Woburn Energy – Black Rock Oil & Gas reborn

2008 is a year shareholders in Black Rock Oil & Gas would like to forget (and they didn’t much enjoy 2007 either). It ended on a high though as the company finally secured the financing it needed after operating on a shoestring for several months. There are also encouraging signs of progress at its Colombian assets after their operator, Kappa Energy, was taken over by TSX listed Pacific Rubiales.

Black Rock will be changing its name shortly to Woburn Energy, no doubt hoping to mark a fresh beginning. Its shares are currently suspended however as the funding talks meant that the company wasn’t able to produce its results for the year ended 30 June 2008 within the six months stipulated by AIM rules. They should be produced soon though allowing trading to resume.

Black Rock was one of the first small oil firms to feel the effects of the credit crunch when a placing in the autumn of 2007 was preceded by a sharp fall in its share price. By the start of 2008 more funds were required to fulfil its drilling commitments in Colombia. A private Canadian company, Prospero Hydrocarbons, provided $5.4m in return for a 49% stake in Black Rock’s Colombian assets.

In April 2008, the company hung out a ‘for sale’ sign and also signalled its intention to dispose of its 15% interest in Block 49/8c of the North Sea, which contains the Monterey Gas Field. The block’s operator, Wintershall Noordzee, reckons Monterey could contain 165 billion cubic feet of gas. No sale has been agreed so far though. 

Takeover and funding discussions continued for the remainder of 2008 but, come December, funds were so short John Cubitt, Black Rock’s managing director, had to provide a short-term loan of £2,500 to keep the company going. But a deal was close and a week later the proposed funding was announced.

The new money is coming from Cetus Investment, which is a subsidiary specifically set up for this purpose by Zaver Petroleum. Zaver is a private company incorporated in the British Virgin Islands and ultimately owned by Hasan Hashwani. Hashwani and three others have joined the board of Black Rock as non-executives. Zaver’s main asset is a 55% holding in Orient Petroleum International, which operates primarily in Pakistan and made profits of $13m on sales on $68m in 2007.

Cetus is subscribing for 200 million shares at 1p each, a total of £2m. As Black Rock has just over 32m shares in issue this will take Cetus’s stake to just over 86%. Normal takeover rules for a stake of this size have been waived and Cetus has also agreed to provide a second round of funding of not less than £5m and not more than £10m.

The second round may take the form of third party debt arranged by Cetus, a shareholder loan or more equity. Any shareholder loan would be charged interest at the greater of 7.5% per annum or 3% over base. Additional equity financing would be 1p per share again meaning that Cetus’s stake in Black Rock could rise to as much as 97.4%.

So the potential dilution is massive but in truth the fact that any sort of financing was agreed by the directors of Black Rock is a minor miracle in itself.

While all the funding activity has been going on, work has continued on the company’s two licence areas in Colombia. Perhaps the most significant event however was last summer’s news that Toronto-listed Pacific Rubiales was buying Kappa Energy for $168m. Kappa is the operator for several licence areas in Colombia including the two in which Black Rock has an interest, which are known as Las Quinchas and Alhucema. Since Black Rock farmed into these blocks in 2005 Kappa seems to have struggled to fully exploit the prospects that have been identified.
At Las Quinchas, progress at the Arce heavy oil field has been slow as problems with steaming equipment hampering attempts to boost flow rates. After an initial success at Acacia Este 1, also in Las Quinchas, a follow-up well was less successful and indicated the field was more complex than first thought. Finally the first well drilled at Alhucema in April 2008, called Arrinconada 1, encountered no significant hydrocarbons. 

Pacific Rubiales has existing interests in Colombia and has stated its commitment to develop Kappa’s portfolio. A detailed report accompanying the acquisition attributed roughly 20% of the total value on a 2P basis to Arce and Acacia Este but over 50% on a 3P basis. This was back when oil was at $140 per barrel however.

Arce is estimated to contain between 10m and 15m barrels while Acacia Este have between 50m and 100m. After taking Prospero’s interest into account, Black Rock has a 25.5% stake in these prospects. In addition, under the Las Quinchas licence terms, Ecopetrol has a right to back into 50% of any find but has already declared Arce can be developed at sole risk. Ecopetrol has no back-in rights at Alcuhema, where Black Rock’s net stake is currently also 25.5%.

In early January, shareholders got their first update on activities in Colombia for many months.Arce 4, drilled in July 2006, is on a cold production test producing 10 barrels per day. Acacia Este 1, sunk a year later, is now on a long-term production test and currently producing 40 barrels per day.

Acacia Este 4, a south-west deviation from Acacia Este 1, spudded on 3 December and was estimated to take 30 days to complete. It will be followed by Acacia Este 5, a northerly deviation from Acacia Este 1.Both wells will test a open hole completion strategy and the compartmentalization of the Acacia Este prospect. A 33 sq km 3D seismic programme has also been completed recently and, together with data gathered from the two new wells, this will be used to devise an appraisal programme for 2009.

With funding secured and heavy oil experience among its partners, the chances of developing these Colombian assets look brighter than they have done for some time. Black Rock’s shareholders will get a much smaller piece of any eventual prize but at least they are still in the game.