Petroceltic International (LON:PCI) is still aiming to unveil a farm-down partner for its Algerian gas field by early 2011, according to Peter Dunne, the company’s corporate finance and commercial manager.
Speaking shortly after the company’s latest presentation, Dunne was guardedly optimistic about sealing a deal with an oil major or possibly a gas distribution company active in the European market.
“We are still aiming to conclude talks around the end of the year. We are hopeful. We said at the start of the year we hoped to have this farm out completed around the end of 2010,” Dunne told Proactive Investors.
“And we are still aiming for that. But even with the best will in the world it might drag into early next year.
“It is a long process. Given the scale of it, the assets and the valuation, it will be a material acquisition for any company.
“The state oil company, Sonatrach will need to give its approval to any deal. The reality is we have to get their blessing. But we have a good working relationship with them.”
Covering a similar land mass to that of Greater London, the company’s Isarene permit area in the Illizi basin of south eastern Algeria borders a number of hydrocarbon havens owned by the likes of BP, Total and Repsol.
Petroceltic has a 75 percent share of the licence, valued by industry experts Wood McKenzie at US$733 million, with the remainder spoken for by the state-owned oil and gas company Sonatrach.
The Dublin headquartered oil and gas explorer decided to look for a new partner after Spanish energy giant Iberdrola pulled the plug on an agreement earlier this year.
The farm down could reduce that holding by as much as 49 percent . The reality, however, is that any partner is unlikely to come in for more than around “20-30 percent” initially, Dunne said.
Drilling on the Ain Tsila permit began earlier this month as part of a four-well campaign expected to last until June next year.
“Under the current programme the plan is to interpret the data and put together a field development plan with a view to filing it with the state oil company in the fourth quarter of next year,” Dunne said.
“We then hope to have it approved by April 2012 – this being the end of the delineation phase.
“It will be a significant asset in terms of resources and reserves numbers by the time we get to the end of the appraisal stage.”
The giant Algerian gas field could cost as much as US$2 billion to develop if it meets its full potential. If not then the figure could still be in the order of US$1-1.5 billion.
This explains why Petroceltic needs a partner who will share the financial burden.
“It is a big gas play in Algeria which is highly capital intensive,” Dunne said.
“The field will run for 25 to 30 years and will be generating the equivalent of 80,000 barrels of oil a day for a very long time.
“It will be a big cash cow. But there are high costs initially. We won’t be farming out to a small AIM company, we will be farming out to a much larger entity.
“The company will be an oil major or a gas distribution company along the lines of Iberdrola, with whom we previously had a strategic alliance.
“We are looking at a farm out event now that is likely to cover an element of past costs and an element of appraisal costs.
“We might look at farming out another amount (at a later date) when the field development plan has been approved.
“Then you will have an asset worth in excess of US$1 billion, hopefully. Doing a further farm out to bring in another partner, or extending the existing relationship, makes sense.”
Dunne also spoke briefly about the company’s operation in Italy, where drilling of the Elsa-2 well has been suspended because of a clampdown on near-shore drilling.
Under the law as it stands, it is possible the programme could go ahead. But such is the uncertainty Petroceltic won’t risk time and shareholders’ money testing the legislation.
Instead, along with others in the same predicament, it is lobbying for change through official and legal channels.
“The general election may bring a change of government and a positive outcome for us. But then it might not,” Dunne said.
“The minister for enterprise and industry is lobbying to change the law to allow the operators to drill their wells.
“But at the moment we have an asset in short term hibernation. What’s disappointing is we were about to drill an appraisal well which could have opened a whole trend where had a number of licences. Theoretically it was a very interesting play for us.”