Path Investments PLC ORD GBP0.001 (LON:PATH) Chief Executive Officer Chris Theis caught up with DirectorsTalk for an exclusive interview to discuss the new farm-in agreement with 5P Energy
Q1: You’ve announced a conditional farm-in agreement with 5P Energy today, could you explain the background to this?
A1: We are an oil and gas investment company and listed on the official list, by way of a standard listing on the 30th March of this year. We came with the stated objective to acquire oil and gas production or near-production assets taking advantage of the imbalance we see within the marketplace at the present time. We’re looking to build a portfolio of income-producing assets with some development potential so we’re looking to deliver a premium yield but also, at the same time, some capital growth as we look to develop the asset, in other words to bring production forward, if you like.
The first asset purchase we’ve announced today is a farm-in of a 50% participating interest in the Alfeld-Elze II production licence in Germany which is about half an hour south of Hanover. It’s a conventional on-shore gas field and we can talk a little bit more about that later if you like.
Q2: Now, Path Investments was set up to seek a suitable transaction in the oil and gas sector, what attracted you to this deal?
A2: Our stated aim was very much on-shore gas, we’re looking at oil too but at the moment we’re prefer gas and we prefer conventional gas in Europe and beyond, so North Africa, there’s more than enough to be getting on with in terms of opportunities and this particular opportunity fits the bill perfectly for us.
We’ve been targeting small to medium-sized opportunities and we are focussed very much on low risk so no exploration so no appraisal, it’s very much production we’re looking for, so we are designed to be very much a low risk resource play and importantly, and critically, the assets have to be economic at today’s prices.
So, we’re looking through this with a prism of financial hurdles and looking to get paid so it’s all very well taking advantage of that imbalance in the market but ultimately, if you’re not going to get paid then it’s not something we should even be entertaining.
We are looking to create, as we do in this particular instance and forward for others we’re looking at, a 15-20-year annuity stream and we are looking to join the dividend listers at the first possible opportunity.
Q3: What are the principal terms of the transaction?
A3: Well, as I said, we are acquiring a 50% participating interest in the field and we’ll be entering into a joint operating agreement at completion. We’re playing them €5 million, in cash, on completion and that is partial reimbursement of the existing producing well called Z2 and we’re, again as the announcement mentions, currently drilling a second well by way of re-entry and we are looking to repay €2 million of those costs next year, once commercial production has been achieved from that well. We’re also looking to contribute towards the cost of drilling a horizontal well to the tune of about €10 million and we also have some additional cash payments based upon success criteria in the main production totals.
So, all in all, it’s very cash generative, in fact the deal has an effective date of 1st January so all the cash that’s accruing from gas sales from that date onwards become ours, well 50% of them. At the same time, we become responsible for 50% of the costs of running the wells.
Q4: Following today’s news, what are the next steps for Path Investments PLC ORD GBP0.001?
A4: We’ve spent the last 3 or so years talking to a lot of businesses out there, mainly in the small to medium size arena, who typically have some production. They’re taking the cash from that production and recycling it to basically keep their exploration obligations alive so there’s not a lot of cash available to distribute to shareholders.
Our model is quite different and so from that we generated quite a large pipeline of opportunities and this is the first of those opportunities that we’re bringing to market. We are looking to complete this by way of equity fundraise and from that fundraise, we’ll be paying the consideration that I mentioned a moment ago and also giving us a bit of cash to seed other transactions over the next 12 months.
This project fits the strategy perfectly for us with its existing production, with its low risk and with its proven reserves so we’ve got a good handle on the life of the project and the cash we can expect to generate from it. So, within January, we’re be looking to complete the transaction and thereon in we’ll be looking to bring other deals to our shareholders over the next 12 months.