Predator Oil & Gas: MOU-5 well potential...
...and fully funded for a year.
Good morning all and welcome to Tuesday.
Today, we’re going to consider Predator Oil & Gas (LON: PRD) - which has a major catalyst on the horizon.
Let’s start with the share price action - the stock launched its Main Market listing during late May 2018 at 2.8p per share - and it’s since risen to 10.2p per share with a market capitalisation of a little under £60 million.
Not too shabby; the other movement of note is that PRD has seen the classic spikes associated with small cap O&G stocks, most recently during July 2023 when the stock spiked during the drilling of MOU-4 before falling to placing price at the end of the month.
The good news is that Predator is now ‘Fully funded to satisfy all commitments for the next twelve months' as of interims in late September.
H1 2024 saw PRD generate a loss of £978,238 - a substantial decrease compared to the £2,361,721 loss of H1 2023. And for further evidence of financial health, the cash balance at the end of June was £4,352,190, with a further £1,186,155 held as restricted cash.
And there is zero debt.
Let’s dive in.
Predator Catalyst
PRD’s corporate focus is now fixed on the commercial potential of its MOU-5 exploration well within the Guercif licence (75% interest), located onshore Morocco.
This well is targeting a massive gas prospect of 5.9 Trillion Cubic Feet, with the distinct possibility of valuable helium reserves as an added bonus.
The helium could be found in concentrations widely ranging from 0.11% to 4.06%, adding value (perhaps significant) to the project. Gas samples from the nearby MOU-3 well do evidence the possibility of helium being present in the natural gas reservoir, and with helium's current market price currently exceeding $400/mcf, even modest concentrations will be economically important.
This exploration could be a game-changer, and investors know it - the well is expected to spud in January 2025, and is located just three kilometres from the Maghreb Europe Gas pipeline, which has more than enough spare capacity.
For obvious reasons, this proximity offers a simplified and cost-effective development pathway compared to many other gas fields - and if only small volumes of gas are discovered, there’s still the potential for a CNG (Compressed Natural Gas) development.
The well is estimated to cost $3.5 million to drill (£2.7 million) - and while further costs will likely follow if a discovery is made, the company has significant financial reserves in excess of the initial expense.
As ever, the question is one of Chances of Success (CoS) - Oak Securities (broker to PRD alongside Novum) has recently released a note with a risked price target of 148p, based on a 12% CoS (and 6% for the helium given its weaker certainty).
This 12% is based on a recent Initial Technical Review, itself based on information from before Predator’s additional work on defining the source rock and reservoir , which has seen PRD increase its own internal CoS estimate to 50%.
However, having written FCA-registered notes before, I know Oak no choice but to use the 12% figure and go with the most conservative guess possible.
But PRD thinks 50% is a better estimate - and 50% CoS is stellar in this game.
Recent updates
On 8 August, PRD issued an update on the MOU-5 drilling plans:
Jurassic gas is being targeted for Morocco's gas-to-power market. Entry into the First Extension Period was required, due to needing a Ministerial Order from the Ministry of Energy for statutory approvals.
The company delayed mobilisation logistics for equipment to avoid unnecessary costs while waiting for regulatory documentation.
The surface location of the MOU-5 well was shifted 277 metres northwest to avoid a water well used by olive farms. This required programming a deviated well and importing additional inventory, which required customs clearance.
A licence to temporarily occupy the MOU-5 site has been granted, valid until 6 April 2025, for operations in the Saka District near the Moulouya River.
An updated report from Scorpion Geoscience Limited estimated 5.916 TCF of net P50 gas resources, with a conservative success chance of 12%, compared to Predator's internal estimate of 50%.
The MOU-5 and MOU-4 wells will undergo rigless testing to evaluate helium presence, following evidence of helium in MOU-3 samples. The company is also conducting further reviews of the helium potential, integrating satellite spectroscopy analysis across the Guercif licence area.
Helium testing at MOU-5 will be coordinated to occur after drilling, utilising an on-site PVT laboratory to screen for helium before the rig is demobilised.
Executive Chairman Paul Griffiths enthuses that ‘Whilst MOU-5 is focussed on finding potential gas resources of a sufficient size to service the gas-to-power market in Morocco, the evaluation of the potential for helium presence would be an added value to the area development. Recent helium discoveries and newsflow is leading to a better understanding of how and where helium deposits might be generated. It is likely that this has been over-looked in the past where the focus has been on developing hydrocarbon potential in areas which potentially are also helium domains. We are cautious but excited regarding the potential for helium in Guercif. The Moulouya Fan and the carbonate reservoirs that may be encountered in MOU-5 have the ability to hold large volumes of gas and have effective seals.’
And then on 30 September, another update concerning the helium potential - ScorpionGeoscience considers:
P50 case: 104.31 BCF of He based on a 1.298% global average.
P10 case: 598.88 BCF of He based on a 4.066% global average.
The consultancy compared the MOU-5 structure with other global helium-rich fields, such as the Hassi R'Mel field in Algeria and the Hugoton field in the USA. It also considered potential migration pathways, reservoirs, and adequate trapping for helium retention, alongside Guercif’s geological setting:
Crystalline basement (Tanzania analogue),
Granitic intrusions (Corsica analogue),
Radiogenic volcaniclastic sediments (Hugoton analogue).
The bottom line
Predator also enjoys interests Trinidad (oil production from Cory Moruga), West Africa and Ireland (awaiting regulatory developments to proceed with exploration near the Corrib gas field), but the share price is going to move in lockstep with MOU-5.
In late September, the company appointed Dr Stephen Boldy as Non-Executive Chairman, who spent almost 19 years with Amerada Hess Corporation as UK Exploration Manager, Norway Exploration Manager and International Exploration Manager. As per usual, the right people tend to come on board at the right time.
Predator could see significant success next quarter.