TIDMPATH
RNS Number : 0031O
Path Investments plc
27 May 2020
27 May 2020
Path Investments plc
("Path" or the "Company")
Acquisition of DT Ultravert and Kansas Nitrogen Reserves
Path Investments plc (TIDM: PATH) , the energy and natural
resources investment company, is pleased to announce that it has
entered into an Asset Purchase Agreement with Zoetic International
PLC ("Zoetic"), to acquire its 75% ownership of its patented
proprietary technology, DT Ultravert ("DTU"), which involves a
method for hydrocarbon well stimulation and protection. In
addition, Path has agreed with Zoetic to acquire its Kansas
Nitrogen Reserves, its associated leases and equipment (together
the "Transaction").
DTU
DTU is believed to be an advance on diversion technology used by
the oil and gas industry as a method of enhancing conductivity
during fracking, by diverting fluids to untreated portions of the
reservoir. Industry's current diversion technologies are largely
based on solid forms, including chemical agents to divert fluids,
such as Halliburton's 'AccessFracSM' or Schlumberger's 'BroadBand'
technology. However, the DTU patented technology employs an
elegant, simple, non-chemical based approach, utilising an inert
gas and a compressible fluid, to help divert or block liquid frack
injectants from entering existing fractures. Gas is pumped ahead
of, or alternating with, frack fluids, and serves to fill existing
fractures.
Path believes that the DTU re-fracking well stimulation
technology is a potentially more effective and cheaper method to
stimulate conventional and unconventional formations, which the
Directors of Path estimate could reduce by up to 40 per cent. the
costs currently associated with drilling and completing a new
unconventional well requiring hydraulic fracturing. Path intends to
technically and commercially develop DT Ultravert and monetise the
technology by acquiring fracked wells or partnering with operators
that have exhausted the fracking potential of their wells, or who
may want to protect or enhance their wells during new development,
as a wide-ranging solution in the well stimulation and protection
sector.
The technology may also provide environmental benefits compared
to traditional hydraulic fracturing techniques. Path is optimistic
that the reduced drilling requirements of the "refracked" wells
with DTU will reduce the carbon emissions, water and chemical usage
needed to recover hydrocarbons from shale wells compared to the
established approaches for the drilling of new shale wells. In
addition, the technology will significantly increase the recovery
rate of hydrocarbons from shale fields compared to traditional
techniques.
Where old diversion technologies typically divert near the well
bore, DTU penetrates the reservoir and diverts from where oil and
gas have already been produced. The DTU process injects gas into
the depleted area of the reservoir and re-pressurises the area,
forcing the re-frack fluid to divert to under-depleted areas. It is
anticipated that Nitrogen will be the most commonly utilised gas
employed by the technology. By diverting the fluid to previously
untouched portions of the reservoir, the Directors believe that the
re-stimulation will be far more effective.
The process utilises existing oilfield service equipment for
easy deployment anywhere in the world. Unlike conventional
diversion technologies that likely leave behind damaging residues
in the reservoir, DTU uses non-damaging gases that will easily flow
back when the well is put into production. Considering the
potential upside available if the technology becomes widely
adopted, and the low capex required to roll out this type of
business, the Directors' believe this is a very significant
opportunity. This technology trend will, in one form or another,
reshape an industry that is projected to earn over US$71.72 billion
by 2026 (source: Fortune Business Insights report on the hydraulic
fracturing market, October 2019) during the patents' life and could
be a disruptive force in the market.
Additionally, DTU's patented portfolio includes an innovative
solution to the problem of 'well-bashing', a potentially negative
effect associated with all well stimulation activities wherein new
fractures can affect adjacent wells resulting in lower pressures
and/or increased water production. In DTU's method, offset wells
are charged with high pressure gas to pressurise the existing
fractures and prevent bashing from the target well undergoing
fracking operations.
As operators continue to exploit the oil and gas resources of
North America, infill drilling is increasingly becoming more
commonplace in most active US shale plays. As a result, well
bashing is becoming a rising commercial and legal issue in the
industry. Well bashing occurs when new wells, or 'child wells', are
drilled in close proximity to already producing wells ('parent
wells'), at the same time that the existing parent wells are
experiencing a natural reduction in their reservoir pressure. When
the child well is fracked, it may impact the performance of both
the producing and new well because fracking fluid from the new well
naturally migrates towards the low-pressurised parent well as the
fractures from the new wells connect with the old ones. This can
damage wells beyond repair.
In those circumstances, public companies must report a revision
to their recoverable reserves and the downgrade can affect their
credit limits, if their banks have linked their lending to proven
reserves. The problem is compounded if litigation arises between
two nearby operations. A 2017 court case demonstrated the financial
damages well-bashing can create when a federal jury awarded damages
of US$220,000 to two Oklahoma oil operators who had reported
well-bashing by a third-party oil company in 2015. The plaintiff
stated that fracking near an existing vertical well caused
irreparable damage when over-pressurisation occurred, completely
destroying the parent well production. These damages were awarded
in respect of an older, vertical well which was producing only
modest amounts of oil from an old reservoir. The level of damages
involved if a more modern horizontal well was affected could be
significantly higher.
Despite the potential seriousness of the situation, there are a
limited number of methods of prevention or damage limitation of
well-bashing. In particular, the solutions offered by oil services
companies have not been particularly effective so far in horizontal
wells, which form the majority of new shale wells being
drilled.
DTU's method can be employed to preferentially pressurise a
portion of the adjacent previously stimulated wells by setting
plugs and pressuring only a portion of those wells. This process
serves the dual purpose of protecting existing wells from bashing
and introducing a preferentially lower pressured zone in the target
well to encourage fluids to fracture that portion. This method can
target, for example, the toe of the well bore where it is generally
difficult to stimulate. This method uses gas pressure in offset
wells as an indirect isolation method. This elegant solution also
addresses the issue of mechanical well bore isolation methods which
have an inherent problem of reducing pumping rate and friction
losses.
DTU was successfully deployed in the Permian and Piceance Basins
in 2018, where it was demonstrated to be effective in both
stimulating production and preventing well-bashing in horizontal
wells. The reservoir pressure in the parent well was boosted by up
to 400 per cent. and the elevated pressures were maintained above
pre-treatment levels throughout the child well frack operation.
When the parent well resumed production, it was demonstrated that
the effects of well-bashing had been minimised relative to
neighbouring bashed parent wells. Furthermore, demonstrating DTU's
other potential use of enhancing frack results, new child wells
fracked during the deployment significantly outperformed
neighbouring child wells that were fracked without DTU.
Kansas Nitrogen Reserves
As part of the Transaction, Path is acquiring equipment and
leases over land totalling 3,618 net mineral acres in Kiowa County,
Colorado, and Greeley and Hamilton Counties in Kansas, which
includes the Barret 1-14B nitrogen production well, put into
production in 2018. Nitrogen flow rates from the Barret 1-14B well
increased to a sustained 2,581 Mcfpd during the testing period,
compared to an initial flow rate of 1,769 Mcfpd, and nitrogen
purity levels were recorded at over 99.59%.
This production of nitrogen secures economic supplies for DTU,
as well as offering the opportunity for sales to third parties,
particularly as a preserving agent to the food and beverage
markets.
A gas concentration unit is installed adjacent to the Barret
1-14B production well, allowing the further investigation of the
characteristics of the produced gas and, amongst other things, the
results have evidenced hydrogen at concentrations around 8,000
parts per million.
This is potentially a very significant find. Scientific studies
show that treatment of soil with hydrogen improves the growth
performance of spring wheat, canola, barley and soybean by around
15 to 48 per cent. Hydrogen is a key promoter of growth of certain
nitrogen fixing micro-organisms. These micro-organisms convert
hydrogen and nitrogen into ammonia, which plants take up and
utilise for growth. Thus, the addition of molecular hydrogen can
improve soil fertility, which is particularly useful for controlled
indoor growing operations where the application of traditional
anhydrous ammonia-based fertilisers is not practical.
It is very unusual to find naturally occurring hydrogen in this
way. It is frequently found in oil and gas wells, but hydrogen
collected from these wells is inevitably contaminated by
hydrocarbons, so making the gas toxic for agricultural operations.
Consequently, the gas mixture in Kansas exhibits the very rare
characteristic of being entirely free of complex hydrocarbons. This
makes it potentially suitable as a fertiliser and, even more
significantly, as a fertiliser for organic crops without the need
for any further treatment whatsoever.
In a pilot project with crops at the end of 2018 and early 2019,
Zoetic found that treatment with this gas produced an up to 30 per
cent. improvement in size and yield of the crop.
Terms of the Transaction
The consideration for the Transaction will be satisfied by the
issue by Path to Zoetic of 15,000,000 new ordinary shares in the
Company, together with 15,000,000 warrants to subscribe for
ordinary shares in Path at any time from the first to the third
anniversaries following completion at an exercise price of 1.5
pence per share.
Additionally, Path has agreed to pay, in perpetuity, to Zoetic a
royalty equal to 5% of all gross revenues derived from DTU,
accruing from receipt of first revenues, although not payable until
12 months thereafter. Royalty payments will be settled quarterly,
with payments being made at the end of the quarter in which Path
earns revenue. For the avoidance of doubt, Path has no obligation
to make a payment to Zoetic unless it has received the revenue
payment from its own customers.
Royalty payments due until the fifth anniversary of completion,
at Path's discretion, may be settled as to 50 per cent. by the
issue of new ordinary shares in Path, in which case the value of
those ordinary shares will be based on the Volume Weighted Average
Price over the 10 business days prior to the date of issue.
Thereafter payments due will be settled in cash.
Zoetic will enter into an orderly marketing agreement in respect
of the new ordinary shares of Path issued as consideration for the
Transaction and any exercise of Warrants for a period of 12 months
from the date of completion.
Mr Eric Anderson, Senior Vice President of Zoetic, and Mr Paul
Mendell, inventor of the DTU technology, are being retained as
advisers to Path and will assist with Path's development and growth
strategy for the technology.
Completion of the Transaction is expected to occur in the next
two weeks following the completion of certain procedural matters,
including a fundraising by Path, and a further announcement will be
made when completion occurs.
Commenting, Christopher Theis CEO of Path, said: "We are
delighted to have agreed the acquisition of DT Ultravert and the
Kansas Nitrogen Reserves. We believe we are well positioned to be
able to exploit this exciting technology, potentially rebranded and
renamed, to ensure that its commercial benefits are maximised. As a
re-fracking well stimulation and protection technology, DTU is a
potentially more effective and cheaper method to stimulate and
protect conventional and unconventional formations, together with
providing environmental benefits.
"This is the first step in the relaunch of Path and I look
forward to providing further updates in due course."
For further information please contact:
Path Investments plc C/O IFC
Christopher Theis
IFC Advisory (Financial PR & IR) 020 3934 6630
Tim Metcalfe
Zach Cohen
Keith, Bayley, Rogers & Co. Limited (Broker)
07776 30 22
Brinsley Holman 28
07506 43 41
Graham Atthill-Beck 07
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END
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