Conference report 2: Solo Oil and Wentworth Resources set for step change as Tanzanian projects come onstream while Pura Vida Energy gets ready for potential company-making drill in Morocco

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Conference report 2: Solo Oil and Wentworth Resources set for step change as Tanzanian projects come onstream while Pura Vida Energy gets ready for potential company-making drill in Morocco
Wentworth sees great potential in Tanzania

By Amy McLellan

These are exciting times for ASX-listed Pura Vida Energy, with a drillship set to arrive next month to spud the MZ-1 wildcat in the deepwaters off Morocco. This is a big well by any reckoning: it is drilling in 2,000 metres of water through up to five stacked reservoirs down to 6,000 metres deep to test a mean gross resource of 1.4 billion barrels, with a high case of over 3 billion barrels.

The coup for Pura Vida was its 2013 farm-out to NYSE-listed Freeport McMoRan, the natural resources giant that has a track record of drilling deep wells in the Gulf of Mexico, a transaction with a headline figure of US$230 million.

This means that Pura Vida, which retains a material 23 per cent stake, is fully carried through two exploration wells on the block, and has negotiated protection against cost over-runs: it can opt to dilute its equity position to cover any over-runs on the second well.

Importantly, despite the slide in the oil price since the heady days of 2013, Freeport is showing no signs of backing away from this big well: indeed, at the end of last year it opted to change drilling location, switching from a single shallow prospect, Toubkal, to the giant stacked fans of the Ouanoukrim prospect, which more than doubled the price tag on the well to US$136 million.

“Any one of those five targets has the potential to be commercial on a standalone basis,” noted managing director Damon Neaves.

“We are going to be drilling into the source rock itself,” explained Neaves. “These giant fans are interbedded within the source rock. The risk in the Jurassic is the seal. If there’s no seal and we hope the Jurassic fans will wok as migration play into the Cretaceous, where there are large structural traps.”

While a number of other operators have been disappointed by drilling results offshore Morocco over the past year, Neaves points out that the MZ-1 is testing a different play and source rock. “These plays are untested in Morocco,” he said.

The Perth-based company isn’t resting all its hopes on this one play, however. Following its farm-out to Freeport, Pura Vida set about diversifying its portfolio. It has secured 100 per cent of a block offshore Gabon, in the heart of a prolific oil producing basin.

Water depths in the focus areas range from 50 metres, where there are existing modest discoveries and prospects, to 500 metres, where there are some large pre-salt prospects for some significant upside. This could be a “fast and relatively cheap pathway to production,” noted Neaves.

The company also has a 50 per cent in the Ambilobe block offshore Madagascar. A 3D seismic survey is planned to mature the prospects before bringing in a farm-in partner for drilling.

This was a confident presentation from a company that could be on the cusp of a transformational year. With the drillship soon to arrive, expect some interesting newsflow in the months to come: delegates will be keen for a repeat visit from Neaves to get an update on the results.

Click here to see the Pura Vida Energy presentation

Solo Oil has, by design, built an eclectic portfolio with minority interests in projects stretches from Ontario to Surrey to Tanzania. It is the latter investment that dominates the portfolio, with the AIM-quoted company having a 25 per cent in the frontier Ruvuma Basin licence – a stake that executive director Fergus Jenkins admits is “larger than we would ideally like – where operator Aminex reckons there could be more than 5.75 TCF of gas across the block.

There have been two wells drilled to date. The Likonde-1 wildcat, which found residual oil shows but had to be cut short when the drillbit hit very high pressure gas. The came Ntorya-1, which flowed 20 million cubic feet per day and 139 barrels per day of condensate from a very restricted interval, the first time liquids have been tested onshore, notes Jenkins. A report from ISIS Consultants points to a resource of 1.17 TCF at Ntorya, with operator Aminex suggesting this could be as much as 2.3 TCF.

“We’re confident this is economic,” said Jenkins, noting that an appraisal well is planned for later this year. Key to that will be bringing in a partner to help fund the well: London-listed Aminex and Solo are both looking to reduce their exposure, with Jenkins saying the AIM small cap would prefer a stake of around 10-15 per cent.

Importantly, this is not stranded gas: the infrastructure now being completed in Tanzania means there’s a growing capacity to take this gas to feed energy-starved economy. Solo cannily has a front seat in this nation-changing development: it has bought a stake in Aminex’s Kiliwani North gas project, which is on the cusp of first production.

“This was 45 BCF of stranded gas because of a lack of infrastructure, which has now been resolved, and the financial constraints of the operator, and we have invested to unlock the value of this asset and allow it to be taken forward,” said Jenkins.

With the Chinese built and funded pipeline and processing infrastructure in place, Solo and Aminex are just awaiting final sign-off on the gas sales agreement, which Jenkins said they expect in a “very short period of time”.

While Tanzania is the flagship asset, Solo also has a 10 per cent stake in the special purpose vehicle designed to drill and develop the Horse Hill asset just 3 km north of Gatwick which generated a lot of chatter among retail investors towards the end of 2014.

“In some ways the well was upside down because we made a discovery in the shallower Portland Sandstone but that was forgotten by the time we got to the deeper part of the well,” said Jenkins, who said the mid-case estimate on the find is around 8 million barrels. The company is also hoping to pick up more acreage in the UK’s 14th licensing round

After a promising start, an enhanced oil recovery project in Canada has been a less successful investment as the company’s partner, Reef Resources, has run into trouble and the project is now on hold.

“They ticked all the boxes when we did the due diligence about their experience and how to operate the well,” explained Jenkins. “The initial results were good but they hit financial issues so the project is not moving forward.” Solo is now looking at how to monetise its stake in this enhanced oil recovery project.

It’s clear from this presentation, however, that the focus is on Tanzania, and rightly so, with Solo on the brink of first production and revenues and a front seat in the high impact exploration of the onshore Ruvuma Basin.

Click here to see the Solo Oil presentation

Tanzania is also the focus at Wentworth Resources, which is listed on the Oslo Stock Exchange and London’s AIM. Managing director Geoff Bury had the last spot of the day but the room stayed full despite the attractions of lunch because the AIM company is set for a step change in production and cash flows this year.

Like Solo Oil, Wentworth’s flagship asset is in Tanaznia and it too has been transformed by the new infrastructure in the country, a picture of which started his presentation. The big difference is the sale of the opportunity – at 443 BCF, Wentworth’s Mnazi bay field dwarfs the 45 BCF Kiliwani North.

Importantly, Wentworth’s gas sales agreement is all signed, a 17 year deal with a gas price of US$3 per Mmbtu starting at 80 million cf/d and then ramping to 130 million cf/d in Q1 2016. Wentworth has 32 per cent of the production and 40 per cent of the exploration upside; as Bury pointed out, the value of the 2P reserves is two times the company’s current market cap.

Four existing wells will be tied into the new infrastructure along with one new infill well, which will spud in April. The company’s cash on hand and undrawn facilities will take it through to first cash flow. First cash receipts are expected in July.

This is the start of something exciting, not just for Wentworth but also for the country.

“This is Tanzania’s largest infrastructure project to date, about US$1.2 billion of investment,” said Bury, highlighting the 36-inch 532 km pipeline with capacity for 784 cf/d of gas. “It’s a massive financial project, built and financed by the Chinese but owned and operated by TPDC.”

This gas is essential to solve the country’s chronic domestic energy shortage: it has a master plan for a significant expansion of power generation over the next five years. There’s immediate demand of around 50 million cf/d from existing power producers, the new Kinyerezi-1 power station will require around 30 million cf/d by the end of June and there’s demand from power producers over next five years of more than 450 million cf/d as well as pent up demand from industry.

Wentworth is well placed to help meet this. There’s 1.5 TCF of prospective resources across six prospects on the Mnazi Bay licence, and as cash flow comes in from the gas production, exploration drilling will get underway this year and into 2016.

The potential of Tanzania has helped distract from the recent disappointments of the Anadarko-led exploration campaign in Mozambique, where Tembo-1 made a modest gas find and Kifaru-1 a duster. All commitments have now been met on the licence and no doubt the joint venture will be mulling next options here.

For backers of Wentworth, there’s just one story at the moment and that’s gas production in Tanzania. Last year the company’s net income was US$15.3 million as it recognized a one-time, non-cash gain of US$23.80 million for the reversal of previously impaired oil and gas assets in the Mnazi Bay Concession.

“It’s fair to say we will be one of the few company’s standing before you this year saying we are writing up our assets rather than writing them down,” said Bury.

And to signal the scale of the coming change, Bury highlighted the future cash flows expected from Mnazi Bay: US$20 million in the first full year and US$140 million over the first five years. Exciting times ahead.

Click here to see the Wentworth Resources presentation’s next conference will be on Thursday May 14 2015.

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