TIDMPXOG
RNS Number : 0672X
Prospex Oil and Gas PLC
17 December 2019
Prospex Oil and Gas Plc / Index: AIM / Epic: PXOG / Sector: Oil
and Gas
17 December 2019
Prospex Oil and Gas Plc ('Prospex' or the 'Company')
Conditional Acquisition of up to 49.9% stake in operational gas
power project in Spain
Prospex Oil and Gas Plc, the AIM quoted investment company, is
pleased to announce the conditional acquisition of up to a 49.9%
indirect stake in El Romeral, an integrated gas production and
power station operation located in the Guadalquivir basin in
southern Spain ('El Romeral' or 'Project'). El Romeral is comprised
of three production licences (together the "Area"), on which three
producing wells supply gas, through its own network, to a
100%-owned 8.1 MW power station. In addition, the Area contains two
development locations and 11 very-low risk prospects with gross
contingent and prospective gas resources of 5Bcf and 90 Bcf,
respectively.
Based on current levels of gas production, electricity
generation, and revenue per Mwh, the Project generates small
amounts of free cash from revenue of c. EUR800,000 per year. There
is the potential to increase the number of generating days at the
Project (historically equivalent to five days per week) and in the
medium-term increase utilisation of the generation equipment
(current 22%) by sourcing new gas supplies from within the Project
Area, specifically from its assigned 90 Bcf of very-low risk
prospective resources. When gas was not a limiting factor the power
station regularly produced c. 60,000 Mwh per annum, which would
equate to a revenue of >EUR4.2 million per annum (based on
current revenue per Mwh).
El Romeral is being acquired by Tarba Energia S.L ("Tarba") with
funding provided by Tarba's shareholders, Warrego Energy Limited
("Warrego") and Prospex. Warrego will fund the initial
consideration of EUR750,000. Prospex has three months to elect an
ownership stake in the Project (up to 49.9%) and refund to Warrego
the corresponding proportion of the initial consideration. Warrego
will indirectly own the balance of the Project. The acquisition of
Prospex's stake is conditional on Prospex securing funding for such
investment.
El Romeral: existing gas production, multiple development
opportunities, and an operational power station
-- Ten wells drilled since 1950s, including seven post-1983 which discovered gas:
o Three wells currently producing with gross 2P reserves of 0.30
Bcf
o Two shut-in gas wells with low cost workover potential
-- Large dataset of c. 550 km of 2D seismic supported by AVO
analysis clearly identifies multiple follow on opportunities
-- Two development locations with 5 Bcf of gross contingent
resources (as per 2019 independent reserves and resources report
from Netherland Sewell & Associates ("NSAI"))
-- 11 prospects with 90 Bcf of gross, unrisked prospective
resources (as per the same NSAI report), thought to have a very low
geological risk (Chance of Success >70% in most cases)
-- Profitable El Romeral power station operating 16h/d provides immediate revenues
o Constructed in 2001-2002 at an approximate cost of EUR10
million
o Currently operating at c. 22% capacity offering significant
upside potential
o Consumes c11,000 scm/d in a typical generating day
o Generates monthly revenues c. EUR65,000, via sales to the
Spanish electricity grid
o Low-cost maintenance contract in place with equipment vendor
General Electric
Multi-well drilling programme at El Romeral offers low cost, low
risk opportunity to substantially scale up production
-- Planning and permitting process for three well campaign expected to commence in Q1-Q2 2020
-- Shallow low cost wells
-- Low cost route to commercialisation via tie-in to Project-owned power station
Acquisition leads to step-up in Prospex's 2020 production
profile to five producing gas wells across its portfolio, which
could generate over 9,000,000 scm net in 2021
-- Prospex on track to have interests in five producing gas wells in 2020:
o Three existing wells at El Romeral
o Bainet-1 well on 50% owned Suceava Concession in Romania which
continues to perform in line with average production rate of 15,000
scmpd (530 mscfd) assumed by Joint Venture for 2019 budgeting
purposes
o Podere Maiar-1 well on 17% owned Podere Gallina licence in
Italy which is expected to commence production in 2020 at rates up
to 150,000 scmpd (5,300 mscfd), subject to regulatory approvals and
installation of production equipment
Prospex non-executive Chairman, Bill Smith, said, "With three
producing wells, an 8.1 MW power station and gross reserves,
contingent and prospective resources of 0.3 Bcf, 5 Bcf, and 90 Bcf
respectively, the El Romeral gas power project not only promises
revenues from day one, but also significant upside potential.
Located in a proven hydrocarbon region with very low geological
risk, it is the substantial development opportunity, specifically
the combination of the power station operating at only 22% capacity
and the presence of two undeveloped discoveries and 11 prospects,
which excites us most. Based on current and forecasted annual
revenue, the economics for Tarba and in turn Prospex are expected
to be favourable for an efficient return on investment with major
scope for significant upside by exploring the very low risk 11
prospects.
"Our expected 2020 production profile, subject to completing the
investment in the Project, will be centred on five gas wells in
three projects in Romania, Spain and Italy, once the Selva field
comes on stream. This would represent a fivefold increase on 2019
and, combined, we anticipate these five wells have the ability to
produce over 9,000,000 scm net to Prospex over the course of 2021.
With our joint venture partner, we plan to apply for permits for
three new wells at El Romeral in 2020. At the same time, we will
continue our technical work programme to de-risk the independently
estimated 830 Bcf gross prospective resources (best estimate) at
the Tesorillo project in Spain.
"We have been saying for some time that we believe our current
market cap represents a fraction of Prospex's underlying value. Our
asset base could soon include an interest in a gas power station
and associated infrastructure which cost EUR10 million to install,
material interests in four producing gas wells, and a stake in a
fifth well in Italy which is expected to be brought online in 2020.
The value case behind Prospex is, in our view, very clear."
Further Information on the Project and the El Romeral Licence
Area
The El Romeral project includes the licences, the power station
and local infrastructure. The El Romeral licences are located in
southern Spain, in the Guadalquivir basin, in the province of
Seville. It comprises the production permits El Romeral-1, 2 and 3
that cover an area of approximately 310 km(2) . The El Romeral
exploitation licences were awarded in 1994 and are valid until
2024, with the right to be extended for a further two 10-year
periods until 2044.
Modern era exploration over the Area started in earnest in the
1980s when Chevron and Repsol acquired c. 550 km of high quality 2D
seismic in successive campaigns. This dataset and the AVO analysis
derived from it generated 20 prospects. The average depth of a
prospect is c. 700m. To date, seven prospects have been drilled
leading to seven gas discoveries of which five were deemed
commercial and put on production. In 2002, four wells; El Ciervo-1,
Sevilla-1, Sevilla-3, Santa Clara-1, started delivering gas to the
El Romeral power station. In 2007, Rio Corbones-1 was drilled, and
became the fifth well to be tied to production in 2012. Currently
three wells are still on production: El Ciervo-1, Santa Clara-1 and
Sevilla-1.
Included in the Project are 25 km of local gas pipeline
connecting the production sites to the El Romeral power station.
This will provide the infrastructure back bone for potential future
tie-ins, with the average, as the crow flies, less than 3.5 km from
infrastructure.
At the core of the power station there are three Jenbacher gas
engine generators. The power station operates today at c. 22% of
its nameplate capacity requiring only one engine at a time to be
run. Of the three engines in place, two are used regularly, the
third will require some remedial work to return to service. Today
the primary limitation on electricity production is the volume of
gas produced by the three wells, which can currently only support
one engine running c. 16 hours a day. When gas was not a limiting
factor the power station regularly produced c. 60,000 Mwh per
annum, which would equate to a revenue of >EUR4.2 million per
annum (based on current revenue per Mwh).
The licence area has excellent remaining prospectivity, with the
11 prospects identified having an aggregate of 90 Bcf gross best
estimate and two proven undeveloped discoveries; Sevilla-2 and
Sevilla-4 with 5 Bcf gross 2C contingent resources.
Reserves and Resources Report
To support the acquisition, Tarba commissioned an independent
reserves and resources report to NSAI (the "NSAI Report"). NSAI
evaluated the El Romeral Licence Area and estimated reserves and
resources as at 30 June 2019, as per the table below. The NSAI
Report considers the prospects of the El Romeral Licence Area very
low risk opportunities for gas discoveries.
Gas reserves from three producing fields; El Ciervo-1, Santa
Clara-1 and Sevilla-1:
Gross Gas Reserves (BCF)
1P 2P 3P
-------- --------
0.11 0.30 0.43
-------- --------
Contingent Resources for two development locations in the El
Romeral Licence Area; Romeral-4 Sur and Tarazona:
Gross Unrisked Contingent Resources (BCF)
1C 2C 3C
-------- -------- --------
Romeral-4S 2.0 3.3 4.9
-------- -------- --------
Tarazona 1.1 1.7 2.6
------------------- -------- -------- --------
Total 3.10 5.01 7.53
-------- -------- --------
Unrisked and Risked Prospective Gas Resources, based on risk
factor Pg, for the remaining 11 identified prospects in the El
Romeral:
Prospect Gross Prospective Gas Resources (BCF) Risk
Factor
Pg
----------------------------------------------------------------------------
Unrisked Risked
------------------------------------- -------------------------------------
Low Estimate Best High Low Estimate Best High
(1U) Estimate Estimate (1U) Estimate Estimate
(2U) (3U) (2U) (3U)
------------- ---------- ---------- ------------- ---------- ----------
Aventurado
Norte 14.7 25.0 39.2 11.0 18.7 29.4 0.75
------------- ---------- ---------- ------------- ---------- ---------- --------
Aventurado
Sur 12.1 20.5 32.2 9.0 15.4 24.2 0.75
------------- ---------- ---------- ------------- ---------- ---------- --------
Cervatillo 1.1 1.8 2.7 0.9 1.5 2.2 0.81
------------- ---------- ---------- ------------- ---------- ---------- --------
Gamo 1.6 2.8 4.4 1.4 2.4 3.8 0.85
------------- ---------- ---------- ------------- ---------- ---------- --------
Rio Corbones
Oeste (Uceda) 1.4 3.0 5.7 1.2 2.6 4.9 0.85
------------- ---------- ---------- ------------- ---------- ---------- --------
Romeral-1
Sand 1(1) 4.1 9.3 18.5 3.7 8.4 16.6 0.9
------------- ---------- ---------- ------------- ---------- ---------- --------
Romeral-1
Sand 2 (1) 0.6 2.5 7.6 0.3 1.2 3.8 0.5
------------- ---------- ---------- ------------- ---------- ---------- --------
Romeral-2
Sur Sand
(2) 4.5 9.1 16.1 3.7 7.4 13.0 0.81
------------- ---------- ---------- ------------- ---------- ---------- --------
Romeral-2
Upper Sand
(2) 0.7 1.4 2.8 0.5 1.0 2.0 0.7
------------- ---------- ---------- ------------- ---------- ---------- --------
Romeral-3 1.5 3.0 5.3 1.2 2.4 4.3 0.81
------------- ---------- ---------- ------------- ---------- ---------- --------
Saltillo 3.1 6.4 11.6 2.5 5.2 9.4 0.81
------------- ---------- ---------- ------------- ---------- ---------- --------
San Pablo 0.8 1.4 2.0 0.6 1.0 1.5 0.75
------------- ---------- ---------- ------------- ---------- ---------- --------
Santiche 2.1 3.6 5.7 1.5 2.5 4.0 0.7
---------------- ------------- ---------- ---------- ------------- ---------- ---------- --------
Total 48.3 89.7 153.9 37.5 69.6 119.0
------------- ---------- ---------- ------------- ---------- ---------- --------
Note 1: Romeral-1 Sand 1 and Romeral-1 Sand 2 are considered one
prospect
Note 2: Romeral-2 Sur Sand and Romeral-2 Upper Sand are
considered one prospect
Asset Purchase Agreement
Tarba has entered into an Asset Purchase Agreement with
Petroleum Oil and Gas España SA ('Petroleum'), a subsidiary of
Naturgy Energy Group SA, to acquire El Romeral for an initial
consideration of EUR750,000. Deferred consideration of EUR250,000
will be paid on the subsequent drilling of each of the next three
wells and split pro rata as per the respective stakes of Warrego
and Prospex. The effective date is 16 July 2019. The acquisition
will complete on the transfer of licences to Tarba which are
subject to customary regulatory approval.
Tarba will fund the acquisition with support from its two
shareholders, Warrego, and PXOG Muirhill, a wholly owned subsidiary
of Prospex. Tarba will pay the initial consideration on or before
30 days from today's announcement and an application for the
transfer will be made shortly afterward. Warrego and Prospex have
entered into an agreement whereby Warrego will fund the initial
consideration and Prospex has 90 days to elect to take a proportion
of the Project up to 49.9% and fund Tarba accordingly. Such
investment by Prospex is conditional upon Prospex sourcing the
necessary funding.
When Petroleum acquired the Project in 2006, it granted the
vendors, at that time, rights to a share of future revenues derived
on future commercial discoveries in the Area. These vendors
retained the right to 16% of future revenue derived from any
further commercial discoveries in the Area. These obligations will
transfer to Tarba. For clarity the previous sellers do not receive
payments on current production, as these wells were already
discovered and producing prior to Petroleum's acquisition in
2006.
Warrego and Prospex Agreement
Warrego and Prospex have entered into a Supplemental Agreement
to the existing Shareholders' Agreement ("SHA") announced 19
December 2017. The Supplemental Agreement covers the financing of
the El Romeral acquisition, whereby Prospex has up to 90 days to
elect to take up to a 49.9% stake in the Project through the issue
of a second class of shares of Tarba, B shares. The El Romeral
Project will be for the benefit of the B shares and Tarba's
existing Tesorillo project will be for the benefit of the ordinary
shares. Prospex currently owns 15% of the ordinary shares and has
the option to increase its stake in the ordinary shares to 49.9%.
Warrego owns the balance of the ordinary shares. Under the original
terms of the SHA, the parties agreed to fund their share of the
costs going forward in line with their respective proportional
ownership. This principle of the original SHA will be maintained
under the Supplemental Agreement with the partners funding both
projects in line with their respective proportional ownership
whether ordinary or B shares. The SHA contains usual industry
standard provisions for sole risk, default and for the day to day
operations.
In addition, under the agreement Warrego will pay Prospex
GBP75,000 towards historic due diligence costs up to 13 June 2019.
Costs after this date will be borne equally and settled up within
30 days of this announcement.
Qualified Person sign off
Carlos Venturini, Fellow of the Geological Society of London,
Exploration Manager has reviewed and approved the technical
information contained within this press release in his capacity as
a qualified person, as required under the AIM Rules.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
* * ENDS * *
For further information visit www.prospexoilandgas.com or
contact the following:
Edward Dawson Prospex Oil and Gas Plc Tel: +44 (0) 20 3948
1619
Rory Murphy Strand Hanson Limited Tel: +44 (0) 20 7409
Ritchie Balmer 3494
Jack Botros
Colin Rowbury Novum Securities Limited Tel: +44 (0) 20 7399
Jon Belliss 9427
Duncan Vasey Peterhouse Corporate Finance Tel: +44 (0) 20 7469
0932
Frank Buhagiar St Brides Partners Ltd Tel: +44 (0) 20 7236
Priit Piip 1177
Notes
Prospex Oil and Gas Plc is an AIM quoted investment company
focussed 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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