LON:PCI^F16 | Petroceltic - Algeria Campaign 2009/2010/2011

2nd Jun '09 by djpreston

137 comments 45204 reads

Oddly, no real following for PCI. Seems somewhat strange to me given the very active drilling campaign on going:

http://www.petroceltic.ie/content/uploads/090517_algerian_operations_update.pdf

Anyway, a brief run down on PCI:

Company website:

http://www.petroceltic.ie/pci/

I do like that PCI has research notes on its website, together with the presentations:

Davy Note:

http://www.petroceltic.ie/pci/investor_relations/analyst_notes/davy_may_2009.pdf

Mirabaud Note:

http://www.petroceltic.ie/pci/investor_relations/analyst_notes/mirabaud_12may.pdf

Presentations (AGM, Oilbarrel etc):

http://www.petroceltic.ie/pci/investor_relations/presentations/

Everything you really need to know is in the various reports and presentations above.

Rationale:

The main attractions for me are the fact that they are nicely financed with cash of c$90m. $50m of which came form Iberdrola, the giant Spanish utility last June (well timed) at 13p per share Iberdrola had a 22% holding in the company. That has ow fallen to 18% due to the last funding in April that raised $40m at 7p.

The Ibedrola alliance is very important for more than just monetary reasons. As part of the deal, it has the right to invest $55m in one of PCI's assets to acquire a 49% stake in that asset. $7.33m has already been paid and therefore is deductible from the $55m.

Iberdrola is obviously mainly attracted by the Algerian assets. It is part of the MEdgaz group that completed a pipeline form Algeria to Spain which is due to come on stream at the end of the year. Obviously PIC could provide a good source of gas for that pipeline.

Assets:

Just focussing on Algeria for now:

Most of the activity in Algeria can effectively be deemed "appraisal" rather than pure explo.

The Isarene licence is in the prolific Illizi Basin. The activity to date on the licence is 18 wells, 16 of which flowed oil, gas or had hydrocarbon shows.

The main problem is permeability, especially in the deeper Ordovican reservoir which is wide spread but lower quality than the Devonian being tight. BP used Wide Azimuth seismic over tis neighbouring In Amenas licence and as a result was able to target the natural fractures and following fracing, development wells there are reported to flow at 80M cfd.

Essentially, as Ive said above, the main targets can be considered appraisals.There are four areas of interest in the Isarene licence. The second explo period ends in April 2010. The current campaign addresses these main areas:

Issaouane Sud and Issaouane NW (ISAS-INW)
Ain Tsila
Hassi TabTab…

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fuiseog

14th Dec '11

New Director appointment.

http://www.investegate.co.uk/Article.aspx?id=201112140700309200T

"........he was involved in numerous privatisations, IPOs, other fund raisings, debt raising and debt restructuring, public takeover bids as well as private M&A transactions across a large number of sectors."

Between potential further farm out or sale in Algeria, and who knows what in Kurdistan, and the uncertainties over fundraising in the markets in general, it would seem to be a timely appointment.

In their note of 28 October, Davy said "A second farm-out process has commenced and is expected to be completed for approval in the period December 2011 to February 2012."

Anybody got an idea about when ratification of the ENEL deal may be due? Must be 'imminent' -:)

djpreston

I seem to recall that "our" agreement is next in line when the council of ministers next sit, which is expected "imminently".

15th Dec '11

WOW !!

AT-9 test results update

Following debottlenecking of the surface flow lines at well AT-9, the well has now tested at a maximum flow rate of 67.6 mmscf/d. This test was without fracture stimulation and is still constrained by surface facilities.

loglorry

WOW indeed. Davey have just slapped a 28p target price on them.

I think like most O&G companies here they are being held back by the large cash requirement to develop the assets. Debt funding is hard to come by because of "le crunch" and larger companies are obviously very wary of committing large blocks of funding. The other problem of course is the political risk in the area.

I think for the reasons above 28p is a bit optimistic but we should be a lot higher than we are now.

Log

The thign to remmeber as well is that thiswas only a test of the one interval, the other, lower interval, was left and should deliver better flows in due course.

Ive seen comment this mornign that points out the relatively high well head pressure, lack of skin and reservoir damage and that a production setting coudl achieve over 80MM scf/d (plus the condensate as well).

Of course BP "next door" produce their field via fracked horizontals and IIRC its an average of 50MM scf/d per well.

Agreed that until financing is sorted out we arent likely to see 28p any time soon but sub 8p??

Ratification of the ENEL deal and news of a second (and more lucrative?) farm out will be the catalysts now and both of those are relatively near term.

Yes agreed DJ ! I just don't really trust Davey as a broker I suppose. Could it be because they are Irish! The really exciting part of PCI for me is when they take the $100m from ENEL and find a 2 billion barrel reserve in Kurdistan and at the same time the Kurdy O&G law is passed in their favour.

Well I can dream anyway ;-)

Log

Ah Log, dreams....remind me, what are they again? I seem to have only nightmares these days.

Ive seen comments that reflect Algerian press reports that the Council of Ministers is due to meet on Sunday.

Fingers crossed.

Just thinking but the news from AT9 and the high flow rates (possible 80MM scf/d plus lower zone) and the hgih flow rates on other wells could have a significant impaxct on the development plans.

IIRC the plan was for 28 wells to hit a plateau rate of 400M scf/d. Now that plateau could be higher or longer and quite possible that we will not need 28 wells so overall drilling costs would be reduced.

Im not even going to think about KRG at the moment.

What is it with this market. Just looked at some other stocks. One I know is on 2.2x cashflow for next year - net cash, 10k bopd..... 2.2x for gawd's sake.

Balls, need a fag methinks.

DJ if you haven't already seen it take a look at this email from TH http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3APCI.L&it=le&action=detail&id=9071153

Log

ohisay

For anyone who hasn't seen it this was Tom Hickeys detailed 30 minute presentation on Oilbarrel last week.

http://www.presentation-matters.co.uk/web/oilbarrel/webcasts/49th_OB/49th_oilbarrel_conference_Petroceltic.html

Apart from anything else its just an excellent presentation from a guy who knows his subject material inside out.

19th Dec '11

Enel deal ratified. Another box ticked.

Algeria - Ratification of Enel Farmout Transaction

Petroceltic International plc ("Petroceltic" or "the Company"), the upstream oil and gas exploration and production company focused on North Africa, the Middle East and the Mediterranean, is pleased to announce the approval by the Council of Ministers in Algeria of its sale of an 18.375% interest in the Isarene PSC to Enel Trade SpA (Enel).

This is the final stage of the approval process relating to the transaction between Petroceltic and Enel, announced in April, and paves the way for completion of the transaction within 5 days and the settlement of all amounts outstanding within 30 days thereafter.

Under the terms of the agreement ENEL has:

o Agreed to pay up to US$ 36.75 million to Petroceltic, which equates to 24.5% of all back costs incurred from signing of the PSC in 2005 until the end of the exploration period in April 2010;

o Committed to fund 49% of the cost of the first six appraisal wells in an enlarged Isarene appraisal campaign and of a contingent additional well, of which costs are capped, in aggregate, at US$ 145 million; and

o Agreed to pay Petroceltic a contingent cash consideration, up to a maximum of US $75 million, such amount determined by a number of factors based the results of the appraisal programme, such as the overall level of reserves and the production profile.

Amounts outstanding under this agreement or to be paid under cash call arrangements relating to the 2011 appraisal programme, currently exceed $103 million.

Upon completion, Petroceltic will operate the permit with a 56.625 % interest, Sonatrach will maintain a 25% interest, and Enel will hold an 18.375% interest.

Brian O'Cathain, Chief Executive of Petroceltic commented:

"We are delighted to announce that the final approval in Algeria of the Enel transaction has been granted which will allow for the deal's swift completion in the coming days. We look forward to formally welcoming Enel as an important new partner to the Isarene licence. This transaction, allied to the excellent results from our appraisal campaign, has confirmed the quality and value of our Algerian asset and provides a firm foundation for the ongoing growth and diversification of our business"

Leekgo

Hi Darron

Yes, I was just looking at the RNS myself (in between checking paragraphs of my thesis) wondering if this is something the markets have been waiting for.... I guess I only have another 2 minutes before I find out.

I imagine the information on the NEXT farm out will be greeted with a lot more enthusiasm. ;)

There has been a lot of good news for PCI over this year. Shame the market isn't so interested.

Leek

Hi Leek

I think the mkt was expecting ratification but there were some doubters. That is now resolved so a bounce was to be expected.

Now on to the 2nd farm out. Surely should be into double figs now?

D

thebuffoon

PCI now a solid investment. IMO, the best for a solid multibag since EO. at 14p. Wish I'd held my GKP at 8p for longer.

I won't make that mistake again...

Next farm out won't be ratified until, I assume, the late summer, but news of the agreement should see the SP progress. The market of 2007 would have seen us over 20p

Buffy

Hi Buffy

why do you think news on a further farm out won't materialize until the late summer?

I agree PCI is good value at this price, though i guess it is more likely than not that the share price will fall back over the next week or 2 as it usually has this year after good-news associated rises. I might try to buy a little more if it does, though there is plenty of choice out there. Sadly there seems to be no hurry with this this stock ;)

Leek

20th Dec '11

Leek

I think that Buffy is referring to ratification of any second farm out. News should be out a lot earlier than that in respect of the party and terms. IIRc the company is already in discussions with interested parties and I wouldnt be surprised to see a deal announced in the coming weeks. Remember that the Field report is being submitted to the Authorities end of Jan so we should get an indication of the scale of the second ENEL payment shortly as well.

Personally I woudl expect PCI to look to offload a bigger chunk of their interest but they are restricted under the terms of the PSA; however, there are ways around this.

Simply put the value of AT alone is well in excess of the current market cap even without a second farm in as a guide to current AT values. Then there is Italy and KRG (some way off of course). Does look a "no brainer" really.

Yes, I was referring to the ratification of the second farm out. Although I should have stated March/April as the likely period, rather than late summer.

My understanding is that we are in advanced talks with two parties.

News of the farmout in another time would see a substantial reaction, but this marketplace will see a much milder response.

The upside to the sluggish market, is that those who are awaiting capital will likely have a larger window to take a position at a good price when the next farmout details are revealed. I wonder if the next Council of Ministers meeting date is known....

I really do feel it's an absolute no brainer for a multibag at this price.

Buffy

21st Dec '11

Hi Darron and Buffy

thanks for the replies. I should have read your post more carefully Buffy. Apologies. Like Darron says, i was `hoping` for news on a 2nd farm out in Jan or Feb, though by no means `expecting` it as small oilies have a habit of disappointing on timing.... ;)

I agree that PCI gives plenty of opportunity to invest as it tends to sink back after good news. Is anyone not `waiting to redeploy capital?` ;) I am thinking SIA of course, but I guess many are hopeful for GKP given recent excitement, and BG always seems a possibility.... Any bets as to other oilies out there where corporate action could result in cash returns before value in PCI is recognized?

Given PCI has more or less doubled in 3 months you would think it would be more popular wouldn't you? I hope someone somewhere managed to make some money on that at least.

Leek

kincora

30th Dec '11

quite informative

3rd Feb '12

And the Enel deal has completed, with $101m payment to PCI within 30 days.

http://otp.investis.com/clients/uk/petroceltic-international/rns/regulatory-story.aspx?cid=36&newsid=235979

4th Feb '12

http://www.davy.ie/LR?id=2935

FACTS: Petroceltic has announced the completion of the sale of an 18.375% stake in the Isarene PSC to ENEL Trade SpA. Post deal, Petroceletic holds a 56.625% interest in the licence.

ANALYSIS: Following the news that the transfer of a part of the Isarene licence had been officially gazetted, the completion of the sale allows the payment of past costs, funding of 49% of the recent appraisal programme and a contingent payment (up to a maximum of $75m) to take place. The recovery of past costs and the contribution to the appraisal programme are due to be paid within 30 days.

DAVY VIEW: While the gazetting news some days ago provided a clear line of sight to payment, the completion announcement crystallizes the payment date.

The receipt of funds should completely remove any residual market concern that the structure of the balance sheet would not be able to keep pace with the cash demands of its various projects. The contingent payment due later this year provides a significant source of funds for new ventures above that in the group at present.

Reviewing the new equity position in the licence and the delays in progressing its Italian asset portfolio, we have tweaked our group valuation to 26p per share (formerly 28p), with the bulk made up of a 16.4p contribution from Algeria.

Petroceltic - Algeria Campaign 2009/2010/2011

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Djpreston

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