Petroceltic shares rise as ENEL farm-out nears completion

Petroceltic (LON:PCI) shares gained around 9 per cent today as it confirmed that the Algerian authorities ratified its farm-out deal with ENEL.

The deal to sell an 18.375 per cent stake in the Isarene permit was struck back in April. It sees one of Europe’s largest utility companies paying US$36.75 million for the stake in the permit, which hosts the Ain Tsila gas discovery.

ENEL has also agreed to pay a proportion of Petroceltic’s back costs on the licence as well as a further contingent cash payment, which could rise to a maximum of US$75 million.

Petroceltic says the amount to be paid currently exceeds US$103 million. According to chief executive Brian O'Cathain the deal will now be closed in ‘the coming days.’

Analysts say that the offtake of gas from the Isarene PSC is now assured because ENEL is one of Europe’s largest power utilities.

"Petroceltic’s mid-case estimate for the Ain Tsila field GIIP is 10.3tcf which, upon completion of the current appraisal and delineation programme, could see material increases to current estimated reserves of 2.7tcf of gas,” said analysts at Westhouse Securities in a note to clients.

“Only last week, Petroceltic announced flow rates of up to 67mmscfpd from the AT-9 appraisal well test, which should give investors increasing confidence regarding potential upgrades to the resource estimates of the Ain Tsila field.”

According to Westhouse the farm-out deal strengthens Petroceltic’s commercial case for the field development.

Additionally the broker says that it puts the Ain Tsila development ton an equal footing with other major gas developments in Algeria.

Petroceltic is the operator of the Isarene permit with a 56.625 per cent stake. The other partners Sonatrach has a 25 per cent stake and on closing ENEL will hold 18.375 per cent.

"We are delighted to announce that the final approval in Algeria of the Enel transaction has been granted which will allow for the deal's swift completion in the coming days,” said chief executive Brian O'Cathain.

“We look forward to formally welcoming Enel as an important new partner to the Isarene licence. 

“This transaction, allied to the excellent results from our appraisal campaign, has confirmed the quality and value of our Algerian asset and provides a firm foundation for the ongoing growth and diversification of our business" 

Last week Petroceltic shares revealed excellent flow test results from the AT-9 well at Ain Tsila.

The well produced gas at a combined rate of 52.8 million cubic feet per day (mmscf/d) during the test, with 43.9 mmcf/d coming from the Upper Zone and 8.9 mmscf/d from the Lower Zone. The well also produced over 1,200 barrels of condensate a day.

This is the highest pre-fracture stimulation flow rates achieved on the Ain Tsila field to date.

O’Cathain believes the well could produce at a rate of 60 million cubic feet a day on a sustained basis once it is has been fracture stimulated and it is in full production. 

The result marked the end of the 2011 appraisal programme.

According to analysts the AT-9 well tests should remove any lingering uncertainty regarding the commerciality of the Ain Tsila project.