DGO has announced that the asset purchase agreement with EdgeMarc Energy has been approved by the seller and the US Bankruptcy Court. Accordingly the deal which values the assets at a modest $50m is likely to proceed and gives DGO a portfolio of 12 natural gas wells as well as certain other rights with potential upside. As usual DGO has bought long life assets for a fraction of the cost of developing them and the deal adds value from day 1.
An operational update from West Newton this morning and although the potential of a liquids find had been flagged this looks to me like a genuinely company making discovery for both companies.
The companies confirm that analysis and initial testing have led them to believe that West Newton project represents ‘a significant oil & gas discovery rather than the gas discovery originally anticipated. This is because the overall HydroCarbon column of 65 metres comprises a gross oil column of approximately 45 metres underlying A 20m gas column in the Kirkham Abbey interval.
The most important read into this announcement is probably the fact that they are very keen to get the CPR updated which will address the volumes that the partners cannot yet quantify although the positive language speaks for itself. ‘This is now an oil project’ and the technicals that we have here are worthy of serious consideration of a highly valuable UK onshore oilfield. In addition, the data from this well so far validates the 3D seismic over the entire West Newton project and with the next well targeting the deeper Cadeby formation could ‘add significant resource upside’.
With the partners now confident of a cracking discovery at the A-2 well the running room in the rest of the licence means that for both companies there is much more upside than has been demonstrated by the market today. For example the market cap of Reabold could be multiplied if all the potential upside is proved and I have no reason to believe not, this is getting into the territory for proper M&A speculation which I for one wouldn’t rule out for one minute. Onwards and upwards….
With the market up to date with events subsequent to the second quarter announced today there is little to add to the announcement this morning. PTAL has continued to deliver well above expectations as seen in the recent re-completion of a water disposal well into an oil well with an initial production rate of 2,700 b/d.
So production is now 5,500 b/d or just over subject to some capacity limits and after having to shut in some production due to lack of storage during recent pipeline downtime following a sale through the northern pipeline has ramped back to current levels.
All this means that with the additional facilities to grow oil production volumes to 10,000b/d by the year-end still on track, and those facilities expected to start commissioning in December 2019 the outlook is highly encouraging.
Longer term the company has started the procurement process to add facilities in mid-2020 to allow for another step increase in production capacity to 12,000-14,000 b/d which is most encouraging.
PetroTal has demonstrated an excellent ability to over-deliver and looks like continuing this well into next year, the shares look extraordinarily good value on any metrics and I expect this gap to close once the market fully takes this on board. Having said that the process was started earlier this year when the company raised $24m net in a significantly oversubscribed placement of shares and of course they will be on the dividend lists to add to the allure.
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