Is this Predator ready to strike?
“…After concluding a £10m placing to fund continued exploration, and new results expected soon, is the share due another run?…”
Predator Oil & Gas Holdings (LON:PRD) made confident progress this summer towards realising its goal of helping meet Morocco’s urgent demand for gas, tripling its share price through June and July. After concluding a £10m placing to fund continued exploration, and new results expected soon, is this share due another run?
PRD holds a 75pc working interest in the Guercif Petroleum Agreement, prospective for tertiary gas, located some 10 kilometres from the Maghreb-Europe Gas Pipeline, which supplied Morocco, Spain and Portugal until its closure in 2021. The company also has interests in Trinidad, where it wants to apply CO2 EOR (Enhanced Oil Recovery) techniques to develop the country’s mature onshore oil fields, and in Ireland, where it is defining a gas storage and regasification project and appraising exploration assets adjoining Vermilion’s Corrib gas field in the Slyne Basin on the Atlantic Margin, and to the east of the decommissioned Kinsale gas field in the Celtic Sea.
Morocco’s high-margin CNG industry
But PRD’s primary focus is Morocco, where it is searching for gas to supply Compressed Natural Gas (CNG) by truck to the country’s growing industrial market. Morocco has a patchy pipeline infrastructure, and produces little of its own gas, leaving buyers dependent on expensive imported fuel transported by road. PRD wants to rapidly scale the country’s high-margin CNG industry, taking advantage of Morocco’s low cost jurisdiction. The company maintains that ‘gas production profiles and deliveries are easily scalable as the market for CNG expands’ and ‘the levels of profits are such that they are not likely to attract windfall taxes as in Europe as gas sales price is matched to what local industry can afford in order to remain competitive’.
PRD says the Guercif Petroleum Agreement has been partially de-risked by the substantial technical evaluation work it has undertaken so far. The first well, MOU-1, drilled in 2021, encountered formation gas in the primary target region, and studies have validated pre-drill interpretations for the development of deeper water submarine fan reservoirs similar to those found in the Rharb Basin, and in the offshore Anchois gas discovery to the west of the Guercif licence.
Subsequent MOU-2, MOU-3 and MOU-4 appraisal wells have explored the eastern end of the MOU-1 structure, seeking to establish the viability of a scalable CNG development. A planned rigless testing programme will assess whether the project meets the threshold for gas development in the Moroccan industrial market: one million cubic feet of gas per day (0.35 BCF per year) for a single end user. If so, the potential to scale up to 34 million cubic feet of gas per day (approximately 12 BCF/year) will be assessed.
The current gross Best Estimate resource, based on a conservative 66pc gas recovery over 13 years, is 393 BCF (295 BCF net attributable to PRD’s 75pc interest). The High Estimate of 708 BCF is based on a higher GIIP estimate for potentially thicker reservoirs that may be encountered at the MOU-2 well location. PRD’s CPR indicates a 25pc chance of proceeding to a large-scale gas-to-power development, but suggests that ‘the chance of commerciality for a pilot CNG development supplying lower volumes of gas to industrial markets is likely to be considerably higher’, on the premise of Morocco’s 2021 average gas price of $11.40/mcf. The company is ‘engaging with potential end-users in the industrial sector in Morocco’ with a view to a Gas Sales Agreement immediately after the programme of rigless well testing for MOU-1 – and new drilling – has been completed.
PRD has pressed ahead with its exploratory drilling this summer, its progress smoothed by there being no other competing drilling activity onshore Morocco at present. Drilling and logging operations for the MOU-3 well were completed in June, appraising the licence’s Moulouya Fan primary reservoir target, and several secondary reservoir targets encountered by the MOU-1 well. PRD said ‘the shallow gas potential of MOU-3 has exceeded all pre-drill expectations’, demonstrating ‘the possible continuity, subject to rigless testing results and a future infill well, of gas sands penetrated in MOU-1 with similar sands encountered in MOU-3.’
The MOU-4 well, drilled and completed in July, ‘confirmed the presence of the Moulouya Fan southeast of its previously mapped extent’ and a ‘speculative pre-drill Jurassic carbonate horizon’. A subsequent update said that wireline analysis and reservoir characterisation of the MOU-4 well had highlighted several intervals of ‘likely gas sands’ that will form the primary objectives in the rigless testing programme. Analysis indicated that culmination of the Jurassic carbonate target lay 2.6 kilometres to the southeast of the MOU-4 well location, and significantly higher than at the MOU-4 well location. A positive rigless testing result in this zone, therefore, ‘would help to de-risk the larger Jurassic structural closure in respect of reservoir development and migration of gas.’
Last month the company was able to present its testing programme to Moroccan regulators. Ten individual horizons within the interval 1217 to 1300 metres TVD KB have been selected for perforating, and a further eight in the interval 769 to 912 metres TVD KB. Geochemical source rock quality and maturation studies, including evidence for migrated gas, for the Jurassic section penetrated in the MOU-4 well, are expected to be completed this month. Two other near-term drilling opportunities are also being assessed, one location covered by an existing EIA and the other to be added to a new EIA. The higher pressure shallow gas encountered in MOU-3 and a southwest extension of the well’s structure have been set as targets for future drilling.
Enhanced Oil Recovery in Trinidad
Though the Guercif Petroleum Agreement is PRD’s headline asset, the company continues to pursue its interests in Trinidad and Ireland. It is hoping to capitalise on the Trinidadian government’s newly adopted strategy to promote CO2 EOR and CO2 sequestration, Trinidad’s ammonia and methanol plants accounting for the country’s high CO2 emissions.
But ERD’s progress in Trinidad is dependent on the continued resolution of a complex commercial dispute. The company developed its CO2 EOR and carbon sequestration capability during a 2021 project which was unexpectedly decommissioned. ERD has since sought to reach a pragmatic agreement with Challenger Energy Group Plc to address outstanding issues from the abbreviated venture.
Negotiations have established an agreement, subject to contract and the regulatory approval of Trinidad’s Ministry of Energy and Energy Industries, according to which PRD will to acquire TRex Resources (Trinidad) Ltd from Challenger. TRex is the current operator of the Cory Moruga licence, onshore Trinidad, which contains the undeveloped Snowcap oil field. A flow test of the field’s Snowcap-1 well generated a rate of 1,200 bopd. Under the deal, involving a gross consideration of $9m and a net cash consideration of $3m, PRD would acquire 1,523,449 barrels of P50 oil resources at the equivalent of $1.969 per barrel, and a further 15.5 million barrels of potential P50 oil resources subject to appraisal drilling at $0.19 per barrel.
PRD says the acquisition represents ‘one of the few opportunities in Trinidad to apply CO2 EOR techniques in an early phase of field development before virgin reservoirs pressures have declined’, as is the issue with mature onshore oil fields in Trinidad. Looking forward to completing an independent CPR on Cory Moruga in the first half of 2023, PRD ‘has a reasonable expectation that consent will be granted based on its ability to offer CO2 EOR as a development option.’
Late last month PRD said ‘dialogue with MEEI continues, with the parties having made progress on reaching acceptable terms, and the parties remain confident that appropriate consents and agreement will be forthcoming’. The deal is expected to be concluded by the end of November.
Gas storage in Ireland
PRD continues to pursue its Mag Mell Floating Storage and Regassification Project (FSRU), ultimately designed to ensure Ireland has an indigenous source of ‘cushion gas’ through gas storage facilities that would use the existing Corrib and Kinsale gas pipelines.
The company is following a ‘wait-and-see’ policy towards Ireland until the government completes its security of supply review, originally due for publication this year. PRD presented its gas import option at the National Energy Summit held in Dublin last year, which sought to show how gas could seasonally support the national electricity grid when renewable energy was curtailed by weather conditions, and has lobbied members of the Irish Dail through one-on-one meetings. It has also made submissions to delay government plans to decommission the Kinsale gas pipeline, a key element in the plans for a gas storage facility.
PRD’s Irish interests were galvanised last year when the company received an approach for the acquisition of its position in the Corrib South exploration asset, which has mid and high case estimates for gross gas resources of 137.8 and 484.8 BCF respectively (PRD net interest 50pc), estimated to have a 44pc chance of geological success and a 50pc chance of development. Ireland’s Department of the Environment, Climate and Communications confirmed in July that ‘a request made on behalf of the Company and its potential partner in the event of a future award of a Frontier Exploration Licence in respect of Corrib South was receiving attention.’
PRD’s robust progress this year towards clarifying the potential of its Moroccan assets helped drive a mid-summer surge in its share price, which spiked from 6p in June to 18p in July (it has subsequently fallen back to 11.5p at the time of writing, taking the company’s market cap to £63m.) The project has undoubted promise, a significant resource positioned to serve a defined market, offering a viable route to commercialisation. PRD’s interests in Trinidad and Ireland appear rather more long term, dependent to various degrees on the resolution of contractural complexities and favourable government policy.
Prospective investors should be aware that PRD has had to undertake multiple placings to advance its proposals, the most recent in July, which, ‘with good new institutional support’, raised gross proceeds of £10m for the costs of drilling MOU-4, and pressing ahead with the MOU-1, MOU-3 and MOU-4 rigless well testing programme. Fundraisings have allowed the company to remain debt free, its most recent annual report stating an increased cash balance to 31 December 2022 of £3,323,161 (2021: £1,523,035), but it is likely PRD will need to go to the markets again. The company does, however, say that subject to rigless testing results, a CNG development could ‘potentially be funded by a debt instrument linked to production thereby freeing up existing cash resources for more high impact drilling’.
PRD is something of a speculative bet, but one that succeeded in capturing the imagination of many investors this summer as its drilling programme gained momentum, and the company’s objective of serving a busy Moroccan gas market became more vivid.