Prospex Oil & Gas agrees deal to buy into El Romeral project

Energy investment company Prospex Oil and Gas announced the conditional acquisition of up to a 49.9% indirect stake in integrated gas production and power station El Romeral, located in the Guadalquivir basin in southern Spain, on Tuesday.

The AIM-traded firm said El Romeral is comprised of three production licences, on which three producing wells supplied gas through its own network to a wholly-owned 8.1 MW power station.

In addition, it said the area contained two development locations and 11 “very-low risk” prospects, with gross contingent and prospective gas resources of five billion cubic feet and 90 billion cubic feet, respectively.

Prospex said that, based on current levels of gas production, electricity generation and revenue per Mwh, the project generated “small amounts” of free cash from revenue of around €0.8m per year.

There was potential to increase the number of generating days at the project, which was historically equivalent to five days per week, and in the medium-term increase utilisation of the generation equipment, which was currently 22%, by sourcing new gas supplies from within the project area, specifically from its assigned 90 billion cubic feet of very-low risk prospective resources.

When gas was not a limiting factor, the power station regularly produced around 60,000 Mwh per year, which would equate to a revenue of at least €4.2m per annum based on current revenue per Mwh.

El Romeral was being acquired by Tarba Energia, with funding provided by Tarba's shareholders, Warrego Energy and Prospex.

Warrego would fund the initial consideration of €0.75m.

Prospex said it would have three months to elect an ownership stake in the project of up to 49.9%, and refund to Warrego the corresponding proportion of the initial consideration.

Warrego would indirectly own the balance of the project.

The acquisition of Prospex's stake remained conditional on Prospex securing funding for the investment, the board said.

“With three producing wells, an 8.1 MW power station and gross reserves, contingent and prospective resources of 0.3 billion cubic feet, five billion cubic feet, and 90 billion cubic feet respectively, the El Romeral gas power project not only promises revenues from day one, but also significant upside potential,” said Prospex’s non-executive chairman Bill Smith.

“Located in a proven hydrocarbon region with very low geological risk, it is the substantial development opportunity, specifically the combination of the power station operating at only [around] 22% capacity and the presence of two undeveloped discoveries and 11 prospects, which excites us most.

“Based on current and forecasted annual revenue, the economics for Tarba and in turn Prospex are expected to be favourable for an efficient return on investment with major scope for significant upside by exploring the very low risk 11 prospects.”

Smith said the company’s expected 2020 production profile, subject to completing the investment in the project, would be centred on five gas wells in three projects in Romania, Spain and Italy, once the Selva field came on stream.

That, he said, would represent a fivefold increase on 2019 and, combined, the firm anticipated those five wells have the ability to produce more than nine million standard cubic metres net to Prospex over the course of 2021.

“With our joint venture partner, we plan to apply for permits for three new wells at El Romeral in 2020.

“At the same time, we will continue our technical work programme to de-risk the independently estimated 830 billion cubic feet gross prospective resources - best estimate - at the Tesorillo project in Spain.”

Smith said the company had been “saying for some time” that it believed its current market cap represented “a fraction” of Prospex's underlying value.

“Our asset base could soon include an interest in a gas power station and associated infrastructure which cost [about] €10m to install, material interests in four producing gas wells, and a stake in a fifth well in Italy which is expected to be brought online in 2020.

“The value case behind Prospex is, in our view, very clear.”

At 1353 GMT, shares in Prospex were up 5.23% at 0.1p.