Please note that some of the following questions have been paraphrased and/or combined to avoid duplication.
- Assuming West Newton is successful, how does Reabold plan to monetise the project? Might this be in the form of dividends, a capital return on sale or a divestment? Does the JV have the firepower to take this through to production?
We are currently keeping all options open and it is difficult to be specific prior to knowing the extent of success at West Newton and the state of both capital and asset markets going forwards. The upcoming well and well tests are critical for the project with success in one or both operations significantly altering the future of the field.
We would note that capital markets have been supportive of the West Newton partners and also that we expect the project to be extremely attractive to potential industry buyers given its economic potential and its location (including its position relative to the Zero Humber Carbon concept).
- What time scale do you have in mind for monetisation of West Newton and California?
It is hard to put a time scale on the monetisation of assets as this depends on many variables, however we plan to generate the highest possible return for shareholders in the shortest possible time period.
California has been generating cash for the last few reporting periods due to strong drilling results and low production costs per barrel, meaning this is already a contributor to Reabold’s balance sheet. The extent of the running room across Reabold California and continuous cash generation have to be considered against any decision to sell any of the assets.
As set out in 1. above and 3. below, in respect of West Newton, we are keeping our options open, with the immediate focus being on Rathlin’s progression of West Newton A and West Newton B.
- Will Rathlin drill West Newton C, West Newton D, Ellerby and Spring Hill or will the license be sold beforehand?
Rathlin is currently focussing on progressing activity at West Newton A and West Newton B, the results of which could be transformational for the project. A project of the scale we believe West Newton to be is likely to require multiple wells from multiple sites over time. Rathlin has therefore submitted Screening Requests for two new well sites, West Newton C and West Newton D.
- What was the rationale for the Deltic approach?
Reabold made a possible all-share offer for Deltic Energy as we believed the acquisition would deliver clear synergistic benefits and cost savings, which would help to accelerate the enlarged group’s strategy. It’s also worth noting we consider Reabold and Deltic to have complementary portfolios, particularly in the emerging Zechstein oil and gas play underpinned by Reabold’s West Newton discovery, meaning a combination of the companies would facilitate optimal capital deployment for both existing and new projects. The diversified, high-impact, near-term portfolio that Reabold and Deltic shareholders would be exposed to, we believe, would be highly exciting. However, the Board of Deltic unequivocally rejected the offer.
- When might we expect further news from Romania?
Testing of the successful IMIC-1 well is ongoing and nearing completion. The test is concentrating on the PA IV sand, which is a proven reservoir and has the greatest reserves potential of the three reservoir intervals intersected in the IMIC-1 well.
As part of the testing, IMIC-1 is being acidised, with gas flow having been observed after approximately 12 hours. The well will now be shut in to observe pressure build up as the reservoir continues to clean up. We look forward to receiving the results of the flow test in due course. Produced gas will then be sampled to determine the suitability for commercial sales.
- What is the future for the Romanian portfolio if the well test at IMIC-1 is not resolved?
We are confident that we have a successful discovery at IMIC-1 based on data from the well and adjacent historical production. In addition to IMIC-1, however, Reabold is also invested in the IMIC-2 prospect and the broader Parta License.
- What do you have planned in California?
We continue to focus on generating cash across our California portfolio, particularly given our low cost per barrel, resulting in profitable production even at low oil prices. Although production was affected by the COVID-19 pandemic, all wells are now back on production.
Recent success at VG-6 in West Brentwood has unlocked more running room on the license than we had previously anticipated meaning we are working up further follow-on targets at both West Brentwood and Monroe Swell.
- What do you see happening to the oil price over the next year or so? How much do changing commodity prices affect production in California?
Reabold’s portfolio has been designed to operate effectively in a low oil price environment so, while clearly lower oil prices affect the margins of production, we remain profitable in California at current levels – the low oil prices actually highlight the excellent economics of our operations here given that fluctuating oil prices do not affect production across California.
- Might you look to acquire new acreage in California given CRC’s demise?
California was already an interesting region given the limited number of larger E&Ps operating in the area, despite it being one of the most prolific states for US oil and gas production. The implications of bankruptcy for CRC will likely take some time to play out, but we will be actively assessing developments in the opportunity set as they arise.
- What is the latest with Colter South?
Prior to the recent licence round, the entire Corallian portfolio consisted of assets which required industry participation (e.g. farm out) to fund further activity. The reduction in activity in the upstream industry, particularly since COVID-19, has made it difficult for Corallian to attract funding into drilling projects.
We were therefore delighted to see Corallian offered the Victory project in the 32nd license round as announced recently. The Victory project is already appraised, and Corallian expects to be able to progress this project through the FDP stage without the need for additional drilling, and therefore at significantly reduced capital outlay in the near term. This is therefore a meaningful project that can be progressed in the current environment, whilst the exploration and appraisal projects within the Corallian portfolio will hopefully attract more interest as conditions improve.
- Are you still looking to invest in other opportunities?
We are constantly on the lookout for new opportunities where we see the prospect of near-term, high-impact activity which can deliver a return for our shareholders. It could be that the COVID-19 environment presents further opportunities in this regard and, with a strong funding position, we are in a position to react to any suitable opportunities.
- Can you comment on the current funding position?
Reabold is well funded for all of its upcoming work programme requirements. It is important to remember that we do not consolidate cash invested into the portfolio companies such as Rathlin (and held on their balance sheets) into our own balance sheet. Therefore, the bulk of our economic interest at West Newton, which is held via our Rathlin ownership, is funded from the Rathlin balance sheet as opposed to Reabold’s.
We are also generating cash from the Reabold California assets and have access to a fully undrawn £5 million equity drawdown facility.