Mosman Oil and Gas Ltd (AIM:MSMN) this week struck a deal at the Billy Goat helium project, part of its Vecta venture in Colorado.
It told investors it had acquired a 5% passive royalty interest in the project after initially pursuing a larger working stake.
Mosman had previously aimed to fund drilling in exchange for up to 90% interest but later restructured its position in response to a unique deal opportunity with the operator, Desert Eagle.
Desert Eagle, a private company with both drilling and processing infrastructure in place, opted to finalise commercial terms with Mosman before any well results were released.
Mosman said this arrangement allowed both companies to maintain confidentiality and avoid capital risk prior to confirming exploration outcomes.
Chief executive Andy Carroll joined to Proactive studio to tell use more about the project, the deal, and what comes next in Colorado.
Proactive: Joining us now in the Proactive studio is Mosman Oil and Gas CEO Andy Carroll to discuss the latest news from the Vecta project in Colorado. Andy, it's good to see you.
So let's talk about this well first. Can you talk us through the company's interest?
Andy Carroll: Sure. So we acquired 20% interest last year. But in order to get the wells drilled, we agreed with Vecta that we would pay for the cost of the wells if necessary to earn a 90% overall interest.
We’re very happy with that increase in percentage.
On this well, Vecta were close to settling down their interest but couldn't quite get the deal closed before the well spudded.
Mosman had the opportunity to increase our interest to 90%, and we were very happy to do so.
Proactive: So the buyer bought the well whilst it was being drilled. Is that a common thing?
Andy Carroll: No, it's extremely unusual. The owner, Desert Eagle, which operates a helium plant, also owns Desert Eagle Drilling, the drilling rig.
The owner was on-site, as was our US representative, Howard McLaughlin.
They were able to talk during drilling. Vecta had been speaking with Desert Eagle and were close to an agreement but hadn’t finalised it.
So, Mosman spoke directly with Desert Eagle and finalised terms satisfactory to us.
Everything else then fell into place quickly.
Desert Eagle is a private company and prefers to keep its business private. They wanted to conclude the deal before the well data became public.
That was acceptable to Mosman because we’re pleased to develop a relationship with them. They have a track record of drilling, developing, producing and selling helium.
Working with Desert Eagle is the fastest and most cost-efficient route to production.
Andy Carroll: So we’re pleased to have this relationship.
Privacy is important to them, so it worked for both parties for us to take a passive interest, 5% of helium revenues.
That structure works particularly well for Mosman.
It works because the costs of drilling and infrastructure are significant—several million dollars. While revenues can be substantial, there’s first a high-cost development period.
This passive interest allows us to benefit from helium revenues without the capital costs, which are significant given Mosman’s current working capital.
Proactive: And can you elaborate a little bit more on that? Say the well had poor results, what would happen?
Andy Carroll: There are multiple outcomes for an exploration well. In this case, the deal was concluded before the well results were available.
The well data belongs to Desert Eagle. If the result was poor, Mosman would have invested around $200,000 in lease acquisition and drilling, which wouldn’t have been ideal.
What we expect, based on nearby operators, is that one well doesn’t determine commercial viability.
At the Blue Star project, helium concentrations can vary from well to well. Several wells are needed to assess potential development.
A full development scenario could cost around $10 million to $5 million for drilling and $5 million for infrastructure.
In either a successful or unsuccessful scenario, Mosman reduced its exposure by taking a passive stake.
Proactive: And one thing we do know is that there is plenty of news to come. Can you talk us through what we can expect over the coming months?
Andy Carroll: The rig crew took a break over Memorial Day and for graduations. They’re due back next week and will go straight into drilling the next well. We’ll announce when the rig is on location.
We expect drilling results soon. Four more wells will be drilled, each in different areas.
The current well is close to Billy Goat and was the first drilled. The others have different parameters and expected outcomes.
It’s going to be a very active June.
Proactive: Yeah, and plenty to look forward to. Good luck with the work to come, and thanks for your time.