All go in Uruguay
Petrel Energy, (PRL.AX) operates an onshore exploration portfolio comprising acreage in three continents. All eyes are currently on a large position it holds in Uruguay where recent core testing has indicated possibly substantial conventional and unconventional oil potential. Further testing and seismic scheduled for H1CY14 will serve to further de-risk the play.
Diverse portfolio, Uruguay the current focus
Petrel Energy is advancing separate projects in Uruguay, Spain and Canada, each of which presents very different above- and below-ground physical and commercial environments. Petrel’s recent focus has been on its Uruguayan Norte Basin acreage, acquired in 2012. Each of two core holes drilled during Q4CY13 returned encouraging results indicating the presence of an active oil-rich hydrocarbon system. Free oil was observed in both holes, which were drilled more than 100km apart. Detailed lab analysis is now underway, the results of which should be known in Q1CY14. Petrel considers the play to present analogues to the US Bakken shale oil play.
Spain and Canada too
Petrel also holds acreage in the Cadiz province in southern Spain and in Alberta in British Columbia. While the Cadiz acreage is early stage, a legacy well drilled in the 1950s flowed gas from stacked sandstones and the permit has been independently assessed to hold 3tcf of prospective resource. A very favourable local market context where gas is trading above US$13/mmscf would make for compelling development economics if a resource can be proven. A farm-out process is underway with outcomes likely to become known during Q1CY14. In Canada, during Q1CY13 Petrel acquired for C$3.3m a 40% stake in 5,120 gross acres of what it concludes as tight oil acreage near Calgary. The permit includes a recently completed horizontal well, which registered an initial 30-day production rate of 150b/d.
Financials: Option exercise changes financial profile
In December Petrel advised it had exercised a farm-in extension option to increase its Norte Basin stake to 51% (from 25%) and its Tesorillo stake to 43% (from 22%) at a total cost of US$5.5m. Proceeds will be used by the JV primarily to complete the Norte Basin core hole and seismic programme during H1CY14. In parallel with the option announcement, Petrel confirmed a A$3m equity placement at A$0.135/share.
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