Out of Africa, and into near-term development upside

Special Report: With the company treading water in Africa, Pura Vida Energy has hit the circuit-breaker with a lower-risk opportunity in a region screaming out for gas.

Most ASX investors with an eye on the oil and gas sector would know Pura Vida (ASX:PVD) as a junior with high ambitions in Africa — but with it in dispute with the Gabonese government and it waiting for a farm-out partner in Madagascar, it’s been in somewhat of a holding pattern.

PVD now has a clear legal position regarding the issues with the Gabonese asset and feels it is ready to acquire a new asset.

’’It has taken a significant amount of time and effort for PVD to establish a legal position, but we feel we are now in a position to move the company forward,” executive director Nathan Lude told Stockhead recently.

“But we weren’t just going to wait around to see how it all played out — we really wanted to get on the front foot and create opportunities for shareholders.”

So it started scouting around for new opportunities that had to be onshore and didnt require additional drilling and within 12 months its search led it to two onshore licenses in Poland — the Gora and Nowa Sol licenses.

These are not only a world away from its African roots for the company, but also represent a whole new play type — so how did it find itself in Poland?

Enter Andrew Matharu and Chris Lewis.

“It really ticked all the boxes”

With a combined half-decade of experience in the oil and gas space in Europe, Matharu and Lewis have seen the swings and roundabouts of the market play out and saw an opportunity to team up two years ago to sniff out an opportunity.

“For the last couple of years Chris and I have been working up various assets with our entrepreneurial hat on to try and bring new opportunities to market,” Matharu told Stockhead.

“We really sensed an opportunity after the oil price collapsed in 2014 to look at a few different assets, and when the price picked back up, present those options to the market.”

He said Pura Vida came knocking with two key requests: something that was relatively low-risk, but still offered exploration upside.

“Pura Vida wanted something that had a near-term feel to it…not deploying capital and waiting around for a very long time for a result,” Matharu said.

“This project in Poland met a lot of the criteria that we were looking for, and we felt we could get our arms around this quickly.”

The project

Pura Vida will be taking a 35 percent stake in the licenses in return for a $6.15 million spend — and it’s getting a lot of bang for its buck.

In exchange for the spend, Pura Vida will participate in a frack and flow test of the gas-oriented Siciny-2 well on the Gora license, and the oil-oriented Jany-C1 well on the Nowa Sol license.

At Siciny-2, it will be aiming to prove up a 2C contingent resource of 1.6 trillion cubic feet of gas with a two-stage frack job followed by a flow test in Q4 this year.

At Jany-C1, it will be aiming to prove up a 2C contingent resource of 36 million barrels of oil with a single-stage frack with a flow test in early 2020.

With a cumulative $45 million in exploration spend on the licenses in the past and near-term testing (and possible production), it represents a more immediate path to value for the company than its African assets.

“We’re piggy-backing on $45 million which has already been spent — and we’re coming in right at the end and scoring a goal in injury time,” Lewis told Stockhead.

According to company estimates, should both wells come off it opens the projects up to a net present value (with 10 percent discount) of a combined $US870 million ($A1.24 billion).

“It really is that near-term opportunity the company was looking for,” Lude said.

However, while the main game is the near-term potential of the two wells, the company will be hoping near-term success opens an even larger target.

“It is potentially very significant, and play-opening”

While southern Poland is in the middle of a Permian Basin window, the unconventional potential of the play hasn’t been looked at in any significant way.

“The existing exploration in the area has really been conventional in nature,” Lewis said.

In fact, anticipating a mini ‘shale gale’ on the continent, fabled oilfield services company Halliburton has opened a hub in Romania.

But an oil price crash meant explorers weren’t quite ready to go after the deeper unconventional opportunity.

“What we saw is that explorers were going after conventional targets with a couple of tight targets thrown in,” Lewis said.

“So you had a couple of tight discoveries, but nobody really drilled to depth to find that basin-wide unconventional play.”

Luckily for Pura Vida, the previous operator of Siciny-2 did just that.

“We were really lucky here, because it hit a structurally combined target but it wasn’t quite enough to put onto production — but they did drill a bit deeper to see what they could get,” Lewis said.

So they drilled 1500 metres deeper than they normally would, and hit a 200 metre gas reservoir with gas shows along the entire 1500m — enough to pique the curiosity of Lewis and Matharu.

“That previous work is why we think it is potentially very significant, and play-opening,” Lewis said.

“We have the data from the actual well, which gives us a lot of confidence that this could give us a positive result — we’re not just plucking analogues from the US and hoping for the best.”

The near-term production potential of the two wells combined with what lies under the surface in a success case could potentially give Pura Vida a new lease on life.

“This really is the best of both worlds in our opinion,” Lude said.

“It’s already had 3D seismic, four recent wells drilled in the area, and we have a strategy around how to unlock an unconventional resource there while also looking at conventional targets.

“But what’s more, it gives investors a chance to buy into near-term newsflow at our current low valuation, less than cash-backing — and there aren’t too many opportunities out there like that.”