Prospex Energy (PXEN ) has signed a conditional sale and purchase agreement to acquire a further 20% working interest in the Podere Gallina Licence in the Po Valley region of Italy.
The investment company which is focused on European gas and power projects confirmed to investors this morning that it had signed an agreement on Sunday with oil and gas firm United Oil & Gas (UOG) as well as UOG Holdings, a wholly owned subsidiary of United Oil & Gas.
Under the terms of the agreement, Prospex will acquire 100% of UOG Italia S.r.l. ("UOG Italia") which has a 20% working interest in the Podere Gallina licence located in Italy.
The licence contains the Selva Gas Field which is predicted to come onto production by 2Q22, subject to receipt of a full production licence from the Italian authorities, it noted.
A competent person's report ("CPR") which was previously undertaken at the Podere Gallina licence and which was prepared by CGG GeoConsulting back in January 2019 attributed a total of 379 MMscm (13.4 Bcf) gross 2P reserves for the Selva redevelopment project.
Upon completion of this morning’s announced transaction, Prospex Energy will own a 37% working interest in the Podere Gallina Licence, thereby increasing its share of Selva’s independently verified 2P gas reserves from 64 MMscm (2.3 Bcf) to 140 MMscm (5.0 Bcf).
Prospex highlighted to investors that the transaction is conditional upon Prospex sourcing the financing for the consideration of €2,164,701 less an amount of €108,235 which has already been paid to UOG as a deposit and which represents 5% of the total Consideration.
In addition, the transaction is also conditional upon the receipt of required approvals by the Italian Ministry of Economic Development of a change of control of UOG Italia S.r.l.
Mark Routh, CEO of Prospex, said the transaction, which will more than doubles the Company’s 2P recoverable reserves in Selva, is the product of “months of preparation.”
He said the transaction also increases the Company’s share in the multiple follow-up opportunities on the Podere Gallina licence, including two historic gas producing North Flank and South Flank reservoirs at Selva which CGG Services (UK) Limited has estimated have a 60% - 70% chance of holding gross contingent resources ('2C') of 14.1 Bcf.
In addition, this also includes the East Selva, Fondo Perino, Cembalina, and Riccardina prospects, which are estimated to hold aggregate gross prospective resources (best estimate) of 91.5 Bcf. Addressing shareholders, Routh commented, “While our immediate focus is on Selva, there is much more to go for at Podere Gallina in the medium term.”
As of 31 December 2020, UOG Italia reported €2,061,620 of total assets, revenue of nil, and a pre-tax loss of €36,394. As part of the transaction, an inter-company loan between United Oil & Gas and UOG Italia of €1,735,240 will be extinguished.
Routh explained: "In terms of CO2 emissions when combusted, gas is the cleanest hydrocarbon and as a result is increasingly viewed as a key transition fuel, as the world moves towards renewable, non-fossil fuel energy. Demand for gas, especially domestically sourced as opposed to imported, is therefore expected to increase in the years ahead.
Addressing shareholders, he added, “Recent positive moves in European gas prices suggest, in our view, that this is already happening. With gas production at Selva set to commence in Q2 2022, Prospex is well placed to play its part in the European energy transition, and with this in mind I look forward to providing further updates on our progress."
View from Vox
In June 2021, in its final results for the year ended 31 December 2020, said it had emerged from a “challenging” year with strong asset backing and a focused portfolio of investments.
Despite the disruption caused by the global pandemic, the Company said it saw ‘major progress towards building Prospex into a European focused gas and power business.’
In particular, Prospex hailed the successful acquisition of a 49.9% interest in the El Romeral Integrated gas and power project in Spain, which it said had added an interest in three producing gas wells as well as an operational power plant to Prospex's portfolio.
At full capacity, El Romeral will become a second material revenue generator for Prospex. The Group stated that it has the potential to deliver indicative project level annual revenues and profit before tax of €4.2m and €2.4m respectively (€1.8m profit after tax). It said this level of revenues and profits would put El Romeral on a par with Selva gas field in Italy.
Addressing its shareholders at the time, Prospex Energy stated that both of its gas-focused projects based in Spain and Italy are either ‘already or soon to be producing’ and that both hold ‘multiple and significant low risk follow-up exploration / development opportunities.’
The company said ‘the building blocks are in place to transform Prospex into a highly cash generative gas and power producer that is fit for purpose for the energy transition.’
Looking ahead, Prospex said, ‘With Selva expected to commence production in mid-2022 and with the application process now commenced for a multi-well drilling programme at El Romeral, potentially in 2022, the year ahead promises to see major progress made.’
Reasons to PXEN
Prospex Energy is an AIM quoted investment company focused on high impact onshore and shallow offshore European opportunities with short timelines to production.
The Company's strategy is to acquire undervalued projects with multiple, tangible value trigger points that can be realised within 12 months of acquisition and then applying low cost re-evaluation techniques to identify and de-risk prospects.
For €0.374m, PXEN will acquire a 49.9% interest in El Romeral which can generate significant revenues from the 8.1MW power station and which cost €10 million to construct.
“It was not only the excellent value however that attracted us to El Romeral but also the significant growth potential,’ Prospex’s Non-Executive Chairman, Bill Smith, said of the project, highlighting the fact that the project presents ‘multiple low risk opportunities.’
Based on historic average prices revenue per Mwh, this would equate to annual revenues of over €4.2m.
Smith said, “As well as the advancement of El Romeral, in 2021 these subscribers along with our existing shareholders can expect to see the commencement of production at the Selva gas field on the Podere Gallina permit in Italy at an initial rate of up to 150,000 scm/day.
Together with El Romeral, our annual gas production has the potential to reach 7,800,000 scm in 2021. This would translate into a material revenue stream for the Company which we will look to reinvest into further development activity across our existing asset base.”
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