TomCo Energy (LON:TOM), listed on AIM, has reached its key strategic goal for the Holliday Block shale oil project in Utah.
The company has received a ground water discharge permit (GWDP) and a construction permit (CP), which add to the already secured large mining operation (LMO) permit.
As a result it now has all necessary permits to take Holliday Block into production and development. That is the good news.
Ostensibly the bad news, or not so good news, is that TomCo has taken what it calls a strategic decision to wait for a nearby project to prove key extraction technology at a separate shale oil project, and this project is being put back by two years.
The plans for the Holliday Block are based on EcoShale technology, a process developed by Red Leaf Resources.
EnergyEcoShale combines surface mining and subsurface retort processes and has various benefits, notably lower capital and operating costs and reduced environmental impact, particularly regarding water discharge, emissions and energy intensity.
Oil shale is different to shale oil in its production techniques and the fact that it contains organic material (kerogen).
Having tested a pilot plant in 2008, Red Leaf started a commercial demonstration project using an early production system (EPS) at Seep Ridge.
Red Leaf’s EPS capsule is three quarters the size of the planned full scale commercial capsule, which is designed to produce 9,800 barrels of oil a day (bopd) by converting kerogen contained in the shale rock to synthetic oil.
This occurs using a heating process and Red Leaf aimed to demonstrate scalability and economic viability at Seep Ridge.
The expectation was that all this would result in commercial production late in 2015.
At this point TomCo, which has a licence agreement with Red Leaf and is very much in its slipstream, planned to build and operate a similar EcoShale plant on the 100% owned Holliday block.
TomCo’s own acreage contains 126mln barrels (mmbbls) of oil in a surface mineable JORC-compliant measured resource.
However, in May, Red Leaf revised the development timeline for its project in part because of uncertainties over the oil price.
Michael Binnion, president and chief executive of Red Leaf said: “ ….. the timeline for the first oil from the EcoShale capsule being built by Red Leaf and Total has been set back, likely by two years.
“The joint venture plans to use this delay to incorporate upgrades in the design.
"It is anticipated this work could reduce the EcoShale production during full commercial development to US$30/bbl to US$40/bbl as originally estimated by Red leaf.”
TomCo has previously committed not to proceed with Holliday Block beyond permitting, until the outcome of Red Leaf’s project is known, so it too will, on the face of it, have until 2017 before it starts constructing its own plant.
On the announcement of the permitting approvals, TomCo also released news of board changes. Sir Nicholas Bonsor and Paul Rankine resigned as non-executive chairman and CEO respectively. Andrew Jones joined the board as non- executive chairman and Simon Corney joined as non-executive director.
Speaking for TomCo, Miikka Haromo the chief financial officer (CFO) firmly rejected the idea that the delay in moving the project forward is bad news. “This is a very important step forward,” he told Proactive Investors. “TomCo is only the second company to be given this kind of oil shale permit (Red Leaf was the first ).
“These permits will not go away. They remain in place. We have got the permits. We have done everything we were asked to do.”
The AIM-quoted company has around £575,000 in the bank, so it can keep going. It will restructure and slim down its cost base in the meantime and may seek mergers and acquisition opportunities.
Asked if TomCo’s executives would now be sitting around twiddling their thumbs Haromo said: “Not at all. A lot of things could happen. We have talked of mergers and acquisitions. Other parties could enter the process and shorten the timeline. It is all good news.”
The market seems to agree with him. The shares on Monday were up 39% to 0.25p.