Petroceltic - Algeria Campaign 2009/2010/2011

...........and then i see this on ADVFN from an unreferenced article.

Petroceltic has a 75 percent share of the licence, valued by industry experts Wood McKenzie at US$733 million, with the remainder spoken for by the state-owned oil and gas company Sonatrach.

The Dublin headquartered oil and gas explorer decided to look for a new partner after Spanish energy giant Iberdrola pulled the plug on an agreement earlier this year.

The farm down could reduce that holding by as much as 49 percent . The reality, however, is that any partner is unlikely to come in for more than around “20-30 percent” initially, Dunne said.

Drilling on the Ain Tsila permit began earlier this month as part of a four-well campaign expected to last until June next year.

“Under the current programme the plan is to interpret the data and put together a field development plan with a view to filing it with the state oil company in the fourth quarter of next year,” Dunne said.

“We then hope to have it approved by April 2012 – this being the end of the delineation phase.

“It will be a significant asset in terms of resources and reserves numbers by the time we get to the end of the appraisal stage.”

The giant Algerian gas field could cost as much as US$2 billion to develop if it meets its full potential. If not then the figure could still be in the order of US$1-1.5 billion.

This explains why Petroceltic needs a partner who will share the financial burden.

“It is a big gas play in Algeria which is highly capital intensive,” Dunne said

“The field will run for 25 to 30 years and will be generating the equivalent of 80,000 barrels of oil a day for a very long time.

So this view and the view above in my previous post seem dramatically different..... How do you reconcile these?

Leekgo

I would like to get to knoow the basis of the WoodMac number above. Its probably a better number to use than Goodbody numbers but am not sure what resource recovery factor WoodMac are using.
It looks like, for 5 tcf GIIP and 50% recovery or 2.5 tcf including liquids that they are valueing recoverable resources at $1.75/boe (derived from $733m / (2,500,000 scf) / 6000 scf/boe).
I suppose aslo the WoodMac number should be considered to be a "risked" number that probably only covers the P90 (proven) portion of the resources present (which would value teh reserves at a significantly higher value than $1.9/boe above) and can also be considerd to be a value for developed reserves..

In any case using the WoodMac number is equivalent to approx 17p/share (assuming WoodMac's $733m is a net PCI share) and am not sure whether to classify this as risked or unrisked as discussed above.

However with upcoming appraisal drills over coming few months then PCI should be
(i) able to firm up the P1-/P50/P90 resource split with hopefully a larger P90 GIPP then they now have.
(ii) secure a gas sales agreement and pricing structure for both gas, condensate/oil and NGLs
(iii) and get enough meat to stick to the bones of a field development to enable them to submit a successful FDP for both internal and GoA approval.
(iv) whilst (i), (ii) and (ii) are all ongoing, but now armed with a FDP, start soliciting for a farm down deal and then once finalised in principal then come back to market to raise funds to finance their share of the $2 billion or so development costs.

Interesting times ahead for PCI. Algeria alone is surely worth >50p/share (>$1.5 billion net to PCI) and much of this value will be outed in 2011.

JPGH

Hi JPGH

Happy New Year and many thanks for the reply. Given the content of my posts said little of any use but they collected some recs i can only assume i am not the only one asking these questions and others will be grateful for your response too.

Maybe i am making a mistake but I make the WoodMac number larger than yours - equivalent to 23p/share. I see the old Mirabaud note from March gives Isarene midcase (5.8TCF and 64mmbo) an unrisked value of 35p/share. Goodbody unrisked is 15p/share. Of course, in the `high case` scenarios there is substantial room for higher valuations and these figures will be out of date given the change in license participants (and i suppose will need updating if/when a new farm in partner is found.)

But all of these valuations are substantially lower than that you suggest in your closing line `Algeria alone is surely worth >50p/share.` Can i ask, why do you think Algeria will be worth so much more than the figures above?

I see the last company presentation talked of finding a farm in partner before the end of the year. Do you think the main reason for the low price of the shares is people harbouring some skepticism towards the Algerian development given it has been more difficult than hoped to find a farm in?

More Algerian news:

http://www.investegate.co.uk/Article.aspx?id=201101120700063022Z

Better than expected AT-4 well encounters 155 metre gross gas column

Pressure and gas column continuity confirmed on the eastern flank of the field
l
Well suspended for flow testing later this month

AT-5 spudded on January 9th

....So this looks positive, but no word on the farm-out hopes which were anticipated to be resolved by the end of last year if i recall.

I am torn between thinking this is an unloved out of favour share with soon to be announced price sensitive news re a long awaited farmout deal, or the view that it is proving more difficult to farm out Algeria than hoped as it isnt attractive for some reason to the O&G industry - and a lack of a partner will forestall realization of the conpany`s only real asset of value.

Yes, good news.

No flow test figures of course as they are drilling and moving to drill again then following up with rigless testing, besides, the well has to be frac'd yet.

The main point of AT-4 was that it was a step out to test the eastern flank of the field. That this has foudn a big column (with no GWC) is very helpful in that it will reduce the risks and help to narrow the P90-p10 GIP figs (currently 2.7Tcf - 10.9TCF).

AT-4 is a vertical well and as such is not ideal in terms of full development, which is likely to be based around frac'd horizontal wells. A commercial flow rate of 5M cfd woudl do for me at this point in time.

Moving on with AT-5, this will be the first horizontal well in the field. It is targetting a "pop up" andwill start as a semi horizontal before being sidetracked as a deviated well with a 450m section through the reservoir. This is more akin to what Id envisage as full development wells. The feeling is that the Wide Azimuth data has revealed this as an area with natural fractures, which would enhance productivity.

As a side note, BP's nearby Tiguentourine field demonstrated the potential for productivity gains when wells are located in and optimally frac'd in similar age reservoirs. That field went into production 3 or 4 years ago with 10 horizontal wells producing, IIR, something like 850 M scf/d and 60k bpd of liquids. Now, Im not saying that PCI would see similar results but it woudl be nice and lets not forget that they have had 30k scf/d form a vertical in last year's campaign.

yes, its frustrating (share price perf) that we havent seen a farm in deal yet but I think that thewre is just too much to be firmed up at this point in time and that should be addressed by the current campaign which will provide better resolution of reserves and deliverability. Given PCI have the funds and no pressure on finances at this stage then waiting till they have the better data suite and can extract a better (fuller) price is sensible Id say. but then again WDIKA?

I've building a position in PCI since it's lows of around 8p per share.

Sometimes when the shapre price doesn't move much it means the market "knows" something. Not sure here, but I feel PCI is undervalued and have bought more on the back of this morning's RNS.

B

This mornings comment from Davy:-

https://www.davy.ie/resprivate/content/articles/pcicr20110112.pdf

"We are moving our Algerian valuation from 13.5p to 20.6p to reflect our better confidence in recovery of the gas in place from the Ain Tsila project. This results in a group valuation of 30.7p per share (previously 23.6p)."

Brave words!

fuiseog (not a holder)

In reply to fuiseog, post #64

FWIW, Mirabaud maintained their BUY witha 24p target pending the outcome of the test results.

Huge amount of trading today and a real rollercoaster of a day. Seems to be moving in the right direction though.

Does Darron or anyone else have any updated broker comment following this morning's RNS?

Market not too keen it seems.

The company wasn't too keen on it either:

It is likely that the induced fractures in the well have extended below the current field gas-water contact into an underlying aquifer resulting in the volumes of produced water seen.  This volume of water reduced the gas flow to rates significantly lower than anticipated from this well.

db

In reply to tiswas, post #66

As db has said, the company wasnt too pleased and you can understand why. It seems as if the frac programme was to blame rather than any problem with the geology.

this is the first time that they have targetted the secondary zone rather than the primary, upper zone. Had they stuck to their plan then it is highly likely that the problems would not have occurred. One broker has commented that the data suggests that, given the reservoir properties of the upper zone, a flow of 4-6 mmcfd would have been possible on a standalone basis.

This well wasnt primarily to prove up flow rates, it was a delineation well and to that extent it was a success with greater GIP being proved up.

The main test will come from AT-5, the first horizontal well with fracs. On that front good to see that the pilot has been completed and logging is imminent before drillig on with the horizontal section.

Im a little suprised that the price hasnt been hit more given the ME tensions (ditto Circle) but undoubtedly today's news was bound to provoke a further bout of weakness. At these levels Im a buyer as it looks like one of the few real "value" plays out there given the size of the resources and the successes with previous wells, the proof of a bigger resource with the AT 4 delineation well and a key test coming up.

From Alphaville just now:

PCI announces the results of a flow-test from its first appraisal well on the Ain Tsila gas discovery in Algeria (PCI interest = 75%). Whilst lower than expected at 1.35mmcfd (about 200 boe/day) the AT-4 well nevertheless confirmed an easterly extension of the field, as originally announced in early January. Having encountered a gas column of 155 metres, the well was tested from two Ordovician zones.

NH

. Both zones were perforated and fracture stimulated, although it is believed that the fractures extended below the gas-water contact resulting in inflows of water. This is believed to have negatively restricted the achieved gas rates. Hence whilst a little disappointing on the actual rates achieved, at least the easterly extension to the structure has been confirmed. The group still believe that the field could contain 6-14 tcf of gas in place, or 1-2bn boe, i.e. a massive find

So we finally have the results of the AT5 pilot drill (some minor delays due to surface equipment failures) and, IMO, very positive they are too:

Extract:

Well AT-5 is being drilled to test a major "pop-up" feature in the north of the field and is located approximately 4 km east of the AT-1 well. The "pop-up" feature is one of many such structures typical of the northern part of the field and it is anticipated that these features are associated with high natural fracture density and thus potentially enhanced un-stimulated gas productivity. Mud losses while drilling, together with core, conventional  logs and image logs from AT-5 all indicate the interval is potentially highly fractured with some of these being open natural fractures.

 Logs at AT-5 showed the objective Ordovician reservoir to be fully gas bearing, and a gross gas column of 75.5 metres was logged, with no gas water contact seen in the well. The overall hydrocarbon pore volumes encountered at this location were significantly in excess of the pre-drilling prognosis. The well was cored with 29 metres of core being recovered from the objective reservoir section.

 After completion of coring, drilling, logging and borehole image logging of the near vertical AT-5 pilot well, the well has now been side-tracked as originally planned (AT-5Z) and a horizontal section of up to 500 metres is currently being drilled to explore for high natural fracture density associated with a series of tectonic faults. The faults have been interpreted from 3D seismic data and the horizontal well is oriented to intersect fractures which are expected to be open.

 

So, a very good gas column, good reservoir and highly naturally fractured. Exactly what they were looking for. It all supports the company's theories on the "pop ups". Now its just a matter of waiting till the test results in May....

Remember, this is the first of the horizontal wells. This is what will be used in any future development of the multi tcf Ain Tsila field - as was the case for BP next door.

Now its just a matter of waiting till the test results in May....

And in the meantime the sp goes back down to 10p.

I sold a few on the last spike but should have sold the lot! Another example of "hot money" exiting a stock and looking for the next bit of news elsewhere, albeit political considerations have obviously played a part here.

Roll on May, the test results and hopefully news of a farm in.

And here are the Final results

http://www.investegate.co.uk/Article.aspx?id=201104040700121963E

I note

1. talk of a farm-in partner awaiting governmental approval - not details at all rather disappointingly. Not sure if the market will see this as positive (at last!!!) or will be suspicious of the absence of any real info....

 In order to manage its investment obligation to the Algerian asset, during 2010 the Company initiated discussions with third parties with the aim of bringing in a strong industry partner who can contribute to the long term development of the asset. Petroceltic has submitted a proposed farm-out transaction to the competent authorities and is awaiting their formal response, which is expected in the near future. The commercial effect of the transaction, if approved, will be to provide Petroceltic with a refund of certain historic costs incurred, as well as a substantial carry on the current appraisal drilling programme. Additional consideration may also become payable based on the results of the programme. 

2. No movement expected on off-shore italian drilling. But talk of a `company changing` explo well on shore

In Italy, plans are progressing to drill an onshore well on the large Rovasenda oil prospect located on the Carisio permit early in 2012. As part of the preparations for drilling of the well, the operatorship of the license has recently been transferred from Petroceltic to ENI, in exchange for access to a substantial database of proprietary ENI seismic data in the area of the Carisio licence. The drilling of the Rovasenda prospect is a potential company-changing event, and the management team is focused on delivering this well in 2012.

Elsewhere in Italy, Petroceltic focussed its efforts on the offshore Elsa field in licence B.R268.RG where a well was due to be drilled in the fourth quarter of 2010. However, an unexpected change in Italian environmental legislation announced in June, in the aftermath of the Macondo oil spill in the Gulf of Mexico, resulted in an effective ban on all drilling within 5 nautical miles of the coastline and 12 miles of protected marine areas. This change has prevented the well from being drilled, and the licence has subsequently been suspended, pending clarification of the new legislation, thus preserving the value of the licence. Although the industry is actively lobbying the Italian Government to reverse the change in legislation it is unlikely the well will be drilled in the next 12 months.  However, it is likely that recent events in North Africa will serve to highlight the importance of development of European indigenous resources for security of supply reasons, and we remain optimistic that Italian legislation will permit the development of shallow water offshore oil and gas fields again in the near future.

3. They are getting through the cash from the placing pretty quick!

Petroceltic delivered a solid financial performance in 2010, raising US$120.5m in April to fund the 2010 work programmes in Algeria and Italy, and to provide financial flexibility going forward into 2011. In Italy, prior to the postponement of operations, the Company raised over 70% of the funds needed to drill the Elsa-2 well through a 15% farm-out to Orca Exploration Group Inc. and a US$14m Investment Agreement with Gemini Oil & Gas. The Group ended the year with US$82.2m in cash (2009: US$33.7m) and cash held as at 31 March 2011 is US$66.3 million.

Leek

In reply to Leekgo, post #72

Thanks for putting up the results Leek.

I continue to be amazed by the lack of interest in PCI, especially after the excellent result from AT5. I guess everyone is still waiting on the test results but from the data released at the time, it seems to have hit all the right notes.

The only other reasons I can think of for the lack of interest, especially at this price, is the MENA angle and the lack of news on the farm out, whcih was originally due end of 2010 IIRC. Still, at least this is now progressing nicely (from the RNS):

 In order to manage its investment obligation to the Algerian asset, during 2010 the Company initiated discussions with third parties with the aim of bringing in a strong industry partner who can contribute to the long term development of the asset. Petroceltic has submitted a proposed farm-out transaction to the competent authorities and is awaiting their formal response, which is expected in the near future. The commercial effect of the transaction, if approved, will be to provide Petroceltic with a refund of certain historic costs incurred, as well as a substantial carry on the current appraisal drilling programme. Additional consideration may also become payable based on the results of the programme.  

So, shouldnt be too long to wait for news on that front. Patience, as always, is required......

In reply to djpreston, post #73

So, shouldnt be too long to wait for news on that front. Patience, as always, is required......

And so it has proved to be. Finally, news on the farm out and its a cracker IMO.

PCI gets to keep operatorship and a 56.625% stake.

ENEL get an 18.375% stake in return for:

• $36.75M cash for back costs (24%.5% of costs from start of the PSC to April 2010)
• Funding 49% of the first six (up from 4 with an optional 7th) appraisal wells subject ot a $145M cap (gross)
• Contingent payment up to $75M based on recoverables in the final Discovery Report (submitted in Early 2012)

ENEL is a great partner:

• Largest power producer in Italy
• Sonatrach's main end user of Algerian Gas
• A partner in the Medgax pipeline (in operation)
• A partner in the Galsi pipeline (under development)

I have been intending to top up my modest holding in PCI for some time but have been distracted by other things. And I managed to overlook the RNS this morning at 7am - leastways until the price spiked.

Have more or less doubled up this morning. Not my best trade/timing but will still look good in the longer term.

Presentation out on the farm out.

Confirms appraisal plans and a 2nd rig to be contracted.

http://www.petroceltic.com/~/media/Files/P/Petroceltic/presentation/2011/algerian-farmout-pres-280411.pdf

Petroceltic committing to additional rig and
equipment to maintain appraisal schedule
• Increasing appraisal programme to 6/7 wells,
Enel paying 49%
• Contracting second rig May 2011, earliest
arrival June 2011
• Long lead items, site preparation in progress

News out on the Drilling of AT-5 well on the Ain Tsila field.

Remember that this is the first horizontal well, which is the model that will be used for eventual development of the field. As such, given it was targeting highs, it was crucial.

Thankfully all appears to have gone well and now its back to waiting for completion then testing (results due next month).

Perhaps we can finally see this ludicrous valuation anomaly sort itself out.

Excerpt:

Petroceltic International plc ("Petroceltic" or "the Company"), the upstream oil and gas exploration and production company focused on the Middle East, North Africa and the Mediterranean, is pleased to announce that well AT-5z has completed drilling at a total depth of 2421 metres along hole, and has a horizontal section in the main Ordovician reservoir of 376.5 metres. Good gas shows have been encountered throughout the reservoir section.

 The horizontal section will now be evaluated by drillpipe conveyed logging tools. A multi-stage completion will be run on completion of the logging. The company expects to suspend the well for testing by 24^th May 2011, with test results expected in June