Publishing Date: 17th April 2018
ONL To start, can we clarify the status of the farm in. Is it correct to say that the company earns a 75% working interest in 324 sections for a cash expenditure on the project of US$5.5 million and thereafter it will be heads-up with the 25% WI owner(s)?
MI The earn in requires a $5.5m carry, (we spend $5.5m and pay 100% of the expenditure) we are also required to complete one “obligation well” within the AMI in this case the Gunnison Valley Unit which is where we have the 3D seismic data. When we complete the first well we will have earned into the acreage and from then on it will be heads up 75/25
ONL The company raised £3 million at 4p per share around six months ago. Assuming you can find farm in partners to cover the cost of the drill(s), will another placing be needed this year?
MI As we said in our 20 Mar update, ‘We believe that if the discussions with prospective partners continue as they have commenced, we should be able to fund the well with minimal dilution to shareholders, if any.’ One option would be to structure a farm in deal to include pay back of expenditure which would top up our cash position and hopefully mean no further fund raise would be required.
ONL The shares are now trading around 2.5p, capitalising the company at under £3 million, less than the amount raised in the 4p placing. Presumably you believe they are a good buy at this level, having purchased 800,000 shares yourself last week?
MI Although I obviously cannot give investment advice, We believe they are a good buy even well above the current price. Hence our recent option grant pricing at 3.5p still represents considerable upside in my opinion.
ONL The first 20 sections over which you have acquired 3D seismic have prospective recoverable reserves of 32.5 MMBO with a 56% chance of success. Do you believe these numbers are representative of the potential over the other 300 odd sections?
MI Without 3D seismic it is difficult to give an accurate answer to that question, but you also have to consider that the Paradox Formation is made up of multiple formations (called Clastic), the resources (32.5mmbo) we attribute to the targets is only in one formation, the Cane Creek Clastic, there are other clastics which are also prospective in particular clastics 18 & 19 (Cane Creek is Clastic 21), so even in the 20 sections there is additional upside we have yet to assess. We do expect our additional acreage to be prospective and our Independent Qualified Persons report has confirmed that.
ONL RPGVU 29-1 currently is being permitted. When do you expect it to spud and what is the estimated well cost?
MI The permitting is underway, the process takes 6 months so we are expecting the APD (drill permit) to be granted Q3 2018, which would allow us to drill soon thereafter. We are in the process of completing the Drill design based on the locations utilising the 3D seismic and will have Time cost budgets shortly but I would estimate we are looking around the $7 to 8m including completion, with a 1200ft lateral. However, we will have a better understanding of the cost once the drill design has been completed.
ONL The company currently is capitalised at the equivalent of the price of around 45,000 barrels of oil. Surely that is less than half the cumulative production target for just the first well?
MI I believe there is some confusion regarding expected cumulative production, I think you are referring to the Cum Prod of the 28-11 well which has so far produced 141,000 bo, this is from a vertical well only, the horizontal wells in the basin could feasibly produce up to 500,000 BO and roughly the same again in Gas, so an EUR of 900,000 BOE. So as you can see we are even more undervalued than your reference!
ONL You have stated that 53 well locations already have been identified. How many well locations do you believe might be possible across the 324 square miles?
MI Again, without 3D seismic, I would be guessing but the additional 304 sections (sq miles) we believe to be prospective, with 50 odd in 20 sections, we have the potential for many more.
ONL You have stated that the company is in discussions with prospective partners. If farm ins can be negotiated, how many drills do you think might be possible over the next year?
MI Too early to say really, but you have to take into account the permitting timeline, once we have completed the appraisal wells we would permit multiple locations and drilling could be accelerated during development.
ONL Unlike the majority of AIM oil and gas companies, you are operating in the United States. Do you believe investors are fully aware of the advantages that brings over operating in developing countries with their associated political and security risks, and operating in Europe with its increasing regulatory risk?
MI I am not sure that the London market really understands the operating environment in the US, for example our project has all the existing infrastructure required to operate, we have gas pipeline running directly through the acreage, we have road/rail oil export lines to refineries both in Utah and New Mexico. The drilling hub in Grand Junction for oil services is only an hour and a half drive down highway i70 to our acreage. In addition to all this, the Trump administration is very pro-Industry and we are already seeing a dramatic change in the regulatory environments’ approach to getting things done, with pressure from above to deliver.
ONL Thank you. To finish, would you like to add any further comments which you believe might be of interest to investors?
MI As I said on 4 April, we believe that we now have an impressive portfolio of acreage in the Paradox Basin, and we look forward to progressing negotiations with potential partners, we have recently built up a new operations team with significant experience, particularly focused in the Basin and this, combined with the data we have acquired and processed, puts us in a really great position.
Published 17 April, 2018