Dominion Petroleum: reborn with great expectations

After an undistinguished few years, early-stage oil and gas explorer Dominion Petroleum is looking to reinvigorate its reputation. The company has refreshed its board with a new CEO and two non-executives and has just raised funds to accelerate its exploration activity. This will allow it in just a couple of month’s time to drill the first well in the Lake Edward basin of the Albertine Rift Basin, close to the huge finds in the Lake Albert basin that have sent Tullow Oil soaring, and acquire seismic data on another hydrocarbon prospect offshore Tanzania. As says new chief executive Andrew Cochran: ‘we will have a more intense level of activity in May, June and July than in the companys entire corporate history.’

Cochran, a 40-year old American and one of the founders of South East Asian oil and gas developer Salamander Energy and North Sea explorer Endeavour International, was appointed at Dominion in November. As business development director of Salamander, Cochran was one of the team that oversaw its £208 million London flotation in December 2006 – the same week, in fact, that Dominion listed on AIM for almost exactly £100 million less. Cochran brings useful experience, having helped Salamander ascend to the FTSE 250 after developing and acquiring a number of projects to take turnover to $100 million a year – though its shares have not made huge progress.

Dominion itself has had to undergo a much needed regeneration since last July, when it was suspended as it scraped about for funding options. London hedge fund BlueGold Global rescued the company with a $10 million injection and the addition of fund director Dennis Crema to the board. He was joined in December as a non-executive director by Atul Gupta, former CEO of Congo and Turkmenistan-focused Burren Energy, with two other non-executives stepping down.

Cochran views the current situation at the company like a ‘re-start’, with a further $50 million (£32.7 million) fundraising in March ‘having the characteristics of an IPO’, as since last August almost 100 per cent of the company’s institutional shareholders are new.

Furthermore, Cochran has pared down the portfolio to reduce the exposure to non-priority projects. As such Dominion’s stake in the Mandawa and Kisangire onshore projects in Tanzania will soon to be reduced to a 10 per cent ownership, subject to government approval for the farm-out agreements with the French majority owner Maurel & Prom. ‘It’s an interesting project, but high risk,’ says Cochran, who, having restructured, would perhaps not be averse to taking on new projects in future. ‘Now that we’re fully funded and some structural issues have been addressed, there’s the possibility we could look at things and be opportunistic.’

However, it is the potential within the present portfolio that has attracted this new investment and that is what Cochran says he is ‘focused on delivering’. As such he outlines his broad plans for the new cash. Of the $50 million raised, $15 million is earmarked for the Ugandan Albertine Rift licence, another $15 million for offshore Tanzania, $5 million for corporate use, and a final $15 million ‘contingency spending’, which includes progressing its licence in the Democratic Republic of Congo. adjoining its Ugandan licence.

The Albertine Rift licences in Uganda and Congo are where most of the current excitement around Dominion lies. Dominion’s licence is for the 1,013 sq km Exploration Area 4B in the south-west of the country, sharing similar geology to Heritage, now Tullow’s acreage to the north.

Oil seeps on the surface of Lake Edward and at outcrop on land have confirmed the presence of oil in the area. Initial gravity and magnetic surveys have indicated the presence of thick sedimentary formations capable of generating oil, with subsequent 502km of 2D seismic over part of Lake Edward and the adjoining land showing the required geological structuring to form oil traps. The company has identified four drillable prospects, as well as 11 leads that require further seismic.

Last June, Energy Resources Consultants (the same consultants used by Tullow Oil at neighbouring Lake Albert) delivered a Competent Person’s Report indicating that EA4B has mean unrisked oil-in-place across its four prospects of 1,715 million barrels of oil (MMbbl), with mean unrisked gross recoverable resource of 378 MMbbl, giving Dominion a net share of 359 MMbbl.

With the new funds now in the bank, a drill rig has been secured and will mobilise in May and drill in June. Lake Edward has never been drilled before so Cochran it going to play it safe. ‘We will to take our time. There’s no reason to think there’s more difficult drilling conditions. It’s a conventional well, around two kilometres deep. The work we do on this well will make drilling subsequent wells cheaper and easier.’

Thus Cochran says the drilling will take ‘one month - but we will know pretty quickly. The next step depends. We could follow with a second well but my preference is to shoot more seismic over the identified leads, where the company has estimated there could be a combined unrisked 782 million barrels of oil and if Block 5 in Congo is ratified then we can extend the seismic programme into Congo.’

Dividing EA4B from its westerly cousin Block 5 is Uganda’s border with the war-torn Democratic Republic of Congo. Dominion  will operate the exploration activity at Block 5, giving it 46.75% ownership, with its partners being the DRC state oil company and FTSE 250 player Soco International (where Dominion’s chairman Roger Cagle is also CFO and ‘executive vice president deputy CEO’). The 7,346 sq km of Block 5 has been subjected to airborne gravity and magnetic surveying that showed a large extent of the thick sedimentary basin capable of hosting oil discoveries but true potential cannot be quantified without seismic  surveys..

Go-ahead on this project awaits a presidential decree. Cochran has earmarked part of the recent fundraising for ‘contingency spending’ on this project if ratification arrives soon. He recently visited Kinshasa to meet the country’s new energy minister, of whom he says ‘nothing could go ahead until he was appointed. But I have no idea when it will happen, but the government seems to think it’s in their interests to get going soon.’

He adds that Soco ‘may succeed as operator’, which ‘might be better in the eyes of the Congolese as they are a proven operator in the area and for us as it allows us to focus our operating capabilities on Uganda and  Tanzania’.

As well as its pared-down onshore assets in Tanzania, Dominion has the licence for an 8,492 sq km block just offshore from the capital Dar es Salaam. The seas here are bubbling with industry activity, with blocks nearby also being held by such names as Shell, Petrobras and Statoil (who recently announced that ExxonMobil would be farming into their block). Anadarko’s Windjammer gas discovery, offshore deepwater northern Mozambique to the south, has recently provided encouragement by demonstrating the presence of source rock capable of generating significant volumes of hydrocarbons in the region.

Dominion’s 3D seismic programme covering around 1,000 sq km should begin in June. Cochran says it will take roughly up to 60  days to acquire the data,  three months to process and two months or so to analyse.

So, all in, the next few months offer plenty of potential excitement for the company. However, Dominion’s projects are all early-stage and, as we have pointed out before, the drill bit has a habit of delivering disappointment, with the average success rate in Africa still only about 20%.

Thanks in part to one dry well in Tanzania and an emergency fundraising last summer, Dominion’s shares have slipped 77 per cent from their 27p issue price to 6.13p, where they value the company at just over £97 million.