In a break from babbling about more solid companies with boring things such as reserves and production, I thought Id mention something a little bit different.
Now here's what Id say looks a very very interesting but HIGH risk play that could/should see an outcome in the near term with the first well spudding later this month and the drill is scheduled to take 6/8 weeks.
The shares have fallen sharply this year with the swing in sentiment to the oil sector and are currently c C$1.40 down from a peak of C$3.45 seen in early Jan. Market cap is now $145m. Liquidity in the shares is good at c300k shares per day. It’s a Canadian Venture quote.
Rodinia has to be seen as a Speculative play for its high risk, high reward and essentially a binary play.
The company is focused on the unexplored Officer Basin in South and Western Australia with interests in 9 blocks covering 19.5m net acres.
As Ive said in the title, the estimated unrisked prospective resources is 126bn bbls (101 bn net). That’s on 7 of the 9 licenses.
The first 10 drill ready prospects are targeting only 26bn bbls or 21 bn bbls net.
The first well, Mulyawara-1 is estimated at 2.7bn bbls gross prospective resources.
Okay, so some of the basic details:
Overview of operations: http://rodiniaoil.com/operations/overview.php
Company Presentation: http://rodiniaoil.com/documents/Presentations/Rodinia-PPT-2011-01.pdf
Resource Report from Ryder Scott (excerpt) http://rodiniaoil.com/operations/ryder_scott_report.php
Full Ryder Scott Report (all 161 pages of it) http://rodiniaoil.com/documents/Misc/RodiniaDec10Resource(NC).pdf
The website lists four analysts covering the stock (and they aren’t Mickey Mouse outfits) – MacQuarie, RBC and First Energy are the biggest then there is Jennings and Haywood (which isn’t listed on the Website)
You can download the October Note from MacQuarie and Jennings’ short note from the ROZ website (link above). Unfortunately they don’t have links to the RBC and First Energy notes but both of these have done more recent notes (initiations in Late Jan 2011 for FE and Dec 2010 for RBC).
ROZ intends to drill four wells this year starting later this month. It is funded for the program. There is also an option on the rig for a further four wells.
This is real frontier exploration since the Officer Basin is essentially unexplored. What work has been done to date is basic surface mapping, minimal explo and strat drilling, minimal grav and mag and seismic. That is till ROZ came along. On top of their Areomag/grav survey, they have done two 2D seismic programs and the latest and largest has just been completed (IIRC). Historic 2D data was also purchased and reprocessed.
The reason for this is that there are access problems, it is remote and the offshore successes with no problems on access and easier commercialization, has attracted most attention. I should explain a bit more about the Access problems.
Most of the land in the Officer Basin is held as freehold Aboriginal Land. As such, the Aboriginal people have rights to control access and to seek compensation for disturbance etc (a lot like the Native American lands and rights in the US). As a result, a Petroleum Exploration License will only be granted when agreement has been reached between a company and the relevant Aboriginal Group. To date, ROZ has reached agreement and therefore been granted permission to operate on PEL 81 and PEL 253.
PEL 81 and PEL 253 are 80% WI to ROZ with the remaining 20% WI held by Ensearch which has been in administration but has now emerged: No wells have been drilled into the structures identified by ROZ so, once again, this has to be seen as high risk. The company’s 2D seismic has identified five potential reservoirs in 32 structures. It also feels that the 2D has confirmed thick salt layers (ideal for trapping). Mine bores have also provided oil and gas shows historically.
Obviously the Officer Basin is in the back end of nowhere and so an obvious question is raised over commercialization. Given the RS estimates of Resources, any discovery of even a fraction of the size would be more than sufficient to support a commercialization program.
If oil is discovered then there is the possibility for oil sales to commence prior to year end via a trucking operation. Okay, costs will be high (c$20/bbl?) but would obviously provide cash flow whilst pipeline negotiations are entered into. However, given the potential size of the reserves, I would not imagine that ROZ will remain independent for very long.
Another risk is the chance of Gas rather than Oil. Ryder Scott looked at this aspect as well and said that if hydrocarbons are found it will either be 100% Gas or 100% Oil and that the two cannot be combined. Again, the size of the reserves make Gas commercial but it would be a much longer and more expensive process.
One very attractive point is that the targets are not deep. The first few wells should be c6-8 week wells costing between $7m and $9m each. Remember that they have a contract for four firm wells with four options. Before they spud the fourth well, the company must elect to drill the fifth and sixth well and then the seventh and eighth before they spud the sixth.
If we get to the point of oil then the company has very good fiscal terms. Royalty rates are 10% in South Oz and 10-12.5% in Western Oz. There is also an over riding royalty between 1.5% and 3% for the Aboriginal Group that granted access rights. Standard Oz Tax is 30%.
To finish with, I’ll reiterate that ROZ is a high risk, high reward, binary play in many respects. If they don’t find anything with the current campaign then the shares will fall and any further operations would need cash to be raised at the lower price. However, the upside looks incredible and Id wager that, in a more “normal” market, the shares would be expected to rise with spudding….
So there you go.
Some may also like to have a look at PFC – PetroFrontier Corp – essentially a sister company but with a different focus in Oz….