Ansila on the fast track to becoming a significant UK gas producer
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Special Report: Ansila Energy (ASX:ANA) has completed a high impact acquisition that places it on the fast track towards becoming a UK domestic gas producer.
With the acquisition of the remaining 78.4 per cent in UK-based Hartshead Resources in the bag and an oversubscribed placement of shares raising $8m rather than the planned $7m, the company is now well-positioned to drive the development of its UK Southern North Sea assets.
Hartshead was recently awarded five contiguous blocks in the Southern Gas Basin that contain four fields with 354 billion cubic feet (Bcf) of underdeveloped contingent gas resources (2C) and a number of drill-ready exploration prospects.
And the timing certainly could not be better given that UK gas prices are currently 300 per cent higher than they were when the Hartshead transaction was first negotiated.
Speaking to Stockhead, newly appointed chief executive officer, Chris Lewis, noted that the successful capital raising means that the work programs to take the assets forward will now be funded.
“It takes them closer to production, reduce uncertainty, reduce risks and moves the gas from contingent resources (2C) to proved and probable (2P) reserves,” he explained.
Ansila will use $7m of the $8m placement to fully fund the field development planning for the Phase I assets.
“The two fields are going through detailed subsurface work, we’re going through detailed processing facilities planning, detailed well design, frac design, detailed negotiations with third party hosts,” Lewis noted.
The Phase I Victoria and Viking Wx fields have 217 Bcf of 2C gas resources and are a proven quality, having produced over 50 Bcf of gas from two development wells, although the fields themselves have six exploration, appraisal and development wells on them.
“The one thing I believe that will take this from 2C to 2P will be identifying third party infrastructure and reaching a commercial agreement that will take our molecules to the beach. Once we’ve got that, we can say it’s justified for development.”
A big part of Ansila’s confidence stems from the fact that other than one asset, the Southern Gas Basin portfolio comes about initially from ConocoPhillips and BP pulling out from the area.
“This started about 5-6 years ago and was a multi-billion dollar decommissioning program where they decommissioned multiple pipelines, multiple platforms, and plugged and abandoned an enormous number of wells,” Lewis told Stockhead.
“That left behind several smaller pools of gas that we believe that we can aggregate together to create a commercial redevelopment opportunity.”
He added that Southern Gas Basin had been hugely profitable over the last five decades for the two supermajors however much of the infrastructure was well beyond it’s original design life and ConocoPhillips, in particular, had turned its focus towards liquefied natural gas, which required larger fields than those remaining in the area.
“If they’re going to look at investing a dollar somewhere, it makes sense to put it into a 5 Tcf gas accumulation that’s going to be developed into an LNG train rather than investing in existing old infrastructure in the UK with several hundred Bcf of remaining gas,” Ansila’s new chief financial officer, Dr Andrew Matharu, explained.
While Ansila is not looking to rock the boat in regard to how it plans to develop the Southern Gas Basin fields, there are two things that it intends to do that ConocoPhillips did not.
These are the use of high-angle, extended reach, multi-frac wells and the use of subsea technology rather than platform-based technology.
Lewis noted that similar fields in the area had produced over 10Bcf per frac from these tight reservoirs, and at Wx and Victoria themselves “over 50 Bcf has been produced from three fracs”.
“That’s really important to us because that means we understand how these reservoirs perform,” he added.
“We are estimating that we are going to get in the region of 10 Bcf per frac when we drill these horizontal wells.
“We have got hard evidence about how the fracs can produce gas in terms of rate and volume, and so are our work is already anchored in real world data, so in many ways what it means is the subsurface is incredibly low risk.”
Lewis noted that two of the three big milestones over the next 12-18 months were reaching a subsurface basis of design as well as reaching an agreement with a third-party host to pipe its gas to shore.
He said the first would drive the process and facilities concept while the agreement would create the commercial case to develop the gas.
“Once we have got those two things, we work on the processing and facilities design, and that takes us to constructing a preliminary field development plan that we submit to the Oil and Gas Authority,” he added.
Ansila will use the remaining $1m to progress work on the Phase 2 assets as part of a multi-phased development of existing gas discoveries.
“On Phase II, what we are going to do is reprocess seismic data to improve the imaging of the top of the reservoir and then get those 2C resources independently verified,” Lewis explained.
“That enables us to take the decision to move those fields into field development planning, which is what we’re currently doing on Phase I.”
While a final investment decision is possibly up to three years away, the company is already identifying sources of finance for actual development of the gas fields.
“You’ll be looking at prepayment from off-takers, you’ll be looking at how you could work with the commodity traders who are looking at investing in the assets at that stage,” Dr Matharu noted.
Other options include providers of structured finance, vendor financing from service companies and contractors, reserve-based lending and debt capital markets.
Lewis added that Hartshead had assembled a high quality team with exactly the right experience in executing exactly these sorts of projects.
He highlighted the company’s subsurface manager as an example, noting that he had been responsible for putting together the field development for the Clipper South project, which is a lookalike of what Ansila is trying to achieve.
“It’s a tight gas field where they used high angled extended reach, multi fracked wells and it has performed way above expectations,” he explained.
“So we’ve got a really high quality team to deliver on the field development plan that we want to put together, and I think the quality of the team is why the OGA awarded Hartshead such a significant acreage position in the short time since it was incorporated in April 2019.”
Dr Matharu believes that gas will remain an important contributor to the UK energy mix in the near to mid-term.
While the UK has committed itself to a net-zero emissions target by 2050 that can only be achieved by a big push towards electrification from renewables this can’t be met by renewables in the immediate term.
“We think that gas is a good transition fuel until renewables are in a position to meet that demand and that is likely to be many years away,” he added.
The UK is also short on indigenous gas with just half of its demand met by domestic sources while the remainder is about evenly split between LNG imports and gas piped from Norway.
“If we could find more domestic gas, which has a lower carbon footprint than LNG, that’s going be a good thing for the UK gas supply market and moving towards the UK’s net zero emission targets,” he concluded.
This article was developed in collaboration with Ansila Energy, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.