That there’s something positive to take from what some investors may otherwise see as a negative outcome is, in a way, a bit apt.
It is all about Paradox now for Rose Petroleum (LON:ROSE) following the completion of its strategic review.
The upshot of the company’s strategic review is that low oil prices and a rethink over the group’s finances have meant that the group’s other interests in Utah shale ventures have to be cast aside.
In the company’s own words it has “substantially de-risked” the remaining Utah shale assets, which are located in the Paradox basin and count for around 1.1bn of the 1.8bn un-risked recoverable prospective resources previously ascribed to Rose in Utah.
Chris Eadie says the new arrangement will ‘right size’ the business
Rose chief financial officer Chris Eadie, in an interview, told Proactive Investors: “we felt, with oil price in the range that it is now and against the backdrop of a very large portfolio with high land costs etc that it was sensible to right-size that acreage portfolio and focus on the most prospective acreage in order to make sure we can see ourselves through the current market conditions and be well positioned for the recovery when it comes.
“We have to have a portfolio that we can not only fund in the current market but also which offers shareholders and all stakeholders a chance to see real value in the future”.
Exiting the Mancos basin assets
In a stock exchange statement, Rose said it was terminating its earn-in agreement governing ownership of its Mancos acreage.
It has also agreed with Rockies Standard Oil Company to hand back the Cisco Dome field, wells, pipelines, gas tap, gas plant and all the equipment.
Rose will cover the plug and abandonment costs of four wells put at US$320,000 and leave operator bonds in place with the State of Utah and the Bureau of Land Management.
It means the company is now not responsible for decommissioning a further historic 50 wells in the vicinity.
Matthew Idiens, Rose chief executive, in said: “The amendment also means we have eliminated the group's plug and abandonment liability which became an increasing issue as market conditions declined and gives us the opportunity to further reduce the underlying operational cost base.”
What now for the ‘de-risked’ Paradox assets?
The belief internally has been that the Paradox assets had the greater potential, and now unburdened by the costs relating to Mancos Rose believes it will have a better chance at making a success of the remaining Paradox assets.
As highlighted by Idiens in Wednesday’s statement, the company is also now implementing dramatic cost cuttings throughout the group, and it is hoped that the changes will position Rose for when there’s an upturn in oil prices.
On the ground, in the Paradox basin, the company is now at an advanced stage of permitting for a seismic exploration programme and that work is seen as a key priority and the next step.
Seismic data, gathered over what is described as a vast area, will be used to identify potential locations for the company’s first well in the Paradox basin.
Rose still has mining interests, but they’re not central to the strategy
Rose on Wednesday said it had found a partner for the Ardmore copper project, which is made up of 18 mining claims north of Tucson, Arizona.
Privately-owned Burdett Gold has made a modest cash payment, while the AIM-listed exploration group will retain a 15% net profits interest on the claims.
Ardmore is among a number of mining interests in the Rose portfolio, alongside a gold and silver operation in Mexico, interests in the ‘US porphyry copper belt’ and uranium interests in Arizona and Utah.
The mining assets could potentially be for sale, so long as deals can deliver funds to support the development of the shale assets in the Paradox basin.
Eadie said: “We’re looking at a number of different options across the portfolio. But, the key point is to make sure we can not only survive this difficult market but can be well positioned for a recovery.”