By Martin Clark
Canada’s Azabache Energy is sitting on a prime location in one of Latin America’s most promising unconventional oil prospects – the Vaca Muerta shale in Argentina’s central Neuquen province – but progress may require a bit of support.
The search for a partner to help with the development of the area, now considered one of the top unconventional oil and gas targets worldwide, has been in full effect since the turn of the year.The company is working with investment banking firm Fenix Partners in the search for a long-term partner to provide both funding and expertise in developing the Vaca Muerta properties.
As one of the few junior companies operating in the area, Azabache brings a good deal to the table too, with its local knowledge of the basin, as well as North American expertise of unconventional oil.The Calgary-based company, which also maintains some assets in Colombia, this week released its half-yearly results, reporting a loss of $2.7 million for the six months ending December 31, 2014.
That’s a little more than last year and illustrates the need to bring in a partner with some real clout to progress what will be, ultimately, a long-term project.In its latest update to shareholders this week it said that an agreement with the government of Neuquen and its partner, GyP, had been reached on future development requirements for both the Covunco and El Corte blocks.
Over the next three years, this means completing 76,000 acres of 3D seismic, fracture stimulating two existing wells, as well as drill and fracture stimulate three new vertical wells.
The cost of this programme has been estimated at approximately US$60 million.With no current production on the books that’s a lot to ask, hence the partner search.It also explains the US$3.5 million loan announced in December to fund ongoing operations.
“The company recognises the large amount of capital that will be required to develop its Vaca Muerta land holdings and the low probability of financing these expenditures on its own,” it noted in a March 2 statement.
The TSX Venture listed group said that it is weighing up all options including a potential farm out, a strategic investor or any other transaction.
Times have become a lot harder recently for many companies though, and finding the right partner to help take the project forward may not be an easy task in the current climate.
Still, quality assets with genuine potential will always appeal, whatever the weather, so Azabache has something of value to offer potential investors.