Cash shell Path Investments (PATH) has proposed a long-awaited £10m placing as part of plans to move onto AIM and pursue a new strategy focused on acquiring conventional onshore producing European gas assets. As it stands, the company remains suspended from trading on the main market of the LSE, but it plans to apply for both the placing shares and its existing shares to be admitted to trading on AIM once the placing is complete.
An admission document will be published by Path ‘in due course’, andit intends to join the dividend list in the first half of 2019. It said it plans to commence dividend payments when it becomes commercially viable to do so – subject to working capital requirements and the availability of distributable funds.
Today’s update provides welcome news for shareholders, who have been waiting more than a year for Path to deliver and complete on a deal. According to the firm, the money raised from the placing will give it sufficient funding to complete its farm-in agreement with 5P Energy GmbH, first announced in December last year. This will see it buy a 50pc interest in the onshore Alfeld-Elze II Licence and producing gas field near Hannover in Germany for an initial €5m – a move that is expected to be cash generative from completion.
According to Path’s competent person’s report, Alfed-Elze II contains estimated gross 2P reserves of 560 MMm3 (19.8 bcf)and total2C contingent resources of 1,802 MMm3 (63.6 bcf). Existing, current gross production from the field’s first vertical well – called H-WD Z2 – is around 84.0 Mm3/d (c. 3.0 MMscf/d), amounting to approximately €4 million of gross annual revenue. The re-drilling of a second well at Alfeld-Elze II – called A-EZ Z4(2) – was completed in February, and production is expected to commence in H2 2018.
Path said that activity up to this point of Alfed-Elze II’s field development plan – known as Phase 1 – will be fully-funded by its placing proceeds. The money will also cover the preparatory work associated with Phase 2 of the site’s development, which includes the reinterpretation of seismic data and the development of a simulation model to find well locations. The firm expects tofollow this up with the drilling of three additional horizontal or slanted wells.
Last month, Path’s CEO Christopher Theissaid the farm-out agreement is supported by Germany’s targeted phase-outof nuclear power generation by 2022 and its retirement of many coal-fired power stations. He added:‘[We believe] that natural gas, and the flexibility it provides in meeting fluctuations in demand, will remain the most favourable source of primary energy consumption after renewables during Germany’s energy transition.
As we have written before, the outlook for Alfeld-Elze II looks promising. The area previously produced around 66Bcf of nitrogen-rich gas from nine wells between 1972 and 1995, before a water breakthrough led it to be abandoned. Four of these wells produced more than 10Bcf of gas.
When it completes, the transaction will mark the first step in Path’s strategy to buy stakes in assets owned by oil and gas companies that have been squeezed by a sharp decline in commodity prices over recent years. In particular, it is targeting assets that possess a lower- risk profile than exploration or development assets.