Britain is a heavily gas-reliant country with figures showing that 35% of U.K electricity comes from gas fired power stations. This Winter Britain will need to import around 50% of this gas and experts expect by 2015 this figure to have risen to 75%.
Europe currently sources approximately a third of its gas supply from Russia subsequently putting Russia in a perceived position of power which they exercise when and how they please.
The consequent stranglehold over Europe in relation to the security of the gas supply has meant that European countries particularly in Western Europe have to bear the brunt of any disagreements between European countries and Russia resulting in regular threats from Russia that the gas taps will be turned off to Europe.
Fortunately for Europe it has the eight largest gas reserve in the world on its doorstep courtesy of Algeria and as a further sweetener there is existing infrastructure in place to transport it with new pipe lines currently under construction into Spain and Italy. One company strategically placed to take advantage of Europe’s desire to remove its reliance on Russian gas is Petroceltic International PLC (AIM: PCI).
Petroceltic (PCI) are an oil and gas exploration and production company based in Ireland who have a portfolio of interests in Algeria, Italy, Tunisia and Ireland.
The company has potential reserves in excess of 1 billion barrels of oil equivalent (boe).
The company are enjoying a very productive and equally important period at the moment which if all goes to plan could see them transform from a junior oil and gas exploration company into a mid-cap oil and gas producer. This transformation has already been initiated through the company commencing an intense drilling and testing program in Algeria in May 2009 to prove up its existing resources. Consequently the next 12 months will likely see the company release some highly significant news.
The drilling programme is well funded after PCI completed a placement in April raising £27 million. Furthermore the company have the financial weight of the Spanish energy giant Iberdrola behind them who in 2008 injected a sum of $55million (£33.4 million) in exchange for a 22.6% stake in the company (reduced to 15.9% resulting from a placement in April 2009). In addition the company successfully farmed out a portion of its interest in the Ksar Hadada licence in Tunisia which has resulted in Petroceltic receiving a fully carry for capital expenditure in the initial satages of this development. This financial banking gives PCI a very healthy balance sheet with cash reserves in excess of $45 million. The company has stated that it has sufficient cash to cover the costs of their current drilling program.
We will now look at each of the company’s assets in turn.
The company’s 75% interest in the Isarene permit in Algeria could be regarded as it’s most highly prized asset. The permit is located within the prolific Illizi basin and neighbouring blocks include Total’s TFT gas field containing some 8Tcf of gas and BP’s Amenas field containing up to 5.2Tcf of gas. On this permit alone PCI have exposure to unrisked resources of 770 million boe. The current drilling campaign is aimed at proving up these resources and to test gas flows for several identified wells. It is expected that the current program will be completed in the 1st Quarter of 2010.
The Isarene permit comprises three prospective areas, the North West, El Boid and Ain Tsila Ridge with the Ridge being the most significant in resource potential terms. The first two wells from this area have been tested with AT-1 yielding flow rates of up to 33.8 Mmcf/d which is substantially higher than pre-drill estimates and the AT-2 well yielding rates of 4.9Mmcf/d.
Although AT-2s flow rates are not as high as the first well, the result is still extremely significant as it confirms the existence of a large gas reservoir at the Ain Tsila ridge which de-risks this prospective area massively. The most recent results from the third well located within this area, AT-3 confirmed that the gas is in the same pressure regime as wells AT-1 and AT-2.
Results from the three wells demonstrate the presence of an extensive and probably continuous gas accumulation, and in a drilling update for AT-3 released on January 12, Petroceltic said the Ain Tsila Ridge discovery may be capable of flowing at rates exceeding 30Mmcf/d following fracture stimulation.
Elsewhere in the North West prospective area there have been 4 gas wells and 1 oil well drilled to date with the testing of the INE-2 well yielding a flow rate of 4Mmcf/d. Further drilling and testing is to be carried out with the eventual aim of proving up this 64 million boe prospect.
In total PCI hold interests in 19 different permits in Italy all of varying amounts. The first and most significant prospect is is located within the Central Adriatic region and is an offshore block (B.R268.RG) of which PCI have a 70% interest and operatorship. Independent assessment carried out demonstrated a potential resource of over 100 million barrels recoverable of oil. PCI plan to drill and test this property in late 2010. The proposectivity of the area was established by the 1993 El;sa-1 discovery, which logged 65metres of oil, but was not propertly trested due to drilling problems at the time.
The next most significant Italian asset is the Rovasenda property located in the Northern Po Valley region. PCI have an interest of 47.5% in Rovasenda and independent assessment has shown prospective resources of 200 million boe. PCI plan to conduct seismic and test this prospect as part of their drilling program sometime in early 2011.
In Tunisia PCI have a 27.03% interest in the Ksar Hadada permit. Independent assessment of this property demonstrated a potential reserve of 312 million barrels and recent significant oil discoveries within the vicinity of the permit have helped to de-risk the property. Management expect to spud two identified wells by mid 2010.
PCI receives royalty income from an offshore producing gas field run by Star Energy. In 2008 total income attributed to PCI was $960, 000.
Therefore with regard to their current assets the company has immense potential. The most recent news regarding the AT-2 well at Ain Tsila Ridge means their most exciting and prospective property has been significantly de-risked which should help buoy the share price while market sentiment in general is worsening. With such significant and ongoing news flow due it is no surprise analysts are suggesting a current price tag upwards of 23p per share.
In summary the next 12 months could be transformational for the company and they seem to have everything in place to achieve their goals. The balance sheet should see them well into 2010, their substantial portfolio of assets will, if realised, be life changing for both management and investors.
Disclosure: The author holds no positions in the company