By Amy McLellan
AIM micro-cap Northcote Energy has raised £2.8 million through a placing to new and existing investors, with the funds earmarked for its fledgling Mexican business. The placing shares, priced at a discount of 18.2 per cent to the prevailing market price, represent 20.77 per cent of the company’s issued share capital. Northcote managing director Randall Connally said the fundraise would give the company the “financial firepower” to have the “flexibility to takedown new business opportunities in Mexico”.
The British Virgin Islands-registered company is evaluating a range of projects in the Mexican energy sector as it opens up to international companies. Mexico has huge oil and gas potential, with 13 billion barrels of recoverable oil resources, yet it is significantly under-explored compared to its powerhouse neighbour to the north; its portion of the Gulf of Mexico has seen very little activity compared to the US. Interestingly, the prolific liquids-rich Eagle Ford Shale formation extends into Mexico.
Northcote has been an early mover here in what broker Beaufort Securities says could be a “once in a life time opportunity”. The AIM company has formed a joint venture with Gaia Ecologica, a local Mexican company, and is pursuing other opportunities in the country. These are not just upstream projects: due diligence is underway on an opportunity to participate in a JV to construct and operate a waste remedial plant, with the view to generating near-term cash flows.
The plant would remediate rock, water and other waste generated in the drilling and workover of oil wells, located in one of the primary onshore oil and gas basins in Mexico with easy access to port facilities. It is expected that the plant could be commissioned within six months of construction getting started, and Northcote says it could be a “significant driver of positive cash flows should it become fully operational”. Once operational, the plant could then be expanded to accommodate the expected growth in regional drilling activity.
Elsewhere, Northcote has a 70 per cent stake in the Shoats Creek project in Louisiana – which will be known to many readers as it used to be an Aminex asset – where a well is set to spud in the next 10 days. The drilling permit for the property has been received and preparations for the drill are now underway: this will be a key event for Northcote and, importantly, as a twin of a previously producing well, this is a relatively low risk drill.
Production at Shoats Creek is reckoned to be economic at current oil prices, where analysts at Beaufort Securities say success in the Phase 1 programme would “unlock significant field level cash flow and increase the inherent value at the Shoats Creek lease for investors”.