“Will Prospex Prosper In 2019?

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Prospex’s Ed Dawson talk 2019 plans following major progress in Spain and Romania

Despite delivering the first production in Romania and bolstering is position at a major prospect in Spain, Prospex Oil & Gas has seen its share drop in recent months. The commodity bear market, which has hit junior resource players across the board, has pushed the firm’s shares down to their current 0.21p. Here, chief executive Ed Dawson talks us through some of the potential triggers for a re-rate in 2019.

Success in Spain

Last week, Prospex announced that it had increased its stake in Tesorillo, a gas project in southern Spain.

Tesorillo covers 38,000 hectares in a proven hydrocarbon region and is home to the Almarchal-1 discovery well, drilled in 1956. Almarchal-1 intersected a thick section of possible gas pay, including some zones that flowed gas to surface on testing. Another old well called Puerto de Ojec-1 displayed similar gas shows to Almarchal-1 but could not be tested for mechanical reasons.

More recently, a CPR in 2015 estimated that Tesorillo could hold gross unrisked prospective resources of 830bcf with upside of more than 2Tcf. Prospex first entered the site in December last year, when it bought a 2.5pc position. Alongside this, it obtained an option to increase its position to up to 49.9pc in two stages.

Last week saw the firm complete the first of the stages, increasing its position to 15pc for €153,250. Its decision followed the completion of a 2018 field programme focused on three strands.

The first strand consisted of general field studies to provide information for an Environmental and Social Impact Assessment Report. Prospex estimates that around 70pc of this work has now completed, with Dawson adding that the remaining steps are dependent on the company picking a drilling location for a new well.

The second strand was a full surface structural geology mapping exercise. This revealed that the structural subsurface geometry of Tesorillo’s exploration target is formed by possibly several folds and thrust ramps of 3-5km in length. Prospex believes these could be gas traps.

The final strand of work was an Audio Magneto Telluric survey. This was delayed by poor access to the study areas in the Summer. However, appointed contractors have now completed multiple tests in essential areas and are now processing their data. Dependent on these results and the accessing of the original raw seismic data, Prospex may look to complete the full programme at Tesorillo in 2019.

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Prospex Oil & Gas Team, meeting with Spanish local council

Dawson tells us the project remains a ‘tiger on the leash’ for Prospex, adding that he has been encouraged by progress so far:

‘We have had 12 months of moving the project forward, and during this time we have engaged with the local community and various levels of Spain’s government. We continue to take comfort in what the potential we are finding as it is proving up what we already thought was there. We have also enjoyed considerable support from the local community since re-launching the project. It has been the natural thing to keep moving it forward because it has huge potential at more than 800Bcf. It makes it a very, very large project.’

He adds that the business will now focus on ‘digesting fully’ the extensive data set it has built on the project. This includes the re-processing of seismic data over the area previously shot by Repsol. Using the various geological markers on offer as a result of historical drilling, Dawson says this data can help to strengthen Prospex’s geological model for the Tesorillo area.

Next year, he says the company has plenty to be getting on with at the project ahead of drilling and increasing its stake to nearly 50pc: ‘We are working to come up with one or possibly two drilling locations. Drilling will likely take place alongside us increasing our stake. Once we are ready to drill, we will then bolster our position. Work on getting to this stage is ongoing. For example, re-processing the seismic data will take a month or two. The big steps are permitting and making the applications for the well. We will also produce an updated CPR for the project next year. That’s a step we can control, as it is all internal.’

Wider portfolio

Recent months have also seen Prospex take significant steps forward at its other assets.

In September, the firm announced its first gas production in Romania. Here, it owns a 50pc interest in the Suceava concession. The output came in an initial rate of c.0.7mmscf/day from the Bainet gas field in the exploration area of the licence. The news represents Prospex’s first production revenues from its portfolio of licences focused on Europe’s foredeep play.

Bainet was the first ready-to-drill prospect out of many leads at Suceava. As such, Dawson tells us that the firm is looking to replicate its Romanian success in 2019:

‘Romania is up and running, we are producing gas, selling gas, and we are getting paid for gas. I hope we will drill something similar in 2019. It is cheap drilling, and we can get it onto production very easily.’

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Meanwhile, Prospex also owns a 17pc stake in the Podere Gallina Permit in the Po Valley region of Italy. Alongside partners, it is advancing the Podere Maiar gas discovery, located on the Selva gas field, through the permitting process towards first production. Dawson hopes to develop this considerably next year ahead of expected output by 2020:

‘We have put in the application for a production permit on the Selva discovery. We have had positive meetings so far with regard to moving that forward. We are looking to formalise and update the market on that progress.’

 

Alternative funding

The beginning of production in Romania has also opened up Prospect to significant non-equity funding. In October, the business announced that it had raised $480,000 via the issue of unsecured loan notes to new and existing investors. This included several directors of the company. The loan notes will pay 10pc interest biannually, capitalised to 30 June 2019 with cash payments beginning on December 2019.

Also, subscribers were issued with 55 warrants for each £1 of loan note subscribe. Each of these gives the subscriber the right to acquire one ordinary share at 0.6p

Prospex will use the money to fund its share of the budgeted early-stage development costs in Italy. It will also cover the company’s general expenditure next year. It added that it expects to be able to fund the full development of the gas discovery and further exploration in Italy from this and additional non-equity funding as the project progresses.

In the update, the firm said its ability to secure non-equity financing options to fund future developments is reflective of the progress it has made over the last 12 months. Dawson reiterates this to us, adding that he is excited about where the business can build on these new options moving forward, as it continues to bolster production:

‘We offer a whole portfolio these days, and we are continuing to look at other projects as well. This has allowed us to look at different forms of financing as opposed to straight equity, which is dilutive for our shareholders. The loan notes have opened up an avenue of alternative funding that is great for us. We could have issued more, but there is no point issuing it in November when you don’t need the money for a year because you pay interest. We want to use loan note and alternative financing to cover G&A and development type work moving forward.  However, what is important is that we are implementing the plans we have long been working towards. Lenders and our investors are recognising this. In time, the wider market should as well.’

Ed Dawson spoke at the most recent Momentus Event, with Jeremy Naylor 

In May 2018 Ed Dawson met with our friends at Core T.V here

The author does not hold shares in the company but was remunerated 


Categories: Bulletin