In an update towards the end of last month, Prospex Oil & Gas (LSE:PXOG) revealed a substantial upgrade to the resource estimate for its 17pc owned Podere Gallina exploration permit in Italy. Since the release of the news, shares in the business have risen from 0.15p to 0.16, peaking at 0.18p. Here, we take a look at the figures with Prospex’s chief executive Ed Dawson.
In the update, Prospex said Podere Gallina’s operator and majority owner Po Valley Energy had reported that the licence’s 2C contingent resources now sit at 14.1bcf, up from zero at last count. Meanwhile, best estimate prospective resources have risen to 91.5bcf from 52.7bcf and 2P reserves of 13.3bcf remain in place. Net to Prospex, the Podere Gallina licence now contains 2.26bcf of 2P reserves, 2.4bcf of 2C resources, and 15.56bcf of prospective resources.
The enhanced figures principally come down to developments at the licence’s Selva gas field. Selva was a significant historical producer with an output of 84 bcf from 24 wells between 1956 and 1984.
Since Selva’s last resource estimate, those involved have evaluated the field’s historical gas producing north flank and south flank reservoirs. These have been a chance of success of between 60pc and 70pc respectively, and well as respective 2C resources of 8.9bcf and 5.2bcf. Prospex believes the addition of the north and south flanks demonstrates the significant scope for a low-risk expansion of production of Selva.
The broad rise also came down to a significant increase in the estimated size of the Riccardina prospect and an increase in the chance of success of the East Selva prospect. East Selva is a particularly exciting prospect for Prospex, contain high-case prospective resources of 40.6bcf gross, and 6.9bcf net.
Elsewhere, Prospex confirmed that production at Selva remains on course to begin in 2020 at a gross rate of up to 150,000 cubic metres a day. This follows the preliminary awards of a production concession by the Italian Government in January this year. Po Valley Energy has now submitted the environmental approval documentation to Italy’s Ministry.
With this in mind, the partners are now prioritising the development of the Podere Maiar 1 production well. This was drilled and tested successfully in late 2017/early 2018, encountering two gas-bearing reservoirs called C1 and C2 in the Medium-Upper Pliocene sands of the Porto Garibaldi formation. Prospex’s chief executive Ed Dawson said the well helped to de-risk Riccardina and also shows what the business can do at the north and the south flanks:
‘These flanks have previously produced, and we will drill into the old fields again. However, rather than the A and B sands, we are drilling into the attic of the known gas field, as we did with the Podere Maiar-1 well, targeting C sands. We would consider that very low risk, and I suppose that is why the reserve auditors and CPR writers have done the same, assigning a risk of 60-70pc for the flanks accordingly,’ he said.
‘The flanks give us net 2C resources of 2.4bcf. We have reserves of 2.2bcf already ascribed from the C sands in the Podere Maiar 1 well. So, in terms of value, the CPR before this attributed value on the C sands alone of €4.7m net to us. We have added a 2.4bcf contingent resource, so I would argue that it is therefore worth a similar amount over time. Now we need to get drilling to progress the opportunity.’
In its update, Prospex also said it believes the new figures in Italy highlight the scale of its asset backing, something that becomes particularly pertinent within the context of its current £2.74m market cap. To demonstrate this point, the firm reminded investors of the activity taking place across the remainder of its portfolio.
Indeed, a work programme is currently taking place to de-risk gross prospective resources of up to 2tcf of gas at its Tesorillo gas project in Southern Spain. Meanwhile, preparations are underway to drill a second well at its Suceava concession in North East Romania over the Summer. This will target a lookalike structure to the Bainet discovery, which was drilled successfully in 2017 and is now in production. Dawson added that everything is progressing well in Romania, with drilling currently on track:
‘I think the market is looking forward to the well over the Summer in Romania. To get a well approved you work up several things in parallel and the operator is doing that. Many positive noises are coming out of the country, so I don’t see why we won’t be drilling in time.