Path Investments (LSE:PATH) has announced that drilling has completed on a formerly abandoned well at the German gas field it is planning to make its maiden investment into, with gas production expected to begin later this year.
Well A-EZ Z4 (2) at the 64.6km2 Alfeld-Elze II licence has been drilled to a total depth of 1,491m and is expected to begin producing gas around mid-2018. Path has entered into a conditional farm-in agreement to purchase a 50pc participating interest in the licence, and earlier this month reported that the field could contain reserves of nearly 85Bcf (billion cubic feet) of gas.
Today’s update provides more welcome news for shareholders, who have been waiting nearly a year for Path to deliver a deal. Well A-EZ Z4 (2) encountered a gross 258m interval of Permian Rotliegendes reservoir and preliminary interpretation by operator 5P energy indicates good correlation with the original gas producing A-EZ Z4 well drilled in the 1970s.
As anticipated, the results suggest that gas has been recharging in the reservoir since the field was abandoned in 1995. Following the drilling, a rig has been released, a wellhead and tree installed, and the well has been perforated and suspended awaiting the installation of surface gas treatment facilities.
The Alfeld-Elze II onshore gas field was brought back into production in 2015 by 5P Energy through the workover and re-entry of existing well H-WD Z2 and the installation of processing facilities at the well site. Since 2015, this vertical well has produced in excess of 2.6Bcf gas. A-EZ Z4 (2) is located less than 1km away from H-WD Z2 and is expected to produce at the same rate.
Path’s investment programme for Alfeld-Elze II is planned to be split into two phases. Phase One will involve workovers on the two existing wells, which contain 20Bcf, while Phase Two will require the drilling of up to three horizontal wells with an ascribed 2C Contingent Resource of 64Bcf. Path, which raised £1.4m through listing on the Standard List of the London Stock Exchange in March 2017, announced in December that it planned to enter into a joint operating with 5P Energy, the licence’s current owner.
To fund the proposed deal, which will see the two firms directly split ownership of the licence, Path suspended trading in its shares last December with a view to re-listing on AIM in Q1 2018 and undertaking a fundraising. The outlook for the licence and deposit looks promising. The area previously produced around 66Bcf of nitrogen-rich gas from nine wells between 1972 and 1995, before it was abandoned following water breakthrough. Four of these wells produced more than 10Bcf of gas.
If it completes, the transaction will mark the first step in Path’s strategy to buy stakes in assets owned by oil and gas companies which have been squeezed by a sharp decline in commodity prices over recent years. In particular, Path is targeting assets, which possess a lower risk profile than exploration or development assets.
Author: Daniel Flynn
The author of this piece does not hold shares in the company mentioned.