Reabold Resources PLC (LON:RBD) Co Chief Executive Officer Sachin Oza caught up with DirectorsTalk for an exclusive interview to discuss the rig contract signed for West Newton, the opportunity for the company and the timeline for this project & others in the portfolio.
Q1: We’ve just seen the announcement that Rathlin Energy, operator of a UK onshore license, has signed a drilling contract for the West Newton appraisal well. Can you give us a brief background to West Newton and Reabold’s investment in the project?
A1: Connaught Oil and Gas is the management team that made the discovery in West Newton in 2014, through its subsidiary Rathlin UK, and that was something we thought was very exciting and certainly the technical merits of that field very much appealed to.
About a year ago, we started working with that management team in order to come up with a commercial structure to allow the drilling of the well to take place which would require approximately £6.8 million of funding. So, the way that worked was that we provided RBD’s investment into the project of £3 million by taking a 37% stake in the subsidiary Rathlin UK which at the time was a 100% owner of the license area.
However, what we also got involved in was Rathlin farming out a third of the project to the other joint venture partners to bring in the required incremental funding to get this well drilled which is where we are today. So, effectively, what’s happened is that RBD’s £3 million investment and 37% stake in Rathlin gives us a look-through interest on the license of 25%.
So, that’s the way we structured it, that’s what we spent the year working on with the Connaught management team and we’re delighted to be in a position to say that this well will be spudding in April.
Q2: You hinted at how excited you were, what is it that you find particularly exciting about the opportunity?
A2: There’s three key things that I think we find exciting about the West Newton appraisal well opportunity; the first of those is just the sheer scale of it, the second aspect is the low technical risk associated with it and the third is the strategic value of this project. So, we’ll just take each of those in turn.
The first of those that I mentioned was scale so there are two targets within this opportunity, one is the gas Kirkham Abbey Formation and the second is the Cadeby Formation. The Kirkham Abbey is where the original discovery was made and this gas field is approximately 180Bcf gas, that’s 31.5 million barrels of oil equivalent with a very high chance of success, that in itself makes it one of the largest ever onshore UK fields. On top of that, there is more exploration upside associated with the Cadeby oil target which is approximately 80 million barrels of oil but, clearly, that will be an enormous success from an onshore UK perspective. That’s just the scale of the oil and gas targets, the NPV’s associated with these respectively of $250 million and over $800 million just gives you a sense of the type of value attributable to those resources.
The second element, as I said, was the low technical risk, particularly for the gas, now, there’s been a CPR put out on this and Deloitte estimate for the chance of success for the gas is 72%. Because this discovery has already been made and it has been classified as a contingent resource, the main aim, particularly of this appraisal well will be moving the contingent resource into proved reserves by taking forward the development plan associated with this.
The third element is just the strategic location of this asset. We are in a very gas-hungry market in the UK, and particularly onshore UK, on PEDL 183 where the West Newton discovery resides, is the Easington Gas Terminal, lots of CCGP’s which is gas-fired power stations and gas storage capacity. Because the UK North Sea gas reserves are declining, we are ever reliant on importing gas so the strategic value of an onshore gas field can’t be overstated given that dynamic.
It’s for those three reasons that we think this is a very exciting opportunity.
Q3: I think from an investors point of view, it’s a UK project so I‘m sure they’re going to love it for that reason too.
A3: Indeed, certainly. We’re not necessarily UK-centric per say but we can definitely understand the appeal of a UK project of this nature to UK investors.
Q4: Can you talk us through the timeline for the project?
A4: So, what we announced today was rig contract having been signed so the spudding of this well is expected to take place in April.
What will happen from that point onwards is the drilling of that well into the two targets which will be a few weeks, that it into the Kirkham Abbey gas target and then the deeper Cadeby target. Now, depending, particularly, on the results of the oil target will determine the testing phase for what happens next because we can either be testing the oil and gas or just the gas, as I say, just depending on the results of that, that will be a few weeks after that.
From that point, we’ll then have the data necessary, and as I said that is required, to really come up with a better handle on the field development plan, primarily with the objective of converting those contingent resource into prove reserves.
Q5: How does this timeline fit with the other projects in the Reabold Resources portfolio?
A5: We have a lot of activity going on within the company portfolio.
So, just as a quick reminder, currently we are actually drilling the Burnett 2B well on the Monroe Swell license area in our California project. That’s happening now, they’ll be a few days that takes place between now and the logging of the well result and we’ll hopefully be making an announcement shortly to the market about that.
That will then be followed by a period of testing, not only the Burnett 2B that we’ve just drilled but also the successful Burnett 2A well that we announced a few weeks ago. We’ll then also be putting the VG-3 well into production and all of that will happening in this timeframe, before or around the time of the West Newton well. We also have a well going down in our Parta license in Romania in June of this year.
So, as a quick reminder, over an approximately 2-year time, the company will have drilled 8 wells in its portfolio and will be successful moving many of those forward towards the point of monetisation, either through production or another form of monetisation of the asset.
So, we’re really pleased with the progress that has been made across the entire portfolio and each individual project is certainly very exciting to us, of which West Newton project is one.