Some oil and gas juniors join consortiums drilling US$100mln a piece wells offshore in the hope of hitting pay dirt, others take a more considered approach.
Curzon only has one asset currently, Coos Bay, a 45,000 acre coal bed methane gas project made up of leases in Oregon on the US Pacific Northwest coast.
Nevertheless, Thomas Wagenhofer, technical director, reckons for a fraction of both risk and cost, it can still deliver a bang-for-buck on par with any wildcatter.
“We IPO’d with a value of £7.5mln, but within a year we intend to have assets valued at more than £25mln,“ he told Proactive.
“That’s a fantastic risk/reward equation for the IPO investors.”
Due to the fallout from the oil price slump, Curzon was able to pick up full ownership of the Coos Bay project with a substantial chunk of the development work already carried out.
As a result Coos Bay is not about exploration or development risk, but commercial exploitation, says Wagenhofer.
In its favour, Curzon’s management boasts bags of experience on similar- style projects.
Wagenhofer, a petroleum engineer, chaired onshore US-oiler Magnolia Petroleum after a long stint with the oil and gas team at Australia’s Macquarie Bank.
John McGoldrick, chairman, was head of Enterprise Oil US when it was acquired by Shell in 2002 and went on to run US-focused Caza Oil and unconventional gas specialist Dart Energy.
Stephen Schoepfer, managing director, meanwhile, was head of Coos Bay Energy prior to Curzon acquiring the asset and oversaw its recapitalisation.
Curzon raised £2.33mln at 10p per share when it joined the main market standard list in October.
That money is earmarked for phase one of the Coos Bay development, which will see five existing wells re-worked and connected to the existing gas pipeline, as well as two new ones drilled.
It’s a straightforward story, says Wagenhofer.
High transportation costs mean gas prices in Oregon are around US$5 per cubic metre or around US$2 higher than the Henry Hub US benchmark.
Cleaned up, the existing wells will start to generate cashflow within six months after which the plan is to establish proof of concept and develop the rest of the 45,000 acres.
A major advantage for Curzon is that a gas pipeline runs through its acreage, which takes care of the infrastructure.
New well costs of US$350,000 each are a fraction of the price of shale drilling due to the fact that the gas is trapped in coal, not rock, and just a ‘little enhancement’ from water pumping is needed to get the gas to flow.
A permit to dispose of the water that comes up with the gas has already been issued.
Wagenhofer currently expects flow rates of anything between 200,000-300,000 cubic feet of gas per day from the five workovers.
Curzon anticipates that the two new wells will produce at higher rates but, more importantly, be the proof of concept for the remainder of the leases.
In total, Curzon expects between US$50,000 to $100,000 per month of free cashflow from the initial 7 wells.
Proof of concept the aim
Following success in phase one, phase two might see as many as 58 wells in operation within a couple of years later generating cashflow of US$5mln per year.
Again, Curzon will benefit from work by the previous owner with nine drill pads already in place, which is enough to accommodate most of the phase two plans.
Critically, once the concept is proved (in a year’s time if all goes to plan) a new reserve report will be commissioned and this is where the value uplift will come from.
“We put US$1.3mln in to ground, have up to US$1mln coming back in a year and the visibility of a company being worth US$30-40mln within a year.
“Risk is how much cash will come back, how these wells will perform and how best to optimise phase 2.”
Ultimately, there may be between 200 -400 wells in operation, a ‘utility situation’, but for now the focus is to establish the economics for the second phase.
Coos Bay’s coal resources lie underneath wooded areas and Curzon pays a 12.5% royalty to a forestry group and Coos County, which are the landlords under the two major oil and gas leases for the project.
A previous independent estimate suggested around 1trn cubic feet of gas is contained within the entire Coos Bay acreage, with some 273mln cuft in the probable (2c) resources category.
Coos just a starter
How much of that is commercial remains to be seen, but Wagenhofer says the production profile of the wells points to a project a life of at least 15 years.
But Curzon is not content to be a one asset company, says Wagenhofer.
Once Coos Bay is established, the plan is to expand both in the US and internationally.
“We are London-listed with ambitions to be a proper junior O&G company with a multi assets portfolio.
“This is a starter pack.”