LONDON: Prospex Oil and Gas Plc has announced the conditional acquisition of up to a 49.9% indirect stake in El Romeral, an integrated gas production and power station operation located in the Guadalquivir basin in southern Spain.

El Romeral is comprised of three production licences (together the “Area”), on which three producing wells supply gas, through its own network, to a 100%-owned 8.1 MW power station. In addition, the Area contains two development locations and 11 very-low risk prospects with gross contingent and prospective gas resources of 5Bcf and 90 Bcf, respectively.

Based on current levels of gas production, electricity generation, and revenue per Mwh, the Project generates small amounts of free cash from revenue of c. €800,000 per year.

There is the potential to increase the number of generating days at the Project (historically equivalent to five days per week) and in the medium-term increase utilisation of the generation equipment (current 22%) by sourcing new gas supplies from within the Project Area, specifically from its assigned 90 Bcf of very-low risk prospective resources.

When gas was not a limiting factor the power station regularly produced c. 60,000 Mwh per annum, which would equate to a revenue of >€4.2 million per annum (based on current revenue per Mwh).

El Romeral is being acquired by Tarba Energia S.L with funding provided by Tarba’s shareholders, Warrego Energy Limited and Prospex. Warrego will fund the initial consideration of €750,000. Prospex has three months to elect an ownership stake in the Project (up to 49.9%) and refund to Warrego the corresponding proportion of the initial consideration.

Warrego will indirectly own the balance of the Project. The acquisition of Prospex’s stake is conditional on Prospex securing funding for such investment.

Prospex non-executive Chairman, Bill Smith, said, “With three producing wells, an 8.1 MW power station and gross reserves, contingent and prospective resources of 0.3 Bcf, 5 Bcf, and 90 Bcf respectively, the El Romeral gas power project not only promises revenues from day one, but also significant upside potential. Located in a proven hydrocarbon region with very low geological risk, it is the substantial development opportunity, specifically the combination of the power station operating at only ~22% capacity and the presence of two undeveloped discoveries and 11 prospects, which excites us most. Based on current and forecasted annual revenue, the economics for Tarba and in turn Prospex are expected to be favourable for an efficient return on investment with major scope for significant upside by exploring the very low risk 11 prospects.

“Our expected 2020 production profile, subject to completing the investment in the Project, will be centred on five gas wells in three projects in Romania, Spain and Italy, once the Selva field comes on stream. This would represent a fivefold increase on 2019 and, combined, we anticipate these five wells have the ability to produce over 9,000,000 scm net to Prospex over the course of 2021. With our joint venture partner, we plan to apply for permits for three new wells at El Romeral in 2020. At the same time, we will continue our technical work programme to de-risk the independently estimated 830 Bcf gross prospective resources (best estimate) at the Tesorillo project in Spain.

“We have been saying for some time that we believe our current market cap represents a fraction of Prospex’s underlying value. Our asset base could soon include an interest in a gas power station and associated infrastructure which cost ~€10 million to install, material interests in four producing gas wells, and a stake in a fifth well in Italy which is expected to be brought online in 2020. The value case behind Prospex is, in our view, very clear.”

Edited by Kiran Khan