Member Info for Exploration

Gozomike

It all seems to be coming together.

A Liquidity Event requires, amongst other things, a Gas Sales Agreement. This is fundamental to value the asset. In the brutal world of Institutional Investment, Rothschilds, etc Sounds value is discounted due to lack of a GSA.

A Gas Sales Agreement is part and parcel of an Exploitation Agreement. Normal Due diligence suggests a gas buyer is unlikely to agree a GSA with a gas seller who has no Exploitation Agreement. In turn this requires a development plan, production profile and export plans. It seems Enagas has taken on this task.

An Exploitation Agreement, according to the Petroleum Code, also requires “the determination of hydrocarbon prices to be taken into consideration for the application”. In other words, a GSA.

Its "Catch 22". You can't have a GSA without an Exploitation Agreement and vice versa.

Recently Sound applied for an Exploitation Agreement. The question is when and if we will see an announcement of simultaneous award of an Exploitation Agreement which should incorporate a Gas Sales Agreement.

There is nothing unusual about this situation. It just requires working through the intermediate steps needed to meet the milestones on the wat to a LE. I suppose the alternative is for Sound to sell at a discount and leave the new owner to sort out the GSA. SDX have a series of single well exploitation agreements with their direct to pottery factory using the Onhym pipeline sales.

On another topic, using the “Whacky Races” video to demonstrate progress is a bit of a PR blunder IMO and may even start to characterise the hard won reputation of the company billed as high tech, professional etc but represented by a sputtering tractor on film. Reputation has a value too.

andytr

I think the Schlumber thing is a bit of bureaucratic housekeeping.

When Sound applied for a Cencession over TE5 and renewal of the remaining area of Tendrara for a 8 year period the interests of the parties were "normalised" as participating interests which superseded the existing Field Management Agreement.

It was good for Schlumberger because they finally have title on an asset rather than a distant dream of a net profit interest.Good for Sound too, because our participating interest is lined up for a clean sale.

Thanks

The "log jam" in this area is caused by self-interests of the various licencees. If I had 20 million pounds, I would draw a line round the whole prospective trend in return for 20 per cent of everyones licence and drill a well on the Andromeda Prospect in return.

When basins mature and acreage interests become fragmented creating a "unit" is the way to go just like Lower 48.

This approach is most likely to reveal those "telephone numbers" mentioned recently.

The overall aim of the new gas law is to create a Moroccan gas "hub" with high liquidity where prices are set in the same way as, say, UKs NBP system where trades are reported daily or hourly to set the price. That way anyone with gas can sell into the hub at prices set by market, rather like oil. Likewise wholesale buyers can buy day ahead or year ahead and so on. To achieve this a "network code" is needed to govern buyers and sellers and keep the system balanced. It is hugely ambitious requiring coordination of work by several state institutions + construction of 400km of new trunk pipelines etc. It is also supposed to incorporate the new LNG terminal. Its all rather opaque although here is a summary of what was supposed to happen see link below.

https://www.whitecase.com/sites/whitecase/files/files/download/publications/morocco-gas-to-power-project-eng.pdf

esoesox

You might be onto something.

The absence of a Gas Sales Agreement means the Tendrara project is simply not "bankable" at the moment despite all the other components being in place for the TE5 gas field. Any potential sale would be contingent on a satisfactory GSA .

Fiscal prudence on the Sound Schlumberger side would seem to be needed. It might be wise to delay spending on exploration and "stop the clock" on licence timing until the GSA is sorted out. It is an event which is unforeseen, insurmountable and beyond the reasonable control of Onhym and Sound. Neither party can overcome the GSA delay by exercising the usual due diligence in accordance with oil industry standards.

It is unfortunate timing for us and the Energy Ministry in Rabat is struggling to create legislation to regulate the new gas laws. However, Onhym and Sound will be able to work together to protect our investment. Its certainly not a Force Majeure issue but one of those things which can be worked around. Both sides will have insights into the pace of the GSA discussions and can plan accordingly. Meanwhile we can sit and wait.

Here, Here SO If the wrong people get their hands on the steering wheel the car will crash. Despite everything let’s support our driver, JP!

Ozzie43

Back in 2012 and 2013 Fastnet was the new kid in town in Rabat backed by Raglan Capital of Dublin. Behind the scenes in Raglan were the principals of Cove and some ex-Tullow people. The geological "brains" for Morocco were from Paul Griffiths who ran Island Oil and Gas & Pathfinder Petroleum which first got involved in Merada, Tendrara, the Zag Basin in Morocco, offshore Essaouira in Morocco and also blocks in Albania. These companies were absorbed into Fastnet which was supposed to be the next Cove and also into San Leon Energy which is still there. Raglan did very well out of fees and financing too.

Incidentally people tend to forget about Hardman Resources which was a precursor to Cove type deal by accumulating acreage in the Mauritania, Senegal, etc offshore and the East African rift basins. Hardman was AIM listed and sold to Tullow for 600 million pounds in 2006.

At the same time in 2012 offshore Morocco became "hot" with 100 dollar oil and Kosmos took on huge positions before they realised their geological story was a bit flimsy. Kosmos farmed out to BP although before long BP paid Kosmos 16 million dollars penalty to leave rather than drill a well. More deepwater wells followed by Pura Vida and others. Seeing the "bust" in Morocco offshore the Fastnet investors bailed out because Tendrara was a side show. At the time it all made economic sense to Raglan Capital because Fastnet was definitely not going to be another Cove. Pack up and move on.

But all credit to Sound and particularly JP because they have created awareness that even small amounts of onshore gas are attractive provided there is a paying market. The next three wells are incredibly important to demonstrate material gas reserves.

Maybach

Every month Westwood Global Energy provides a summary of UKCS drilling and deal news to the PESGB which is published in their monthly newsletter. Naturally it helps if one knows ones way around the UKCS as some of the best remaining prospects have been known about and studied for years.

If you look at Cluff's latest slide show you will see a nice map of the Southern North Sea area including all their gas prospects. These are all "development led" because it makes commercial sense to time exploration and development to keep pipelines and shore terminals full rather than build new ones.

Algy Cluff track record is never to spend shareholders hard earned pennies unnecessarily. So in Cluff's core area the most effective approach is for companies to cooperate and hence everyone is waiting for Andromeda in 43/12. If the industry has done its job the Andromeda well should prove the deeper gas/condensate source which charged Breagh and Pegasus fields is regionally extensive. This effectively means discovery of a new play fairway in an area already covered by legacy 3D seismic where Cluff has good acreage.

OGA know all this and it is in their interests to extend licences to ensure a satisfactory conclusion rather than "start again".

http://www.cluffnaturalresources.com/wp-content/uploads/2018/06/Corporate-Presentation-June-2018_FINAL.pdf

hot ticket

Virtually all UKCS exploration stocks are doing nothing right now. This is mainly because no wells are being drilled. End June there were only two wells active, both West of Shetlands. There is no exploration or appraisal drilling in Northern, Central or Southern North or Sea. The next well in the Southern North Sea is still expected to be on the Andromeda Prospect in 43/12b as a step out to the Pegasus field next to Cluff's cluster of gas prospects in 43/11 and 42/15. Spirit need to think about proving this interesting trend. If successful any gas and condensate discovered can use forthcoming ullage in the existing pipeline systems.

Cluff is very well positioned to benefit if 43/12b is drilled this year.

Mancave

On the Algeria link question.

Answer is yes and no.

Stratigraphically and age say yes - the Tagi sandstone is a widespread regional lithology. It is better developed as a petroleum reservoir over the Sahara Platform south of the various Atlas mountain ranges and all the way to Tunisia.

Structurally, in Tendrara the Tagi sandstones are located in the High Plateau which extends into Algeria as the Hautes Plains. Shell and Repsol bid and won Algerias Boughezoul area in the Hautes Plains in 2014 which is "on trend" with Tendrara about 500km to the east. But there has been no significant drilling in the past. This suggests that Shell and Repsol are gambling on exploration near existing export pipelines where modest or small discoveries have line of sight to commercial production.

You can view the Shell Repsol idea as on onshore version of ETAP in UKCS where individual discoveries are sub commercial but when looked at as a whole make economic sense.

Primetime

I think someone posted yesterday that OGIF, Onhym, Govt control what happens and it is probable that most sub deals in the Tendrara venture are actually made by OGIF rather than Sound whose "job" is to implement the results.

After all, we are just a contractor with rights to explore for and produce petroleum and take all the risks. The client is the Moroccan state which is why the Petroleum Code Article 1 Paragraph 1 says "all petroleum is the property of the Moroccan State". i.e. It is not "ours" for the purposes of valuation.

One of the secondary reasons that Fastnet fell out of favour in Rabat is that they were literally a "one man band". Not appropriate for the scale of the ventures they were involved in.

Mancave

Fastnet is correct in saying the "play" was derisked before Fastnet entered the licence. In other words a working petroleum system existed. On other hand the "prospect" risk may have been improved by the new seismic.

Fastnet did publish their whole CPR including valuation. A summary is shown in this link.

https://www.edisoninvestmentresearch.com/?ACT=18&ID=10782&LANG=

I have the Maghreb farm out brochure from the pre Fastnet era and the resource numbers are similar to Fastnet.

To be fair Fastnet did manage to farm out their Foum Asaka licence offshore Morocco and drill a well. Around the same time there was a boardroom coup in Dublin which led to withdrawal from Morocco. Meanwhile, about a billion dollars have been spent drilling offshore in the last decade but with no success apart from oil shows at Cap Juby.

When all is said and done Sound is closer to the finishing line with Tendrara than any previous operator such as Lone Star or Fastnet and we can expect the powers that be in Morocco to help us exit with a decent return and be replaced by an operator with greater capability and capacity.

Partridge

I do not recall seeing a seismic line across the TE9 location especially in relation to deeper prospects below the TAGI.

But Fastnet did show one 4 years ago across the “A Structure”. It is on page 14 of this presentation. I’m assuming the new seismic is a lot better than that used by Fastnet.

http://www.fastnetoilandgas.com/~/media/Files/F/Fastnet-Oil-and-Gas/reports-and-presentations/Aug%2014%202%20Fastnet%20Corporate%20Presentation%20for%20website.pdf

dingdango

Here is a recent article about sulphur and crude prices.

https://www.bloomberg.com/view/articles/2018-07-17/sulfur-s-the-overlooked-commodity-that-could-cause-an-oil-shock

I argues that high sulphur "sour" crude will fall out of favour and traders will drive up price of "sweet" crude.

The shipping industry is a big consumer of sour bunker fuel but in recent years IMO has influenced new build ships to run on LNG. In fact most big ships built today use cryogenic storage for fuel.

Geologically speaking more than 60 percent of the worlds crude oil and gas is produced from limestone reservoirs and is "sour". In contrast oil and gas from sandstone reservoirs is usually "sweet". Why? Because the sulphur in the petroleum reacts with iron in the sandstone to produce iron pyrite or "fools gold". This geochemical process converts the sour oil and gas into sweet crude oil and gas. But there is no iron in limestone to absorb the sulphur which can only be removed at a refinery or desulphurisation at the production site.

Thats not to say sulphur has no value. In fact quite the reverse. It is an essential element in many industrial processes.

Esox

One extra portaloo also needed at MKs house in case TE9 Tagi is dry. He'll need it!

On second thoughts make that two portaloos, in case Palaeozoic is dry too.

No doubt this will be interpreted by MK as deramping. mdr

MK

Looks to me like you have led a very sheltered life in business based on your comments here and other boards, MDR!

Onhym is actually very active and strict in terms of running its ventures and firmly connected to the major decision makers. If operators miss out on Monthly Reports, signed minutes of Technical or Management Meetings there is trouble. Same applies to spending money. Onhym will disallow any expenditures made before the effective date and gazettal of an Agreement from cost recovery. Its just basic Petroleum Operation practice.

Approval of major expenditure in all Petroleum Agreements needs unanimous approval of Management Committee. As you say Onhym would not hold it up and neither would Sound. So it could only have been Schlumberger holding out.

Onhym also have pre emptive rights and authority to terminate agreements. That is how Fastnet left Morocco. Remember that.

n4aPound

So yes, it seems Schlumberger wanted their participation sorted out before they would approve spending on more wells.

The RNS does not mention paying interests which would be 50 50 Sound Schlumberger under the original FMA. I wonder if the revised field management agreement includes new paying interests in proportion to the participating interests announced this morning? Maybe that is what the recent capital raise was all about?

The Schlumberger definition of "participating interest" is The proportion of exploration and production costs each party will bear and the proportion of production each party will receive, as set out in an operating agreement.

All

Talking to people in Rabat this has been brewing up for a while.

The fuss about the LNG terminal has upset Taqa. They want to stop it and have right connections.

They run the 2000 MW coal plant at Jorf Lasfar.

https://www.taqamorocco.ma/en/taqa-morocco-glance

The wind and solar plants in Morocco have also met and exceeded expectations. Its a bit like Hinckley Point in UK.

5 years ago it was needed, but now wind and the uK smart grid have rendered it unnecessary.

Riddlers

Not surprisingly its all to do with money. Schlumberger intended to pay their pay by provision of services. According to the FMA they have right of first refusal to provide equipment people etc. They really do not want to spend cash to pay Saipem when they can do it themselves "at cost". Schlumberger ethic is to make cash rather than spend it.

"Subject to such services being made available at fair market rates, Schlumberger will provide integrated technical and drilling services, equipment and personnel to the Company under the FMA (the "Services"). The Services will be funded directly by Schlumberger up to the maximum Schlumberger funding commitment percentages described above. Schlumberger will also have a right of first refusal to provide additional services to the Company, as Operator of the Tendrara Licence, under the FMA".

jacklevi

You are correct. I failed to notice the FMA had been amended to a full working interest during the Meriidja award.

That does give Schlumberger a seat on the Management Committee and rights to block drilling etc.

The binding heads of terms will, subject to contract, result in the extension of the existing Field Management Agreement between the Company and an affiliate of Schlumberger Oilfield Holdings Limited (the "FMA Extension") to include Meridja and the area(s) of Tendrara relinquished in accordance with the Morrocan Hydrocarbon Code (the "Tendrara Relinquished Area(s)"). Under the FMA Extension, subject to contract, Schlumberger will be granted a 27.5%Â working interest in the Meridja area and a 27.5%Â working interest in the Tendrara Relinquished Area(s).