New World Oil & Gas hits the ground running with second deal in 90 days

It is less than six months since New World Oil & Gas (LON:NEW) listed on the AIM market as little more than a cash shell. 

But it has certainly hit the ground running. Today it has two projects, exciting plans to fast-track them into production, and crucially, enough cash to meet its near term needs.

It is already carrying out an extensive programme of seismic work on its Blue Creek acreage onshore in Belize.

And earlier today it unveiled a farm-in deal on its latest project, Danica Jutland, in the south-west of Denmark, which will allow it to earn 80 per cent of two licence areas prospective for gas.

In return it will carry out an initial 50 kilometres of seismic on each block followed by a second phase, which will “high grade the prospectivity” of respective licence areas.

The cost is expected to be in the order of US$1.25 million.

An independent competent persons report on D-J, compiled by consultants RPS Energy, gives a reasonably upbeat assessment of its prospects. 

The limited seismic available suggests the possible existence of structures such as reef build-ups and shoal facies that are “likely to make excellent reservoirs”.

In all ten, potential leads have been identified thus far.

Eight are in the Zechstein, which is the source-rock for the Rotliegend reservoirs of the southern North Sea, while the other two are in the Triassic zone.

The acquisition of further seismic data is designed to increase the chances of a discovery from something in the order of one-in-eight, down to one-in-five, or perhaps even one-in-four, according to New World chief executive Bill Kelleher.

"Going to a 25 per cent chance taking these steps is as good as it gets in late stage, low risk exploration terms,” Kelleher adds.

Next month the company will conduct a competitive tender to choose its seismic contractor, which will mobilise its operation in early December as the hard freeze sets in.

Kelleher said he expects to use a technique called Vibara-seis, which consists of a fleet of specially equipped trucks that look a little like armoured personnel carriers.

Underneath, each has a large steel pad that when it shakes the ground acts a seismic signal source in much the same way as dynamite creates signal source waves in conventional seismic surveys.

While slightly more expensive than the other methods, it is faster and “gives you more bang for your buck”, says Kelleher.

Work will get underway in the second quarter and is expected to be completed by the end of the Q3 2012, the New World chief executive said.

After completing the seismic work it will begin the process of designing a well contracting a drilling contractor to carry out the work, which is slated to begin in 2014.

The cost of this initial well is estimated to be something in the order of US$12-14 million at today’s price.

Kelleher and his team may mitigate the costs for New World investors by bringing on board a partner – not just for the D-J project, but perhaps Blue Creek too.

However, this won’t happen until the seismic is shot and the company is in a much better position to assess the value and potential of the two prospects.

“We have a party very, very interested in farming in with us. They are a group that’s well funded and knows us as team and our technical ability,” says Kelleher.

“But we really don’t was to farm out too soon. So we won’t be considering a farm out until we have completed our phase-one seismic. Otherwise they are getting a deal on the cheap. 

“I want to understand what’s there, how big it is and what its potential value is. 

“And then I’ll put together a transaction that makes sense for New World. 

“Our plans are to maximise our chances of making a discovery while minimizing dilution to our shareholders, hence we are considering taking on a potential partner however we will always retain operatorship.”

Progress at Blue Creek continues apace. The first phase of seismic work has identified four leads and prospects worthy of follow-up in the second, the more focused phase 2 seismic survey.

They are located in a zone that has already produced oil and they are similar to structures seen on the neighbouring Spanish Lookout field directly to the south.   

“Phase-two seismic will be done sometime in December and we will then have a second update to our competent persons report,” Kelleher say.  

“We are hoping at this point for the competent person to report volumetrics and calculate an estimated market value of the project.

“This in my opinion will further reduce the risk at Blue Creek and improve the probability of geologic success.

“The new seismic is shaping up to a story of potentially larger accumulations than we thought. However we will only know with total certainty upon completion of drilling in 2012.

The New World chief reckons the company’s first obligation well at Blue Creek will cost US$8- $10 million depending ultimately on the well design they decide to go with.

Progress in Belize is dictated by the weather, with heavy rain a prevailing feature from around June to October. So work is unlikely to get underway before autumn next year.

Even so to get from the zero to this first well in a little over 18 months will be some achievement when it happens.

And New World still isn’t finished as Kelleher revealed the group may look at producing fields where it can bring investment and expertise that will add value.

“In a period of declining oil prices you often see the number of distressed producing fields increase,” Kelleher says.

“The producing field we will look at are the ones that are underperforming because of lack of investment – and where we can apply our experience and expertise to close their performance gap.”

Having raised £3 million on listing and a further £3 million in July, the company is valued at less than the cash it holds on the balance sheet.

This remarkable state of affairs is more a reflection of the turmoil on the world markets and the risk-averse attitude of investors than it is a comment on New World’s strategy.

As volumes return to the small-cap segment of the equities market then the valuation anomalies will unwind. 

In the meantime New World will continue progressively removing the risks from its two exciting projects.

And it is worth remembering how far New World has come in such a short space of time. In just 34 days after listing it completed its first project farmout in Belize, and now in just 90 days later it has its second project.

“New World is about a highly experienced management team, exciting low risk projects with well thought out plans to make discoveries and providing the investor with large multiple returns while optimising dilution,” says Kelleher. 

“We do not plan to make a living out of placing equity. 

“We are focused on organic growth by minimising dilution and combining the acquisition of quality projects and applying or expertise to increase value. 

“And trading at a market cap the same as our cash reserves we are a tremendous buying opportunity.”