NG Energy Commences Exploration Program At Sinu-9 As Shares Break-Out
Fledgling natural gas producer NG Energy International (TSX-V:GASX) announced this morning that it has met all environmental requirements asked for by the National Environmental Licensing Authority of Colombia. Construction of the road and pad for the Magico-1X well will begin immediately.
The beginning of drilling at Magico, part of GASX’x crown jewel Sinu-9 block, couldn’t come at a better time. Natural gas prices are surging and the world is desperately striving to transition to cleaner, lower carbon forms of energy. US Henry Hub natural gas prices have risen nearly 100% in the last five months to a recent high above US$5/mcf. Tightness in the US natural gas market, and a market that has flipped from a 200 bcf surplus to a 200 bcf deficit has only exacerbated the upward pressure on prices.
Meanwhile, GASX shares have only just begun to break higher from a multi-month technical bottoming pattern:
The breakout from the multi-month head & shoulders bottoming pattern targets $1.50+. The $1.20 level and the rising 200-day moving average now become support. At C$1.50 per share GASX has a US$125 million market cap, a valuation that offers plenty of upside potential in the event of drilling success at one of the company’s four targets on the Sinu-9 block.
The drilling rig has been contracted and is standing by at a location near the concession, ready to be mounted and begin drilling by the first week of November under the direction of CPVEN.
The Magico-1X well is the first well in a fully funded, four well drill program to be conducted by CPVEN in the coming months and will be followed by the drilling Mago, Hechicero and Hechizo.
Executive Chairman of GASX, Ronald Pantin commented “The Company is pleased to have met all the environmental requirements requested by the ANLA and we as a management team are very excited to begin work on the Company’s crown jewel block SINU-9. We will start our exploration program focusing on the Magico/Mago/Hechicero area, which shows strong evidence of gas bearing formations due to the presence of class 6 AVO interpretations with several flat and bright spots.”
The GASX management team has observed strong geophysical evidence of gas bearing formations in the South of the property where the company will drill three targets before moving North to Hechizo-1. The Hechizo 1 target is attractive not only for its strong seismic interpretation, but also for its close proximity to a recent high profile discovery on the adjacent property to the East.
In June, Canacol (TSX:CNE) reported that its Aguas Vivas-1 well has 412 feet of net gas pay – this is more than 100 feet thicker than its “thickest” well to date (Clarinete-5 at 309 feet, which tested 43 mmcf/d). The target formation in both those CNE wells was the Cienaga de Oro. GASX’s Hechizo prospect on the Sinu-9 Block will also target the Cienaga de Oro formation and GASX sees a similar structure as Hechizo is ~10 km west of Agua Vivas.
Hechizo, is approximately 10 kilometers west of the Aguas Vivas well drilled by Canacol Energy, which has the thickest net gas column at 412 feet. To put these kinds of potential flow rates into perspective, 25-50 mmcf/d gross results in roughly 12-25 mmcf/d net (12,000,000-25,000,000 million cubic feet of gas per day). In Colombia, realized gas prices have been stable and remained around US$5/mcf (US$5 per thousand cubic feet). If we assume the low end of the range (12 mmcf/d net) then we can derive more than US$20 million per year in revenue from Aguas Vivas alone. At the high end of the range (25 mmcf/d net) the revenue from Aguas Vivas will be well in excess of US$40 million per year.
Obviously, there is upside potential to the above estimates in the event that natural gas is entering a new multi-year bull market cycle:
Natural Gas (Monthly)
GASX’s valuation is underpinned by the 155.9 billion cubic feet of unrisked resources at the company’s Maria Conchita field which is set to begin production at Aruchara-1 once final permits have been received. Meanwhile, the exploration drilling at the four Sinu-9 targets over the next several months offers GASX shareholders home run upside potential.
It is also notable that GASX CEO Serfafino Iacono has continued to add to his already massive share holdings in the company by purchasing more than 100,000 shares on the open market in July/August:
I have been a buyer of GASX shares in recent months, and I am as bullish as ever on the company’s prospects.
Disclosure: Author owns GASX.V shares at the time of publishing and may choose to buy or sell at any time without notice.
Information Regarding Resources
This article discloses estimates of the Company’s prospective and contingent resources. Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development but which are not currently considered to be commercially recoverable due to one or more contingencies.
Prospective resources are defined in the COGE Handbook as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Prospective resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery:
- Low Estimate: This is considered to be a conservative estimate of the quantity that will
actually be recovered. It is likely that the actual remaining quantities recovered will exceed
the low estimate. If probabilistic methods are used, there should be at least a 90 percent
probability (P90) that the quantities actually recovered will equal or exceed the low
- Best Estimate: This is considered to be the best estimate of the quantity that will actually
be recovered. It is equally likely that the actual remaining quantities recovered will be
greater or less than the best estimate. If probabilistic methods are used, there should be
at least a 50 percent probability (P50) that the quantities actually recovered will equal or
exceed the best estimate.
- High Estimate: This is considered to be an optimistic estimate of the quantity that will
actually be recovered. It is unlikely that the actual remaining quantities recovered will
exceed the high estimate. If probabilistic methods are used, there should be at least a 10
percent probability (P10) that the quantities actually recovered will equal or exceed the
Prospective resources are not, and should not be confused with, reserves or contingent resources. Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery and a chance of development.
There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources or that the Company will produce any portion of the volumes currently classified as prospective resources. The estimates of prospective resources involve implied assessment, based on certain estimates and assumptions, that the resources described exist in the quantities predicted or estimated, as at a given date, and that the resources can be profitably produced in the future. Actual prospective resources (and any volumes that may be reclassified as reserves) and future production therefrom may be greater than or less than the estimates provided herein. The accuracy of any resources estimate is a function of the quality and quantity of available data and of engineering interpretation and judgment. While resources presented herein are considered reasonable, the estimates should be accepted with the understanding that reservoir performance subsequent to the date of the estimate may justify revision, either upward or downward.
The resource estimates presented above are subject to certain risks and uncertainties, including those associated with the drilling and completion of future wells, limited available geological and geophysical data and uncertainties regarding the actual production characteristics of the reservoirs, all of which have been assumed for the preparation of the resource estimates.
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