Is Clontarf Energy worth a punt?
“…Adventurous investors looking for value stakes in the world’s continuing demand for gas may want to take a look at the company at this very low price. But CLON has turned quickly from an exciting near-term prospect to a rather speculative long-term bet….”
What next for Clontarf Energy (AIM:CLON)? An exploration and production company with interests in oil and gas and lithium, CLON has flared brightly but briefly over the past few weeks, its share price soaring on news that it had acquired a multi-million dollar stake in a highly prospective drilling campaign in Australia’s premier natural gas basin, before crashing back down less than a month later when the project’s flagship well returned nothing.
“…CLON has, to say the least, a tough job to win back investor interest. But it believes Sasonof-1 is the beginning rather than the end of the story…”
CLON was formed to develop assets following the sale of Pan Andean Resources’s Colombian and Peruvian assets to Petrominerales (now Pacific Rubiales). It has 60pc ownership of the Ghana Tano 2A Block, close to discoveries by Tullow Oil plc and Kosmos, with a Memorandum of Understanding signed with Chadian authorities on sedimentary basin acreage close to the export pipeline. Elsewhere the company is in discussion with Bolivia’s national lithium company regarding the exploration and development of prospective salt-lakes. CLON is led by Chairman and Managing Director David Horgan, who has held positions at a number of other AIM listed ventures including Petrel Resources and Pan Andean Resources.
The brief story of Sasanof-1
But the company’s focus turned to Australia early last month when it acquired a 10pc interest in the multi-TCF (Trillion Cubic Feet) Sasanof Prospect, joining a consortium majority owned by Western Gas (52.5pc), and including Global Oil and Gas Limited (25pc) and Prominence Energy Ltd (12.5pc). The Prospect, covering an area of up to 400km2, is estimated by energy consultants ERCE to contain a P50 Prospective Resource of 7.2Tcf of gas and 176MMbbls of condensate (P50 recoverable) with a 32pc Chance of Success. It is directly up-dip of the Mentorc Gas Field which contains a certified 2C 378Bcf of gas and 16.4MMbbls of condensate (2C), and defined by the same 3D seismic data technology that has allowed Western Gas to elaborate its Equus Gas Project. As part of Australia’s prolific North West Shelf it is close to some of the worlds biggest LNG terminals, and to projects owned by supermajors – and prospective buyers – like Chevron, Exxon, Shell, Woodside and BHP.
Eyeing the opportunity CLON undertook a £3.5m fundraise in April – a placing requiring 61.65pc of its enlarged share capital – to fund a $4m stake in the venture, which got underway immediately after the purchase with the drilling of Prospect’s main target horizon, the Sasanof-1 Well. Announcing the acquisition Mr Horgan said there ‘has rarely been a better opportunity to explore large potential gas prospects in a safe jurisdiction.’ The market seemed to agree, propelling CLON’s share price from 0.25p to 0.65p.
All seemed set fair when the well was spudded on schedule late last month, and the hole section drilled to its planned depth, with logging indicating that all formation tops were in accordance with pre-drill predictions. Then, on 6 June, a curt announcement stated that after total depth had been reached ‘no commercial hydrocarbons were intersected’, and that the well would be plugged and permanently abandoned.
A brief post-mortem published a week later said the targeted sands at a depth of 2252.9 metres had been encountered but that ‘logs confirmed that the sands contained water, and no commercial hydrocarbons were detected.’ Initial technical analysis indicated that ‘the expected western seal of the targeted stratigraphic trap was breached allowing migration of gas out of the Prospect.’ The partners nonetheless continue to believe the WA-519-P Block in which the well was drilled remains ‘highly prospective’ with ‘material leads identified in the proven Lower Barrow Group and Triassic Mungaroo plays, as well as play opening leads in the Jurassic “Perseus” Syn-rift’. Mr Horgan said CLON ‘and its joint venture partners intend to review and assess these leads with a view to progressing them to prospects, utilising data from the Sasonof-1 well, to support future exploration and targeted farm-out discussions.’
The end of the beginning…?
Unsurprisingly the company’s share price gave up all of its gains, and then some, free-falling to less than 0.1p. CLON has, to say the least, a tough job to win back investor interest. But it believes Sasonof-1 is the beginning rather than the end of the story. CLON retains its 10pc interest in the WA-519-P Block, the first of the exploration portfolio surrounding the Equus Gas Project to be drilled. Equus is a well defined development ready gas and condensate project with a certified resource sufficient to supply 300 TJ of gas a day for 20 years or two million tonnes of LNG for 20 years. Through the licensing and reprocessing of 3D seismic Western Gas has developed an exploration portfolio of over 20 leads and prospects from the Triassic, Jurassic and Cretaceous periods. The drilling of 17 wells has yielded 15 discoveries, an exploration success rate of 88pc. Plans for the development of Equus are well advanced: the first phase will comprise three production wells linked by subsea infrastructure to a leased floating production storage and offloading facility, and dry sales gas transported through a third-party owned offshore pipeline to the Ashburton North Strategic Industrial Area, near Onslow Western Australia, an established LNG and gas processing precinct. Sasanof-1 may have drawn a blank, but in the words of the partners it ‘did show that a consortium of juniors can identify, work-up, fund and drill a high potential gas well in over a kilometre of water depth.’
And market conditions seem likely to be favourable for some time to come. The estrangement of Russia from the Western energy market is facilitating a profound shift towards LNG, which now accounts for more than half of global traded gas sales. As David Sheppard wrote last week in a sober piece for the Financial Times, the energy crisis is not going away any time soon. Sheppard quotes JP Morgan CEO Jamie Dimon’s view that oil prices could surge to $175 a barrel later this year, and Trafigura head Jeremy Weir’s assessment that oil could go ‘parabolic’. For consultancy Energy Aspects the crisis is building to ‘perhaps the most bullish oil market there ever has been’. Certainly, Russian fossil fuels will not be easy to replace. Western governments have already tapped into strategic reserves and OPEC’s capacity to step up production, quite apart from the perennial political sensitivities that complicate the bloc’s decisions, is not unlimited. In Sheppard’s gloomy prognosis ‘all these factors point to rising oil prices until a level is reached that reduces consumption, probably by triggering an economic slowdown large enough to curtail demand. In other words, a recession for many economies.’
Just now it is impossible to say what value CLON’s stake might still have. The prospect still looks good on paper. It is part of the highly prospective Equus asset cluster, and there is a strong market now, and it seems for the next few years. But the failure of the partners’ flagship venture has, to say the least, taken the shine off a venture that gleamed brightly just a few days ago. Is it just a mirage? Adventurous investors looking for value stakes in the world’s continuing demand for gas may want to take a look at the company at this very low price. But CLON has turned quickly from an exciting near-term prospect to a rather speculative long-term bet.