TUESDAY, JULY 24, 2012

PRD Energy Partners with a Major in Germany (PRD:TSX-V)

 

Friday, July 24, 2012. 9:35 PM PST (originally from July 20, 2012 5:03pm)
(via the New York Nickel - jackp27.blogspot.ca or twitter @jackp27)

We almost gave up. And then, last Thursday, this tripped across our wire:
PRD Energy Announces Inaugural "Farm-In" with GDF Suez. Wow.
 
(You can sing along to the tune of "Old MacDonald had a farm" while holding a hamburger):
Old PRD had a farm, ee-eye-ee-eye-oh! 
And on on this farm they had a Boerger, ee-eye-ee-eye-oh!
 
To finish this little ditty, it'll be necessary to review the facts regarding PRD Energy's (PRD:TSX-V http://www.google.ca/finance?q=CVE%3APRD) nifty little announcement Thursday that it has incontrovertible evidence, for the first time, that there IS a wizard behind the curtain. See notes 1, 2.
 
PRD's epic announcement that it had completed its first first "farm-in" arrangement (i.e. joint venture) in Germany with GDF Suez popped the stock 26%. 
 
And no wonder. GDF Suez employs over 200,000 people and is a major global operator. GDF Suez has contracted PRD as the drilling and competitions subcontractor for a formerly producing field known as the Boerger-Werlte Pool. Boerger produced 950,000 barrels of oil (@159 liters per barrel) before it was abandoned. We believe it when PRD says in its latest release: "PRD has hired German staff and expects to continue to actively grow our team in Germany to advance our projects". In a short unofficial ceremony five minutes ago, we honored that sentence by deeming it the winner of our first-ever Most Obvious Statement of Last Week Award. The ceremony was not publicized in advance.
 
We're not sure if this JV relates to a license PRD previously announced which covers 3,400 acres in the "Malm" or "Molme" formation (March 5, 2012). In that release, the Molme license is listed as one of six German licenses PRD owns. PRD's most recent press release says the Boerger project relates to a formerly producing property abandoned in 2003, not in 1995 as the March 5 release indicates. So it appears that this is a separate agreement apart from its 266,000 acres of German drilling interests. Which raises an interesting question. Is this a major partner bringing Molme 2? Or is it the original Molme with a major attached (hereinafter referred to as OG Molme)?
 
This question about whether PRD has partnered with a major using its own licenses or if a majorchose to partner with PRD via RFP  (request for proposal) is not inconsequential. If PRD, with its licenses in hand, went to GDF Suez and effectively sold them half their future output, would that be better than if GDF Suez (with its own license in the Molme formation) partnered with PRD because of its drilling expertise? Enquiring minds want to know. Either way, each model seems compelling but with distinctly different risk profiles. 50/50 splits aren't often seen; usually one party has control. So the legal owner of the license would ultimately be the controlling party.
 
For PRD to earn its 50% interest in the farm-in, PRD has to finance a 20 km (~12 square miles) seismic program and the the costs related to the drilling, completion and testing of one productive well. These costs are expected to be $4.1 million for the fifty/fifty rights to the Boerger output over the three year term. Investors will have to wait until the first quarter 2013 to learn about drilling results. We expect that there will be similar announcements involving other majors before then. 
 
As we continue to prowl around various backwater blogs with Google translator set to German, we'll provide further updates. But, for now, here is the high-level summary of the matter before us, derived from public sources, of course: (Note 4)
 
1.  Nov. 1, 2011 - Granted 240,000 acres of E&P. "PRD expects to commence operations on both licenses in early 2012". As of July 19, 2012 there are still no operations that have commenced or at least been announced, to our knowledge. Volkensen is 2,800 acres abandoned in 1993. Steinhorst is ten times larger. The Steinhorst license covers 238,000 acres in which "several producing fields" outside of its agreement are already operating.
 
**2. Jan 25, 2012 - labeled earlier but Feb 21 news release is linked instead. SEDAR search underway.
 
2. Feb 21, 2012 - Granted Molme Production license covering 3,400 acres. includes a "formerly producing field abandoned in 1995". Three year license. One well must go into production during the 3 year term. PRD Energy has also applied for several other exploration and production licenses in Germany and anticipates a response to these applications in the coming weeks". True to their word, a little over a month later Oberg is announced.
 
3. March 5, 2012  - Granted 20,000 acre Oberg production licenses. Abandoned in 1992. Other production licenses cited: 
i) 2,100 acres as defined by the Broistedt and Hohenassel production licenses, which are of equal size. Both were producing fields before they were abandoned in 1994 and 1992, respectively;
ii) Licenses for Molme (3,400 acres) Volkensen (2,800 acres) and Steinhorst (238,000 acres).
 
3. July 19, 2012 - GFD Farm-in covering Boerger under the Molme license.
 
4) We have deemed "field redevelopment" the new cool thing to do.
 
Questions:
The catch, if there is but one, consists of these two items: 
1. "After the completion of the farm-in, PRD has the right to participate as a 50% working interestpartner in Boerger. Well, all we can say is if they're on to something, they may really be on to something,
2. The Company will contribute capital proportionate to its participation. They can always raise the capital if they're real onto something.
3. When will the farm-in be deemed complete? How much time does PRD have to decide whether it wants to pull the trigger on Boerger and ante up?
4. Under what specific conditions will PRD participate? What are the valuation metrics used to calculate the level of capital required for PRD's participation? Is the decision to expend capital related to factors involving (market) timing, specific event triggers, drill results, or special situations? 
5. How could we have guessed Suez? Probably the same way we can guess the remaining majors who will partner with PRD already operating in Lower Saxony. More on this in a future blog.
6. "PRD continues to evaluate projects based on a conservative risk profile". What are PRD's evaluation metrics/hurdles?
7. "PRD is currently negotiating to acquire data pertaining to these fields which would materially accelerate the company's ability to develop these abandoned fields into producing oilfields." Negotiating with who? For how much?
8. More upside: PRD also continues to discuss additional farm-in arrangements with operators in Central Europe (July 19, 2012).
 
Wouldn't it be interesting to get a map of Lower Saxony and see where all of this stuff is happening? Please tweet me @jackp27 if you have this available. or email me at jackp027@gmail.com with the Subject line: LOWER SAXONY!! 
 
 
PRD in Lower Saxony (the Northwest German Basin)
Oberg 20,00 acres. Abandoned 1992.
Broistedt 1,100 acres. Abandoned 1994.
Hohenassel 1,000 acress. Abandoned 1992.
Molme 3,400 acres. Abandoned 1995.
Volkensen 2,800 acres. Abandoned 1993.
Steinhorst 238,00 acres. A currently producing territory.
TOTAL: 266,000 acres in Germany in which it holds 100% "working" interest
 
 
 
Next Issue: the beauty of "field re-development"
 
 
Notes:
1. PRD Energy's Boerger announcement. July 19, 2012.
2. I only point out the wizard-behind-the-curtain thing because I recently saw Fritz Lang's classic motion picture "Dr. Mabuse" (which, incidentally, was banned in Germany back in the 1940's) and this film did not reveal a wizard behind the curtain. Instead, two speakers were hooked up to a wire that disappeared into the wall.
3. 20 square kilometres is 8 km + 8 km + 1.6 km + 1.6 km = 19.2 km = 5 miles + 5 miles + 1 mile + 1 mile. 12 square miles and a bit.
4. URL of PRD Energy's news release page: http://prdenergy.ca/main/index.php?ap=news
5. Link to Molme Production license covering 3,400 acres (Feb 21, 2012): http://prdenergy.ca/uploads/news/12-02-21.pdf
 

 

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