person Signoff

In accordance with the AIM notice for Mining and Oil and Gas Companies, the Company discloses that Mark Routh, the CEO and a director of Prospex Energy plc has reviewed the technical information contained herein.  Mark Routh has an MSc in Petroleum Engineering and has been a member of the Society of Petroleum Engineers since 1985.  He has over 40 years operating experience in the upstream oil and gas industry.  Mark Routh consents to the inclusion of the information in the form and context in which it appears.

For further information, please contact:

Further information on the Company can be found on its website at www.prospex.energy.

Notes

Prospex Energy PLC is an AIM quoted investment company focused on high impact onshore and shallow offshore European opportunities with short timelines to production.  The Company's strategy is to acquire undervalued projects with multiple, tangible value trigger points that can be realised within 12 months of acquisition and then applying low-cost re-evaluation techniques to identify and de-risk prospects.  The Company will rapidly scale up gas production in the short term to generate internal revenues that can then be deployed to develop the asset base and increase production further. 

The Company currently has three non-operated, revenue generating, onshore producing gas investments in Europe with low operational risk:

•     Selva Malvezzi, Italy (37% interest)

•     El Romeral gas to power plant, southern Spain (49.9% interest)

•     Viura Gas Field, northern Spain (7.24% interest)

Prospex also owns a 15% interest in the Tesorillo Exploration Permit in Southern Spain, with the option to increase to 49.9%.

Glossary:

scm                        Standard cubic metres

scm/d                   Standard cubic metres per day

MMscm               Million standard cubic metres

Bcm                       Billion standard cubic metres

Bcf                          Billion standard cubic feet

MMscfd               million standard cubic feet per day

MWh                     Mega Watt hour

TTF                         The 'Title Transfer Facility' - a virtual trading point for natural gas in the Netherlands.