REG - Prospex Energy PLC - Completion of Viura Gas Field Acquisition

Prospex EnergyAnnouncement

27/08/2024 07:00

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RNS Number : 6526B  Prospex Energy PLC  27 August 2024

27 August 2024

 

Prospex Energy plc

 

("Prospex Energy" or the "Company")

 

Completion of Viura Gas Field Acquisition

 

Prospex Energy plc (AIM:PXEN), the investment company focused on European gas
and power projects, is pleased to confirm that on 19 August 2024, the Company
completed the acquisition of 7.5% of HEYCO Energy Iberia S.L. ("HEI"), which
has majority ownership in the Viura gas field in northern Spain, having
raised, in aggregate, gross proceeds of approximately £4.2 million, as
announced on 8 August 2024.

 

The acquisition marks a further important step in the development of the
Company's strategy to become a mid-tier independent European energy producing
group.

 

Highlights:

·    By committing to fund 15% of the 2024-2026 HEI development programme,
Prospex now owns 7.5% of HEI.  Following the completion of the acquisition of
SHESA's interest in the concession, HEI will own 96.4865% of the Viura
concession, its reserves, existing production and the surface facilities.
This will translate to a Prospex ownership of 7.2365% in the Viura concession.

·    This is not a standard "2:1 Promote" transaction.  Whilst Prospex is
funding 15% of costs to earn 7.5% of HEI, the Company will not only earn a 10%
coupon on its capital investment but will also be repaid its capital
investment from 15% of the HEI production income (after OPEX and taxes), until
payback at which point Prospex's share of net income reverts to 7.5%.

·    Viura estimated gross remaining reserves is 90 Bcf (2.5 Bcm) which is
6.5 Bcf (0.18 Bcm) net to Prospex.

·    The Viura 1B development well is expected to reach the reservoir
horizon in the next two to three weeks and is expected to be generating
revenues from production as early as October.

·    Prospex is contributing to the funding of the 2024 development
programme, including the Viura-1B well, at a cost of £3.51 million which is
15% of the estimated £23.4 million total costs in 2024.

·    Prospex's 15% share of the 2025/2026 development programme is
estimated at £4.84 million, which is to be funded by future cash calls or
from Phase 1 production or both.

·    Based on a conservative gas price assumption of €31/MWh, Prospex
estimates that this £4.84 million figure will be reduced by production income
to ~£2.7 million by May 2025 when the cash call is due for the 2025 drilling
campaign.

·    If the gas prices achieved in the coming year are higher, then the
requirement for further funding is reduced or even negated.

·    The current TTF gas price is approximately 30% higher than €31/MWh
at ~€39/MWh.

 

Mark Routh, the CEO of Prospex, commented:

 

"I am extremely pleased to have closed the Viura transaction with HEYCO Energy
which is a highly respected and competent operator in Spain.  This
acquisition has increased gas production and our booked gas reserves, with the
potential for further upside from the very large remaining resources we have
modelled in this very large gas field.

 

"The development well Viura 1B is approaching its reservoir target and I look
forward to updating shareholders with the results from that well as soon as we
have them.

 

"With the recent extension of the El Romeral concessions being confirmed by
the Spanish regulatory authorities, Prospex becomes a significant energy
producer in Spain.  With the five new wells on the El Romeral concessions
advancing through the permitting process, Prospex is set to become an
important supplier of energy to the Spanish nation further enhancing its
energy security."

 

Completion of this acquisition was confirmed by HEYCO Energy Group Inc.
("HEGI"), the majority owner of HEI, on 19 August 2024, when HEGI confirmed
receipt of US$4,342,500 for the purchase by PXOG Muirhill Limited, a wholly
owned subsidiary of Prospex, of 7.5% of the total shares in HEI.

 

In Spain there are only three producing onshore gas fields: El Romeral; Viura
and Marismas.  Prospex currently owns a 49.9% share in El Romeral.  HEI
currently has a 58.7964% interest in Viura.  The other participants in the
ownership of the Viura Field Development are Sociedad de Hidrocarburos de
Euskadi, S.A. ("SHESA") (owner of the 37.6901% of the Concession) and Oil and
Gas Skills, S.A. (owner of the 3.5135% of the Concession).  On 5 April 2024,
HEI entered into an asset purchase agreement with SHESA for the acquisition of
the participation of SHESA in the Viura Field Development which is subject to
the fulfilment of certain conditions precedent.  Following the acquisition of
SHESA's interest, HEI will have HEI a 96.4865% interest in Viura, therefore
Prospex will indirectly own 7.2365% of the Viura concession, its reserves and
the existing surface production facilities of the Viura gas plant, which is
connected to the Spanish national grid, through its 7.5% shareholding in HEI.

 

The Viura producing gas field onshore in northern Spain has an estimated
original gas in place of 211 Bcf (6 Bcm) and estimated reserves of 105 Bcf (3
Bcm).  To date, just 16 Bcf (0.5 Bcm) of gas has been produced from Viura
meaning that the remaining reserves are 90 Bcf (2.5 Bcm) which is 6.5 Bcf
(0.18 Bcm) net to Prospex.

 

HEI acquired its interest in the Viura gas field and became operator in
2022.  A new 3D seismic survey was acquired in 2013.  There is one well in
production in the field, which produces intermittently as water production is
managed.  There is a workover planned on an existing well to convert it into
a water injection disposal well.  HEI has permits in place to drill two
wells, Viura 1B (currently drilling) and Viura 3B, scheduled in the second
half of 2025.  Permits have been submitted to drill a third development well
on the concession Viura 3A in the second half of 2025.

 

The Viura 1B well commenced drilling operations on 22 June 2024 - at an
estimated gross cost of £20.6 million and is expected to reach the reservoir
horizon in the next few weeks.  The new investors (including Prospex) into
HEI are funding 31.56% of the development costs to earn 15.78% ownership of
HEI.  8.28% of new HEI shares were already allocated to new investors in
HEI.  Their investment in HEI is on the same terms, in that they are funding
16.56% of the development costs to earn a 8.28% ownership in HEI.  Prospex is
funding 15% of the development costs of the HEI development programme
comprising the current well in 2024 and the proposed 2025/2026 two well
drilling programme to earn 7.5% ownership of HEI and indirectly up to 7.2365%
of the Viura asset.  The two wells to be drilled in the second half of 2025
are to be funded from revenues from existing and new production from Viura or
from new funds if required.  Viura 1B is expected to be generating revenues
from production as early as October 2024.  The 2025 & 2026 development
programme is to be funded by future cash calls or from Phase 1 production or
both.

 

There is a preferred pay-back mechanism for Prospex and all participants
(including HEGI and new investors) of this new investment in HEI, the ("HEI
Investors").  The HEI Investors will enjoy a 10% interest on their capital
investments paid out from the existing and future production from Viura.
Until the HEI Investors have recovered their full capital commitments, plus
the 10% preferred interest return, HEGI will not receive production income on
their other 50% ownership of HEI over and above operating expenses and an
allowance for Spanish taxes and royalties.  The three phase, three-year Viura
development programme is estimated to cost a total of £55.4 million ($70.4
million).  HEGI is funding over 50% of that programme and the new HEI
Investors are funding 31.56% through their interest in HEI which earns them an
indirect 15.2255% ownership of the Viura asset (net 7.2365% to Prospex).

 

Prospex's 15% share of the 2025/2026 development programme is estimated at
£4.84 million.  This figure will be reduced by the preferred payback
mechanism, including the 10% interest receipts from current and future Viura
production.  Based on a conservative gas price assumption of €31/MWh
Prospex estimates that this figure will be reduced to ~£2.7 million by May
2025 when the cash call is due for the 2025 drilling campaign.  If the gas
prices in the coming year are higher than the conservatively assumed €31/MWh
then the requirement for further funding is reduced or even negated.  (N.B.
The TTF current gas price is approximately 30% higher at ~€39/MWh.)

For further information, please contact:

 

 

 Mark Routh                                        Prospex Energy PLC            Tel: +44 (0) 20 7236 1177
 Ritchie Balmer                                    Strand Hanson Limited         Tel: +44 (0) 20 7409 3494

Rory Murphy

                                                 (Nominated Adviser)
 David Asquith
 Andrew Monk (Corporate Broking)                   VSA Capital Limited           Tel: +44 (0) 20 3005 5000

Andrew Raca / Tommy Jackson (Corporate Finance)
 Ana Ribeiro / Charlotte Page                      St Brides Partners Limited    Tel: +44 (0) 20 7236 1177

 

 

Further information on the Company can be found on its website at
www.prospex.energy (http://www.prospex.energy) .

 

 

Notes

 

Glossary:

scm                    Standard cubic metres

scm/d                 Standard cubic metres per day

MMscm               Million standard cubic metres

Bcm                    Billion standard cubic metres

Bcf                      Billion standard cubic feet

MMscfd               million standard cubic feet per day

MWh                   Mega Watt hour

TTF                     The 'Title Transfer Facility' - a virtual
trading point for natural gas in the Netherlands.

 

Qualified Person Signoff

 

In accordance with the AIM notice for Mining and Oil and Gas Companies, the
Company discloses that Mark Routh, the CEO and a director of Prospex Energy
plc has reviewed the technical information contained herein.  Mark Routh has
an MSc in Petroleum Engineering and has been a member of the Society of
Petroleum Engineers since 1985.  He has over 40 years operating experience in
the upstream oil and gas industry.  Mark Routh consents to the inclusion of
the information in the form and context in which it appears.

 

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