Rose Petroleum attentions can again sharpen on Paradox basin

2017-08-22 14:02:00
The area being targeted by Rose is believed to have very significant potential – Paradox could contain as much as 1.1bn barrels of oil and 2.2tn cubic feet of gas.
Paradox: Rose shares were down despite Tuesday’s permitting breakthrough

Rose Petroleum PLC (LON:ROSE) investors’ attentions can now sharpen again onto the group’s high potential Paradox basin exploration project in Utah.

Restructuring and clearing out legacies - such as the nearly complete disposal of Mexican gold operations - have been distractions from an investment case that’s relatively simple and undoubtedly attractive.

The area being targeted by Rose is believed to have very significant potential – Paradox could contain as much as 1.1bn barrels of oil and 2.2tn cubic feet of gas, according to a report compiled by industry consultants Ryder Scott.

Permitting delays have frustrated over much of the year to date, but, that unease will now subside to be replaced by optimism.

Rose on Tuesday, August 22, announced that it had finally received the green light from the local authorities in Utah and a planned 3D seismic programme could now be advanced.

A landmark for the explorer

It is a significant milestone for the AIM-quoted company which now expects to begin operations in Utah in early September.

"The securing of the approvals is a landmark moment for the company and I'd like to thank everybody involved in the permitting process for their hard work and commitment in finally getting us to this point,” said Matthew Idiens, Rose chief executive.

“We have all been waiting for this moment for some time, to be able to commence operations in the Paradox Basin, which will finally enable us to initiate the value creation from the project.

He added: "Our seismic shoot team has already commenced the optimisation designs for the final shoot parameters and as a result of their significant operational experience within the Basin, we expect to be able to cut costs and maximise the efficiency of the shoot.”

The company also told investors it is presently in dialogue with a number of third parties about potential funding options for the project, including both the pending seismic and future drilling.

Mexican gold sale represents another potential milestone

In mid-August, Rose announced that its anticipated disposal of a Mexican production business was now nearing completion.

The company, in a stock market statement, confirmed that the buyer Magellan Gold Corp made the extended August 15 deadline.

“The company is pleased confirm that it has received from Magellan both the irrevocable commitment letters totalling US$900,000 to fund the purchase and the first US$25,000 cash payment relating to the August 2017 running costs of the mill,” Rose said in a statement.

The company added: “Rose and Magellan are now pushing forward to complete the transaction.”

Closing is still subject to conditions such as approval by Rose shareholders, Magellan entering into a separate asset purchase agreement and both companies' due diligence. The total price for the asset amounts to US$1.5mln, with US$1mln in cash.

Activity in the gold milling business is presently on hold, pending the deal’s completion.

Matthew Idiens, at that time, added: “We are pleased with the progress being made on the disposal of the SDA Mill and, subject to signing of the sale and purchase agreement and satisfactory completion of due diligence, we expect to be in a position to convene the general meeting to seek shareholder approval to complete the disposal in the coming weeks.”

A divestment could coincide with the start of operations in Utah. Not only would that represent a simplifying of the investment case it should also allow investors to focus much more intently on what could in time prove to be a substantial exploration project.

Seismic will be key to unlocking drill targets

Capital Network earlier this year, in a note, pointed out that seismic data will be the key to unlocking drill targets and identifying the natural fracture system which will be used to optimise drilling and completion.

“Management believes that using the natural fracture system instead of fracking would keep the highly mobile salt sections from migrating and thus not induce damage to the salt and preserve the integrity of the clastic sand and the wellbore itself,” analyst Lionel Therond said in January.

“With the highly successful use of TCP (tubing conveyed perforating) that Fidelity and Haliburton have been using on the Cane Creek, they have been able to stimulate the zone and not induce any damage to the salt sections.”

Therond added: “We believe that the award of the 3D seismic survey acquisition permit will enable Rose to secure the circa $2.5m funding to cover the full cost of the seismic shoot.”

The analyst noted that at that time the expectation was that a drill permit could be secured in around six months, and ahead of a drill programme Rose would have to decide whether to attempt a sufficient fund raise (one will is expected to cost about US$10mln) or alternatively seek a partner to sell-down a stake in the partly de-risked project to another industry player.