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Cott Oil and Gas focused on advancing Pandora gas field
Cott Oil and Gas (ASX:CMT) is focusing on the Pandora Gas Field (PRL 38) offshore Papua New Guinea with its withdrawal from PPL 437 on a favourable basis.
Cott was awarded a 40% interest in Pandora in December 2013.
Pandora has 800 billion cubic feet of best estimate (2C) gas resources, which a recent Concept Study by FLNG developer Wison Offshore and Marine demonstrated is technically and commercially viable.
The company has reached agreement with Kina Petroleum (ASX:KPL) and Heritage Oil to surrender its 20% interest in PPL 437.
In exchange, Cott will not be required to meet further contributions to joint venture expenditure.
This includes both past and future financial commitments. It also includes cash calls to date relating to the recently completed seismic program, that Cott would otherwise be required to meet.
“Our withdrawal from PPL 437 on favourable terms provides Cott with the opportunity to focus on PRL 38 where we believe there is a significant opportunity to achieve a positive outcome for Cott shareholders,” managing director Andrew Dimsey said.
“The agreement to reduce IES’s commercialisation rights over PRL 38 is consistent with this strategy.”
Pandora Gas Field
In December last year, the company announced that it had been awarded a 40% interest in PRL 38 and that it had assigned a 5% interest in PRL 38 to Kina in exchange for 10 million Kina shares.
These shares were sold by the company for A$3.33 million in September this year.
Cott also announced on 23 December 2013 that it had entered an agreement with International Exploration Services Ltd (IES) to provide IES with certain rights in the event of Cott commercialising up to 25 percentage points of PRL 38.
This agreement provides that, if Cott commercialises part or all of its interest in PRL 38, IES will be entitled to receive value up to a maximum of US$1 million per percentage point less any costs from the sale of up to 25 percentage points of the License.
The agreement with IES does not apply to Cott’s earlier sale of a 5% interest in PRL 38 to Kina.
Following the recent sale of Kina shares and Cott’s withdrawal from PPL 437, the company has elected to pay IES A$1.66 million in return for reducing IES’s commercialisation rights to 23.3 percentage points of the License.
Cott retains a 40% interest in PRL38, and IES’s rights apply only in the event of a transaction that commercialises Cott’s interest in the License. The other partners are Talisman 25% (Operator), Kina 25% and Santos (ASX:STO) 10%.
The Pandora Gas Field is located in Gulf of Papua midway between Port Moresby and Daru in 120 metres of water at approximately 1,400 metres depth.
It is a carbonate reef structure with excellent porosity and deliverability.
- Pandora 1X drilled in 1988 over A Structure discovering a 298 metre gas column which was tested at 57 million standard cubic feet per day; and
- Pandora B1X drilled in 1992 over B Structure discovering a 110 metre gas column which was tested at 43MMscf/d.
There are several prospects that have been identified within the licence by 3D seismic.
Growing awareness that many gas fields will not be developed other than with FLNG is driving technological development and reducing costs making FLNG far more commercially and technically viable.
Pandora FLNG concept study
Cott engaged Wison Offshore & Marine to undertake Concept Study for Pandora Gas Field.
Option 1 – Offshore FLNG
- 3 well development with subsea completions
- 1 mtpa vessel with 170,000m3 storage
- Onboard gas treatment and re-injection of sour gas
- Estimated Capex US$900m – US$1,100m (US$900 – US$1,100/ tpa)
Option 2 – Near Shore LNG
- Field Production via a Buoyant Tower for processing and sour gas reinjection
- 160km clean gas pipeline to near shore location
- 170,000m3 storage barge with 1 mtpa liquefaction capacity
- Estimated Capex incl pipeline and tower - US$1,300m - US$1,400m
Funding is likely to come from vessel and infrastructure owners – tolling model.
Analysis
Cott Oil and Gas is now focused on advancing its Pandora Gas Field with the decision to exit PPL 437 under favourable terms.
As part of this, it also stands to benefit more from a future development of the field with its agreement to reduce IES’s commercialisation rights over PRL 38.
Now the key ingredient.
Papua New Guinea is a growing LNG hub for Asia, and CMT’s licenses offer exposure to this very uber-hot market segment.
This is highlighted by the start-up of ExxonMobil’s PNG LNG project earlier this year.
Already several vessel owners and infrastructure partners have expressed strong interest in a Build Own Operate – tolling model for gas owners.
Worth noting Michael O’Keeffe (ex-Riversdale Mining Chairman/ founder) holds a 8.7% stake in CMT.
Considering a market cap. of just $6.6 million for Cott, (sale of Kina shares, cash at bank) and an Enterprise Value of circa $1.6 million and a tight register, with 77 million shares on issue makes for a very compelling energy exposure for investors.
It also leverages it to any potential future joint ventures or farm-ins that provide the company with a free carry.
