Prospex Oil and Gas Plc, the AIM quoted investment company, is pleased to announce its Interim Results for the six months ended 30 June 2018.
Edward Dawson, Managing Director of Prospex, said, “Prospex has built a highly strategic portfolio based on its investment criteria of acquiring undervalued, late stage projects in proven European hydrocarbon jurisdictions that can be rapidly advanced into low cost production thanks to the availability of historic data and established infrastructure. Through this development approach we are now on the verge of commencing commercial production in Romania. We look forward to delivering on this significant milestone alongside a number of other key developments in the coming months, as we focus on generating significant value for shareholders.”
The second half of 2017 saw us acquire three core projects in Romania, Italy and Spain, each of which offer significant value uplift via near-term development. 2018 has so far been extremely active as we focus on further developing the prospectivity of these assets, each of which by their nature are multi-facetted. Accordingly, as we propel the gas discoveries in Romania and Italy towards production we continue to advance additional targets, including our interest in potentially large scale resources in Southern Spain, to build long-term value. Thanks to the progress made, we are confident that the remainder of the year will be suitably active for the Company, as we endeavour to unlock meaningful value for our shareholders.
Looking at our interest in Romania; Prospex's wholly-owned subsidiary PXOG Massey Limited has a 50% non-operated interest in the EIV-1 Suceava Concession in onshore Romania, which is located in a proven hydrocarbon basin. Having acquired this interest just over a year ago in August 2017 a fast-tracked drilling programme was implemented which culminated in a commercial gas discovery at the Bainet-1 well in November 2017.
Since this time the focus has been on commercialising the discovery. I am pleased to report success on both fronts; a 2.2km long flowline has now been laid, allowing the indirect connection of Bainet-1 to the existing Bilca production facility, here there is the onwards connection to Romania's national gas grid, owned by Transgaz, but by utilising established facilities significant cost and time savings have been made. Furthermore, we have received the relevant Government approvals, providing us with the regulatory green-light to commence production. We now look forward to the final works being completed so that production can commence. Crucially, this milestone event is expected in the very near term and we look forward to keeping shareholders updated on this exciting development.
Bainet-1 provides proof of concept for our development model; namely advance high-impact assets into production within a short time-frame. Once we have this well in production the intention in Romania is to build a larger production profile. In support of this, a number of prospective targets have already been identified with a similar potential and similarly very low cost to drill. Bainet-1 was drilled and tied into production inline within its original estimated cost of €800,000.
Alongside rapid developments in Romania, 2018 has seen significant news flow from the Podere Gallina Permit in Italy, which contains the Selva Gas field that historically produced 83Bcf of gas between 1960 and 1984 and in which Prospex holds a 17% interest. Attention at the project is currently centred on the Podere Maiar-1d appraisal/redevelopment well, which was confirmed to have made a significant gas discovery following flow testing in January 2018. Peak flow rates of 148,136 scm/day (5.2mmscf/d) and 129,658 scm/day (4.6 mmscf/d) on a 3/8 inch choke were achieved respectively from two gas-bearing reservoirs, C1 and C2, greatly exceeding expectations.
A production concession application has since been submitted to the Italian Ministry in May 2018 to develop a high return gas field covering 80.8km2 at Selva, with first phase production targeted to commence in Q1/Q2 2020 at a rate of up to 150,000 cubic metres (5.3 mmscf/day) a day from the C1 and C2 reservoirs. This production plan is based on installing a fully automated gas plant at a cost of EUR2.4m, with a 1km long pipeline due to be fitted to connect Podere Maiar to the nearby Italian National Grid connection, which is located just 600 metres away. We had initially expected the application to be considered for preliminary award at the Italian Ministry Hydrocarbon Commission meeting due in July 2018, however the commission did not meet at this point and are instead expected to meet later this month. Accordingly, we look forward to sharing further updates in due course.
In parallel with this work, the project operator Po Valley Energy Limited (‘PVE') is preparing documentation for the requisite Environmental Impact Assessment so as to be able to commence the next stage of environmental approval following preliminary award of the production application. Furthermore, it is worthwhile noting that the production concession application covers the full Selva area, not just the area in the vicinity of the Podere Maiar well, and includes other highly prospective prospects, such as Selva East, each of which has the potential to significantly increase the size of the overall Selva Gas-Field.
The third major element is the 38,000ha Tesorillo Project in the Cadiz Province, southern Spain. This is the newest addition to our portfolio, having acquired an initial 2.5% interest in December 2017, with the option to increase this to 49.9% based on the results of current work programmes. Whilst this project is at the earliest stage of exploration, we believe the potential is substantial.
Tesorillo is located in a proven hydrocarbon region and includes two petroleum exploration permits, Tesorillo and Ruedalabola, but is considered by the Regulator as one single licence. Tesorillo hosts the Almarchal-1 discovery well, which was drilled in 1956 and has multi-Tcf potential over a thick section of possible gas pay, including some zones which flowed gas to surface on testing. Drill stem tests and log analysis also confirmed 48m of gas pay from two Miocene Aljibe Formation sandstone intervals, whilst a further 492m of potential gas pay has been interpreted from logs but unconfirmed by testing. Ruedalabola contains the 1957 Puerto de Ojen-1 well, which is located 15km to the east of Almarchal and has displayed similar gas reservoir zones to Almarchal but could not be tested for mechanical reasons.
A report undertaken by Netherland Sewell and Associates in 2015 estimated that the total project could hold gross unrisked Prospective Resources of 830 billion cubic feet of gas (Best Estimate), with upside in excess of 2 Tcf. The focus is now on proving up the resource potential of the project
As part of the Tesorillo project rejuvenation process, we have actively engaged with central, regional and local government and stakeholders at large. The project was relaunched to the Almarchal local community in July at a well-attended local meeting, which included the local municipality mayor who led the meeting and expressed his support for the project. As part of this engagement we have also built a dedicated website for the project in Spanish, which can be viewed here: http://tarbaenergia.com/.
Alongside this engagement we have launched a multi-stranded summer field programme that is ongoing. The first strand is the field study elements that are required to populate the Environmental and Social Impact Assessment (‘ESIA') report that has been commissioned from a well recognised environment consultancy group from Seville. The ESIA is a critical report required for future drilling permitting. The second strand is a detailed surface structural geological mapping exercise by a leading structural geologist from Granada University. The third strand is for a passive Audio-Magnetotellurics ('AMT') survey. This will help evaluate the subsurface geology of the permit area and test for resistivity as a further indication of the presence of hydrocarbons to build upon historic results. In July 2018, contracts were awarded to two leading European AMT contractors, GeoProSys and GeoGnosia and preparatory work is nearing completion, with final permissions for land access now being sought.
These permissions have taken slightly longer than anticipated to receive as much of the land surrounding the project is farmland and unseasonable weather this year has resulted in an exceptionally late harvesting season. We are however confident that all necessary permissions will be received whilst we await the start of this survey. The survey equipment has been demonstrated to the local community and well received.
The second and third strands will increase our geological and geophysical understanding of the permit and the final results will likely be fed into an updated Competent Person's Report in due course. We are looking to permit two wells, the first of which is likely to twin the Almarchal-1 discovery. In support of this, and as part of our permitting applications, technical discussions with potential drilling and completion contractors are on-going.
We look forward to providing further updates on these ongoing work programmes in due course as we look to realise value from Tesorillo. Furthermore, it is worth reminding shareholders, Tesorillo has excellent access to infrastructure which will aid future development as the project is located 3.9 km from the European landing point of the North African Maghreb gas pipe line, providing access to high priced European gas markets.
During the period in 2018, the Company raised £1.2million via an oversubscribed placing of 200,000,000 ordinary shares at a price of 0.6 pence per New Ordinary Share. These funds have been put to use across the Company's portfolio. This included the successful flow testing of the Podere Maiar well in Italy in Q1 2018; the tie in at the Bainet gas discovery in Romania in Q2 2018; and work to further delineate the gas discovery at Tesorillo in Spain.
Our investment model is centred on acquiring undervalued, late stage projects located in proven European hydrocarbon jurisdictions where considerable legacy data and established infrastructure is available to create value at low cost within short time-frames. With interests in significant prospective gas resources and three key assets all progressing at pace, one of which is set to commence production imminently, our model is firmly proven.
While our current objectives are undoubtedly centred on commencing production in Romania, finalising permitting applications in Italy and commencing critical survey work in Spain, all of which we expect to be in a position to provide updates on in the coming months, we continue to evaluate additional growth opportunities in line with our investment criteria. Accordingly, I expect the next few months and beyond will not be short of news flow.
To be at this exciting and historic point in our development thanks must finally go to the management team, our advisers and of course our shareholders for their continued hard work and support.