VSA4 Oct 2019 10:34
http://vsacapital.com/wp-content/uploads/dlm_uploads/2019/10/10-04-flow-test.pdf
Columbus Energy Resources (CERP LN) has announced its new country entry following the signature for a Production Sharing Contract (PSC) for the Weg Naar Zee Block which is located in onshore Suriname. This gives the company exposure to one of the most exciting regions for exploration, the Suriname-Guyana Basin where the likes of ExxonMobil (XOM US), Repsol (REP SM), Total (FP FP), Hess Corporation (HESS US), Apache (APA US), Cairn Energy (CNE LN), Tullow Oil (TLW LN) and Eco Atlantic (ECO LN) are currently highly active in offshore exploration. XOM has discovered over 5Bboe in Guyana, through 13 consecutive discoveries to date highlighting the region’s prospectivity.
The high level terms of the PSC which have been outlined by CERP indicate a flexible and low risk opportunity, on attractive terms and with no upfront cost. The first phase of exploration which lasts for up to three years requires CERP to spend US$250k as a minimum work obligation covering G&G studies and an extended well test on at least two stratigraphic oil bearing units. Subject to the results of these tests CERP then have the option to progress to phase two and three which again have low MWO costs but will focus on 2D seismic and further wells. This gives the company significant flexibility in terms of the pace of development.
Whilst we highlight how positive the exposure to this basin is for CERP, we also recognise that as a smaller player, and consistent with the strategy in Trinidad, the company is maintaining its focus on lower cost onshore development opportunities commensurate with the resources of a company of its current size. The key advantage, in our view, is that the low MWO cost in each phase of exploration and the length of time for each phase will enable the company to advance development and appraisal at its own pace while the profit sharing and marketing agreements appear to be unrestrictive and CERP will be able to benefit from successful development of the fields. CERP will commence with a 100% interest in the block although Staatsolie will have the right to buy back in for up to a 50% interest while funding its proportional share of costs.
Aside from the terms of the PSC which are low in relation to capital intensity, by entering a discovered onshore field with a resource of 24mmbbl (STOIIP) the project has already been significantly derisked from a technical standpoint. Clearly, however, CERP has greater ambitions and there is likely to be significant further potential within the 900km2 block. Indeed, in its tender process Staatsolie highlighted the exploration potential in the North West and South of the block where limited exploration has been carried out. In total 70 wells have been drilled in the block since 1968, largely by Staatsolie which has intercepted oil shows in the Cretaceous and Paleocene and conducted a small number of well tests.(cont'd)
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