Catalysts Lined Up For This Fledgling Natural Gas Producer Trading At A Deep Discount
The best opportunities in markets can often come about when a company’s share price declines due to investor impatience; the company’s story is unchanged, perhaps a bit delayed, but the assets are still in place and the plan remains the same. The share price is simply 30%, 40%, or even 50% lower than it was a few months before.
This appears to be the case with NG Energy International (TSX-V:GASX) after a roughly 40% decline in its share price since its February peak at C$1.88 per share. For a brief reintroduction, NG Energy (“GASX”) is a fledgling Colombia focused natural gas producer. GASX’s Maria Conchita Block is likely to enter production by the end of September (delayed by 2-3 months due to covid restrictions and tax reform protests that slowed the delivery of pipe needed to construct the 14km pipeline from Maria Conchita) with initial production of 16 mmcf/d net.
Maria Conchita gives GASX a solid production base, however, it is the home run potential at the company’s Sinu-9 flagship property that makes GASX such an attractive speculation after the recent share price decline. The Sinu-9 Block contains Hechizo, a prospect that is on trend with a recent large-scale Canacol discovery, and Magico, a target in the south of the property that has geophysical evidence suggesting very strong gas potential. The Magico well is the first target of phase 1 Sinu-9 exploration , a fully financed program with company making potential.
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. GASX expects to receive environmental approval in July and will then begin the process (civil works and road access) to drill an initial 4 wells on the Sinu-9 Block. The 1st well is set to be Magico-1X (Q3 2021) with Hechizo in Q4 2021.
GASX has four wells planned for initial drilling at Sinu-9 with Hechizo looking like it has the potential to be a company-maker.
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$40 million per year.
Considering the similarities between Aguas Vivas and Sinu-9 (proximity/geography/geology), and using the Petrotech resource/prospect numbers (51.4 billion cubic feet of contingent natural gas resources and 836.4 billion cubic feet of natural gas prospects) the current GASX market valuation offers an attractive speculative long opportunity.
At its current C$.91 share price GASX has a US$76 million market cap (using a $1.25 USD/CAD exchange rate). Based on the latest report from Beacon Securities the current market cap undershoots the unrisked valuation of the Maria Conchita prospect alone without giving any credit to GASX’s Sinu 9 and Tiburon assets.
Key Near Term Catalysts
- Receipt of environment permits for Sinu-9 (expected in July 2021)
- Commencement of drilling at Sinu-9 (expected by end of August 2021)
- Completion of construction at Maria Conchita and commencement of production at Aruchara and Istanbul wells (expected by end of September 2021)
- Drilling at Hechizo Prospect on the Sinu-9 Block (expected by year end 2021)
GASX shares have declined to an area of support near $.90-$1.00 and there are early signs that sellers are becoming fatigued and running out of shares:
With less than 30% of downside from current levels, and 100%+ of upside potential (in the event of a smooth start-up of production at Maria Conchita, and success at Sinu-9) GASX shares offer a compelling risk/reward proposition. Those who prefer to wait for a technical buy signal can wait for a confirmed breakout above the downtrend line drawn in orange (roughly $1.20).
Disclosure: Author owns GASX.V shares at the time of publishing and may choose to buy or sell at any time without notice.
The article is for informational purposes only and is neither a solicitation for the purchase of securities nor an offer of securities. Readers of the article are expressly cautioned to seek the advice of a registered investment advisor and other professional advisors, as applicable, regarding the appropriateness of investing in any securities or any investment strategies, including those discussed above. NG Energy International Corp. is a high-risk venture stock and not suitable for most investors. Consult NG Energy International Corp’s SEDAR profiles for important risk disclosures.
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