Gondwana Oil (CSE:GO) was selected to negotiate with the government of Ghana on an exclusive basis to gain an interest in an offshore exploration block which is surrounded by major players in the oil industry such as Lukoil, Eni and Hess.
Introduction
Gondwana Oil (CSE:GO) was selected to negotiate with the government of Ghana on an exclusive basis to gain an interest in an offshore exploration block which is surrounded by major players in the oil industry such as Lukoil, Eni and Hess.
It’s extremely remarkable to see a junior oil exploration company invited to the negotiation table to discuss an earn-in agreement on one of the most exciting offshore exploration blocks in West Africa just 30 kilometers from a producing oil field with an annual production of 40 million barrels. We sat down with Troy Grant, President and Chairman of the company for some follow-up questions.
Q&A
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- It’s quite surprising to see a small company like Gondwana Oil being selected for exclusive negotiations with the Ghanaian government to earn in to the offshore block given that the area is almost fully staked by senior producers. Why was this specific block available?
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- As under the Ghanaian law, exploration companies have to relinquish a part of their blocks after a certain time frame. Due to this downsizing requirement, Hess (NYSE:HES) and ENI (NYSE:E; ENI.MI) had to give up parts of their blocks and chose to focus on the parts where most of the exploration has been conducted. As both the Hess and ENI blocks were bordering each other and both companies had to downsize their blocks, a new large and contiguous block was created by the Ghanaian government, and potentially interested parties were submitting requests to negotiate an earn-in deal with the government.
There were approximately 16-17 other applicants for the block, but we won the right to negotiate exclusively with the government, and we think this is mainly because we have the right mixture of people in our team. We work with local people and local partners, and on top of that we have a very strong technical team. The government of Ghana saw that we were a reliable partner and chose us over the several other applicants.
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- What’s the timeline you’re eyeing to conclude a deal with the Ghanaian government?
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- Well, it’s obviously always difficult to give a fixed timeline in this sector, but I do think we could have a signed agreement in 2-6 months from now. I think it’s very realistic to have concluded our negotiations before the end of the third quarter.
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- We know you can’t comment on specific details, but what would typically be required to complete the earn-in?
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- We don’t expect anything special, and will have to conduct some seismic 2D and 3D shooting and will very likely have to drill one or two exploration wells. Keep in mind that both Hess and ENI spent approximately $200M on this block and when they had to relinquish the license, they also had to hand over the data to the Ministry of Mines and Energy as well. We will have access to data on approximately $200M worth of exploration expenditures. We will use the previous exploration program as a starting point and this will allow us to conduct further exploration very efficiently as we will already know which areas will be prioritized over others.
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- Are you looking to add more projects to the portfolio?
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- Whilst our immediate focus is obviously on securing this block and starting our exploration program on it, we are definitely open to adding more projects as long as it’s an accretive project and has the potential to reward our shareholders. Basically we’d be looking for high-impact projects, and if the right project comes along, we’ll definitely have a look at it. But for now, our main focus is on this offshore Ghanaian block.
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- Can you elaborate a bit more on the management team and advisors?
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We have some people with a lot of experience in the offshore oil business. Our COO Douglas Manner was the previous COO of Gulf Canada Resources which produced 150,000 barrels of oil-equivalent per day. He was also COO of Kosmos Energy, which was an oil exploration company in West Africa.
Some of the other advisors assisting us with our work in Ghana include Gabriel Ollivier and Brad Holub who were respectively president & CEO and COO of UNX Energy which was bought out by HRT Participacoes for C$730M in 2011.
We were able to gather a team of highly seasoned professionals and now we’re in the final straight line to securing an exciting exploration project.
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- What would be a realistic time frame to start your first exploration activities?
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- It obviously all depends on how fast the negotiations with the Ghanaian government will result in a deal. We anticipate to do some seismic work before the end of this year and to drill a first well sometime next year. Well costs are about $50 million which isn’t bad for offshore, but we would make a strategic decision at a point in time to potentially bring in a partner to share the risk. We would like to point out what Canadian Overseas Petroleum (XOP.V) did in Liberia. It brought in Exxon (NYSE:XOM) as its partner, and Exxon pledged to spend $120M in exploration over the next three years where after Canadian Overseas would retain a 20% interest in its block.
This type of deal could be ideal for Gondwana, and I can tell you there’s already plenty of interest to work together with us on this block. So the bottom line is that there is not a shortage of major players that we could connect with on this Block.
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- As the spread between 1 and 1.5cts is quite large, are you considering a reverse split of the shares?
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- Whilst our immediate focus is obviously on securing this block and starting our exploration program on it, we are definitely open to adding more projects as long as it’s an accretive project and has the potential to reward our shareholders. Basically we’d be looking for high-impact projects, and if the right project comes along, we’ll definitely have a look at it. But for now, our main focus is on this offshore Ghanaian block.
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Disclosure: Inca One Resources Corp. is a sponsoring company. Please see our disclaimer for current positions.
