Other than the headline, a decent read...Junior player's stock...

Other than the headline, a decent read...

Junior player's stock price crashes after Woodside snubs Namibia offer

Pancontinental Energy fights rearguard action on failed Orange basin farm-out as it talks to other parties and beefs up oil and gas resource estimate

"Namibia-focused Pancontinental Energy’s stock price crashed to a two-year low in Australia on Tuesday after Woodside Energy’s decision to walk away from a farm-in opportunity in the Orange basin. However, Pancon is fighting a rearguard action against the doom-mongers, arguing that its exploration block — PEL 87 — has significant potential, citing a recoverable resource estimate of 1.6 billion barrels of oil, and stressing it is in talks with interested parties.

Woodside had until 18 May to take exercise an option to take a major stake in PEL 87 but bailed out two months early after evaluating 3D seismic data. Upstream has approached Woodside for comment. News of the Australian major’s decision was first communicated on Monday by Sintana Energy — which controls 49% of PEL 87 partner Custos Energy — whose share price closed down 7.7% at C$0.6 (US$0.42) at the close of play yesterday on the Toronto Stock Exchange. The relatively limited impact of Woodside’s decision on Sintana is because the Canadian player — via Namibian player Custos’ well-connected chief executive Knowledge Katti — also has exposure to other Orange basin and Namibian plays, including Galp Energia’s PEL 83 which hosts the huge Mopane discovery. In contrast, Pancon is a one-trick pony whose only asset is PEL 87. As a result, Woodside’s decision saw Pancon's stock price plunge more than 47%, closing on Tuesday at A$0.009 (US$0.057), its lowest since January 2023, on the Australian stock exchange.

Even so, Pancon was not placing all its bets on Woodside. The company said it had “prudently prepared” for the possibility the major would not farm-in, stressing a process is “already underway” to secure another partner and has “received third-party interest”. Pancon also said that, based on an updated internal prospective resource study of the Saturn complex, PEL 87 could host “giant” volumes of hydrocarbons. Chief executive Iain Smith said: "Pancontinental sees excellent potential for large hydrocarbon finds within the Saturn complex as evidenced by our estimates of prospective resources.” This, he explained, is largely due to Saturn's proximity to the “world-class” Kudu oil source kitchen and the presence of amplitude-versus-offset (AVO) signatures “that we understand are consistent with major discoveries on-trend to the south” at Mopane and TotalEnergies’ Venus and Mangetti finds to the southwest. AVOs indicate the properties of rock and, potentially, what type of fluid it may hold.

Pancon said its board and management “remain confident” of PEL 87’s “significant” hydrocarbon prospectivity as identified by a 6593 square-kilometre 3D seismic survey that was fully funded to the tune of about US$35 million by Woodside. PEL 87, said the company, is the only permit next to and on-trend with Mopane not to be held by a major, adding that Galp recently reported a successful outcome for its Mopane-3X exploration well and has not modified its original in-place resource estimate of 10 billion barrels of oil equivalent, “suggesting that recent drilling results continue to support this figure.
The PEL 87 partners — which include state-owned Namcor — retain full access to the 3D seismic data and, while Woodside can confidentially retain a copy of the data, it cannot be shared with third parties.

At the same time as announcing Woodside’s decision, Pancon also advised the market on an updated resource assessment for PEL 87, highlighting how it has identified six new leads, with the previously pinpointed Oryx and Hyrax features now upgraded to prospects. In total, the study estimates prospective recoverable resources at just over 1.6 billion barrels, with the upside standing at 5 billion barrels and the low side being 429 million barrels. Both Oryx and Hyrax have a recoverable resource estimate of 534 million barrels. The estimates for the six newly identified leads of Xerux, Oryx North, Addax Channel, Addax Fan, Calypso and Addax South are 144 million, 125 million, 102 million, 100 million, 34 million and 33 million barrels. Importantly, said Pancon, multiple features could be targeted by a single exploration well. The chance of making a successful discovery range from 16.3% for Addax South to 22.5% for Oryx. The prospective resources have been estimated by Ric Jason, independent technical consultant to Pancon. Smith said: “Our estimate of prospective resources… demonstrates giant potential with the figures comparing favourably to significant discoveries on-trend to the south." “These results stand the company in good stead as we progress our programme to secure a farminee for exploration drilling at the earliest opportunity."

Commenting on Woodside's decision, SP Angel analyst David Mirzai said the company recently spent over US$3 billion to acquire the Louisiana LNG and Texas Beaumont ammonia projects in the US, so "we suspect the forecast internal rate (IRR) of return and payback may not have met new capital allocation targets" of more than 15% IRR and five years, respectively. In general market terms, he also expressed optimism about the "exploration side of the E&P equation holding significant appeal" as cash-generative operators look to redeploy excess revenues to access large-scale resource bases that are only available in frontier areas like the Orange basin." One source familiar with Woodside added: "I doubt greatly they had the firepower to take (Namibia) on, especially with everything else going on," adding that a priority was to protect their dividend."