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Part 1.
There has been much debate over the status of the Exploration Licences held by PRD over the Guercif area, this seems to have generated more heat than light. Some here have (mistakenly and/or deliberately) stated that failing to complete certain work programmes before what they perceive to be the end dates of various phases of the licences will result in the termination of PRD's licence rights. It may be helpful to summarise 1/ the original agreement, 2/ the subsequent amendments and their implications, and 3/ what is likely to happen in the future. To avoid confusion, I will use the official ONHYM terms (capitalised) for the various agreements and amendments.
You can read further details using the following sources, all of which can be accessed from the PRD website: CPR 2020, p.179, CPR 2022 p.8, CPR 2023 p.5, ITR 2024 pp.13/14 & 49, RNS of 30 November 2023.
This is of necessity rather long, so I will split it across two posts.
Original Agreement.
A Petroleum Agreement was signed March 2019, allowing for exploration over a 9-year period. This was split into three phases – an Initial Exploration Period, a 1st Extension Period, and a 2nd Extension Period. Each period requires a minimum programme of specified work to be carried out, together with a breakdown of agreed costs. A deposit is paid by PRD on entering each of these three stages. PRD is currently still in the Initial Exploration Period, and on completion of the agreed commitments, will have full legal rights to enter into the First Extension Period.
Amendments to the original Petroleum Agreement.
In response to the Covid restrictions, ONHYM extended all companies' licences by 12 months, so for PRD the Initial Exploration Period was automatically extended. As exploration activities continued, discussions continued between PRD and ONHYM reflecting the changing geological discoveries, and the realities of supply chain operations post-Covid. At no cost to PRD, ONHYM agreed a number of Petroleum Agreement Amendments, the most recent, #4, extends the Initial Exploration Period until June 2024. In addition, a number of changes were agreed to the work commitments and expenditures, in particular amending the drilling depths to accord with the actual geology, and moving the commitment to do 3D seismic into the 1st Extension Period in exchange for additional expenditure already incurred by PRD. With the completion of flow testing the MOU wells, PRD will have met ALL their commitments under the Initial Exploration Period, in fact will have exceeded them, and as stated above have full legal entitlement to move to the 1st Extension Period.
Part 2.
What happens next?
I must stress that this is my own opinion, but is based on the existing legal framework, together with how this has been implemented with other companies.
* PRD will complete flow testing before expiry of Amendment #4 in June 2024.
* They will apply for an Exploitation Concession for the MOU area – note this is a distinct and separate agreement to the Petroleum Agreement, one covers exploration, the other production.
* Since a discovery will have been declared for this area, ONHYM will contribute their 25% of further development costs.
* PRD will enter into the 1st Extension Period of the original Petroleum Agreement for the remainder of the licence area.
* MOU-5 will be drilled as part of the commitments under the 1st Extension Period - one of which is currently for one drill to a depth of 2750m, hence speculation about MOU-5 being extended into the Triassic and confirmation that SV-101 has that capability.
* The costs of the deposit to cover entry to the 1st Extension Period and for potential deepening of MOU-5 and subsequent testing are likely to be covered by a forward payment for gas as part of the GSA with Afriquia Gaz – such forward payment has been a standard part of other GSA's within Morocco.
* After completion of MOU-5 operations, PRD will be very well positioned for negotiations with potential purchasers for all or part of the Morocco business. The purchaser would then be responsible for their share of the remaining 1st Extension Period obligations, including the 3D seismic.
Hope this is helpful.
"more heat than light...."
- bon mots Keith, bon mots!
As ever, muchly thanks.
VERY HELPFULL KEITH this should shut up the fudsters spreading harm by saying we will loose are licence if we dont drill/flow gas by the end of the month,delays in foreign countries are very normal,i had to wait nearly 6 months for some legal paperwork once, when i returned to england handed it to the gov.agency and asked how long to process it they said 2 weeks as they were busy,, a lot shorter than the 6 months already incured, we all want things quickly as we are all expecting to get great results and a massive increase in sp very shortly, im sure the people investing in the pipeline will want a return asap, but laying a massive pipe(s) anchored to the sea bed isnt straightforwards so expect delays or political unrest...
Expect the usual crew arriving to discredit Keith's post - please either filter them or ignore them but don't acknowledge them
Here's a potential sweetener... just had a conversation with GRH, who reminded me that the deposit paid to ONHYM can be rolled over from one Period to the next. If any additional fee is payable in these inflationary times, that would be more than offset by the Discovery Bonus that ONHYM would have to pay to PRD - the last reference to this that I can find is a few years old, but at that time was a payment to the discoverer of $1M.
Thanks Keith- good work as usual.
MrGMan…. absolutely, do not feed the animals !
Is mou5 funded or not Keith?
Porters, what is your agenda ? keith has already advised all our work programmes going forward are 100% fully funded , this includes Sand jet ops, flow testing, drilling mou 5 etc…as per Keith, we are fully funded for ALL ops ,no matter when they commence.
Resources estimates remain unchanged and there are no changes to available discretionary working capital to carry out the Sandjet testing programme. We are however fully aware that we need to flow gas from our main zones in the most effective manner after accounting for formation damage, and we have confidence in Sandjet achieving that objective."
Who knows?.. It’s a fine line
Great post Keith very helpful.
In your opinion and referencing this comment below from you, when do you expect roughly Mou5 to be drilled? There has been a lot of discussion on the SV-101 availability and if this drill is done as part of the 1st extension period there isn't any rush to do it near term. What is your take on the drill timing covering the rig and funding (inc for a deeper drill if required)
* MOU-5 will be drilled as part of the commitments under the 1st Extension Period - one of which is currently for one drill to a depth of 2750m, hence speculation about MOU-5 being extended into the Triassic and confirmation that SV-101 has that capability.
Hi Keith - I thought that the discovery bonus needed to be paid by PRD? The latest information I can find on this is p33 of the prospectus, but it is not entirely clear to me:
Fiscal terms and commercial opportunity
The fiscal terms in Morocco, which are some of the best in the world, are restricted to a
5 per cent. state royalty for gas, applicable after the first 10.6 BCF of net production to the
operator, and corporation tax charged at 31 per cent. However, there is a 10-year “holiday”
before corporation tax will be charged and any unused tax losses can be offset against the
tax due. There are no signature bonuses but production bonuses in the form of cash
payments exist with a maximum one-off payment of US$5,000,000 on production greater than
30,000 BOE per day. A commercial discovery bonus of US$1,000,000 is also payable.
Couple of points of light
The drilling of the well to 2750m is a part of the second extension period not the first page 14 ITR
"
The first extension period can be extended into a second extension period of 30 months with an
anticipated commitment to acquire 400 km² 3D covering Jurassic Prospects to include AVO analysis and
the drilling of at least one well to 2750m to test the Jurassic potential. There are also commitments to
undertake Geological studies to integrate and understand PRD findings in a regional context and
determine whether CO2 and Waterflood EOR experience can be applied to boost long term productivity
of discoveries in the Guercif basin"
The discovery bonus is a payable not a receivable page 12 ITR
"There are no signature bonuses but production bonuses in the form of cash payments exist with a
maximum one-off payment of US$5,000,000 on production greater than 30,000 BOE/day. A discovery
bonus of US$1,000,000 is also payable."
The first extension period has 17 months to run from June 2024. In your scenario after the completion of MOU5 negotiations with a buyer, tendering and awarding a contract for the 3d seismics and then getting the equipment in country and completing the seismic in 17 months is well to be blunt fanciful. Approval of a new entrant on a licence as demonstrated worldwide can take up to 12 months to approve. PRD should be aiming to complete the 3d by June 2025 giving themselves a 7 month buffer. Permits, tendering ,awarding the contract and getting equipment booked and in the country the process should ideally be starting in the near term.
Those bonuses are payable by PRD to ONHYM, 100% not the other way around.
Oh dear ? …… blimin heck what do we believe !
We believe that you see PRD as a threat to CHAR, no other reason for you to post your bilge here
Those bonus are 100% payable by PRD. It would be listed as a receivable if it was from ONHYM to PRD.
Now I'm able to access a laptop rather than trying to do stuff with a phone.
* Discovery Bonus - Yes, I agree that the discovery bonus is a payable (by PRD to ONHYM). Very confusing wording across several documents. Unlike lots of posters here, I don't get everything correct 😁
* 2750m well. This is a 2nd Extension Period requirement, but there are no drilling requirements in the 1st extension period. Since PRD are very keen to get MOU-5 drilled, and much is already paid for, and the 2750m 2nd EP well is stated as being for appraisal of the Jurassic, it would seem eminently sensible to bring that forward. Swapping of commitments from one period to another has already occurred several times. In response to a related question, it seems pretty clear that Paul wants to have results from the Jurassic carbonate asap, since that will be vital to crystallise maximum value. I would think he will want to make sure it has the best chance of success, even if that means delaying for a month
* Time taken for acquisition. Paul has made it clear that he is not pursuing a standard farm-out, for the very reason that this takes forever and a day to sort out the necessary regulatory approvals. What he has proposed is the sale of a share of PGV(M), the local subsidiary. While this would still require the support of ONHYM for a suitable buyer, such a transaction would not require formal approval by the Finance & Energy ministries.
* 3D seismic. Following the previous requirements swap, there are now commitments for 3D in both the 1st & 2nd Extension Periods -200km² & 400km² respectively. If the 2750m well is pulled forward, the balancing item would be to put the two seismic programmes together into the 2nd Extension Period. This gives plenty of time to get organised, and should also result in cost savings.
Is mou5 fully funded Keith?
It is fully funded, high risk though. Think it's Keith's potty and bedtime.
Where is the Sand Jet kit?? Belgium?
RNS 05 February 2024:
"The majority of the critical long lead items required for drilling are available from the Company's surplus well inventory stored in its Guercif warehouse, thereby potentially further reducing drilling costs. .... The Company is fully-funded to drill MOU-5 using currently uncommitted, discretionary, cash on the Company's balance sheet."
Paul Griffiths, Executive Chairman of Predator, commented:
"We are delighted to have concluded the extension to our 2022 rig contract as it provides us with the perfect opportunity to accelerate the cost-effective and fully-funded drilling of a large Jurassic structure adjacent to our area of focus for rigless well testing."
Trifle if you cannot balance your investment decisions with negatives just open a Santander savings account.
What about your opinion Keith ?Yesterday you tried to belittle me with a stupid comment about being a ceo of a successful o and g explorer. Claiming 3 operations were funded go do the maths and you come to the conclusion I have that mou5 is in its current depth and testing but the cupboard is bare after that
Agree it would make sense to combine the 3d whether this happens the clock starts ticking on the 17 months in June.
Paul has said many things about the sale possibilities. The local subsidiary is the 100% owner of the licence, how would a sale of this ring fence the MOU fan without affecting the rest of the licence? Would a potential purchaser be happy with this as PRD would still be the operator and they would have no formal representation on the licence ie it would still be PRD 75% ONHYM 25%.