Phoenix Global Resources PLC Q3 2018 Operational Update (4111H)

TIDMPGR

RNS Number : 4111H

Phoenix Global Resources PLC

15 November 2018

15 November 2018

Phoenix Global Resources plc

("Phoenix" or the "company")

Q3 2018 Operational Update

Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the upstream oil and gas company offering its investors an opportunity to invest directly into Argentina's Vaca Muerta shale formation and other unconventional resources, is pleased to announce its operational update for the third quarter of 2018 together with an update on planned drilling and other operational activity for the next six months.

Operational highlights

 
 
        *    Drilling and completions campaign commenced at Puesto 
             Rojas with seven unconventional completions in the 
             period 
 
        *    Unconventional permits for Mendoza completions 
             campaign successfully secured in August 2018 
 
        *    Completed wells currently in flowback prior to 
             extended well testing 
 
        *    First unconventional horizontal well at Mata Mora 
             spudded in September 2018 with drilling of the 
             vertical portion currently underway 
 
        *    Average working interest daily production of 9,748 
             boepd (Q2 2018: 10,442 boepd), comprising 68% oil and 
             32% gas. Daily production was lower as a result of 
             downtime of certain wells at Puesto Rojas to allow 
             for unconventional completions at nearby wells. 
 

Financial performance (unaudited)

 
 
        *    Revenue of US$43.17 million and EBITDAX of US$17.05 
             million 
 
        *    Average realised prices, before hedge, of US$51.53/ 
             boe (comprised oil US$60.66/ bbl; gas US$4.40/ mcf) 
 
        *    Operating costs per boe of US$15.94/ boe (Q2 
             US$18.07/ boe) 
 
        *    Realised netback per boe of US$25.67/ boe (Q2 
             US$23.45/ boe ) 
 *    Capital expenditure of US$33.0 million 
 
 
        *    Exploration expense of US$4.8 million recognised 
             related to an unsuccessful appraisal well at Laguna 
             El Loro 
 *    Net debt of US$142.8 million at 30 September 2018 
 
 
        *    Available cash and undrawn facilities of US$29.7 
             million at 30 September 2018 
 

Outlook

 
 
        *    One additional horizontal evaluation well planned to 
             spud at Mata Mora on completion of the well currently 
             being drilled 
 
        *    Discussions on additional tranche of funding 
             commenced with Mercuria 
 
        *    Initial results from the Puesto Rojas vertical wells 
             completed in 2H 2018 expected in early 2019 
 

Anuj Sharma, CEO, said:

"I am delighted to announce the significant increase in unconventional activity across our substantial acreage in Argentina. The company's primary focus in the period has been the unconventional drilling and completions campaign at Puesto Rojas and aimed at the appraisal of the significant potential of both the Vaca Muerta and Agrio formations. In September, the company also commenced drilling the first of two unconventional horizontal wells planned at Mata Mora, both of which target the Vaca Muerta formation.

These achievements represent a significant increase in the company's unconventional activity in Argentina and are a significant milestone event in the continued development of our world class asset base."

For further information, please contact:

 
 Phoenix Global Resources   Anuj Sharma, CEO   T: [phone] 
  plc                        Kevin Dennehy 
 Stockdale Securities       Antonio Bossi      T: [phone] 
                             Ed Thomas 
  Panmure Gordon             Charles Lesser     T: [phone] 
                              Adam James 
  Camarco                    Billy Clegg        T: [phone] 
                              Owen Roberts 
                              James Crothers 
 

Qualified Person Review

In accordance with AIM guidance for mining, oil and gas companies, Mr. Javier Vallesi and Mr. Greg

Easley have reviewed the information contained in this announcement. Mr. Vallesi, Chief Operating

Officer of the group, is a petroleum engineer with over 22 years of experience in the oil and gas

industry and is a member of the Argentinian Institute of Oil and Gas. Mr. Easley, Senior Manager -

Reservoir and Engineering, is a petroleum engineer with over 10 years of experience in the oil and gas industry, is a licenced Professional Engineer in the State of Texas and is a member of the Society of Petroleum Engineers.

About Phoenix

Phoenix Global Resources is a London Stock Exchange (AIM: PGR) and Buenos Aires Stock Exchange (BCBA: PGR) listed independent Argentina focused oil and gas exploration and production company. The Company has over 6.3 million licensed working interest acres in Argentina (of which over 5 million are operated), 57.2 million boe of working interest 2P reserves and average production of approximately 9,750 working interest boepd in Q3 2018. Phoenix has significant exposure to the unconventional opportunity in Argentina through its 560,000 working interest acres with Vaca Muerta potential.

The company's website is www.phoenixglobalresources.com

Q3 2018 production

Average total daily production volumes in Q3 2018 compared to full year 2017 and Q2 2018 was as follows:

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
 11,070    10,422     9,748 
          --------  -------- 
 

Total average daily production was down in the quarter compared to Q2 2018 (6.7%) and FY 2017 (11.9%). This decrease was mainly due to several of the more prolific wells in the Puesto Rojas area experiencing downtime. In addition to normal operational downtime, higher downtime was required at some conventional wells to allow for nearby unconventional completions to be undertaken safely.

Drilling and completions campaign

Puesto Rojas Area

In August 2018, the company secured the necessary unconventional permits from Mendoza Province to allow further drilling at the Puesto Rojas area and for the company to undertake unconventional completion of wells previously drilled. These initial wells at Puesto Rojas are part of the early phase of exploration and evaluation on the respective concessions aimed at determining the optimum completion methodology for the different Vaca Muerta and Tight Agrio formations present in the acreage.

The company's planned unconventional activity in Mendoza Province was suspended from late 2017 and through much of the first half of 2018 as the provincial government finalised regulations to govern the environmental aspects of the unconventional oil and gas activity in Mendoza Province. Following the issue of the new regulations, a permitting process had to be established and complied with before work could commence.

The completions campaign commenced in August 2018 with seven wells completed to date. The seven completions have been undertaken across the Cerro Medio (3), Cerro Pencal (2), Cerro los Choiques (1) and Puesto Rojas (1) fields. The completed wells are currently in the flowback stage where the completion fluids are recovered from the well following which the level of initial production for each well can be assessed. The company is flowing back the wells on a formation-by-formation basis which, while lengthening the time that the flowback stage will take, gives significantly more information about the most productive horizons and, ultimately, the best drilling and production targets.

In the initial production phase of these wells, the choke and pump configuration will also be optimised to allow estimates of production potential and the estimated ultimate recovery (EUR) to be assessed on a well-by-well and formation-by-formation basis

Three of the wells that have been completed are testing the full interval from the base of the Vaca Muerta formation through the shallower Tight Agrio formation. Two other well completions have been tailored to add productive intervals in the Tight Agrio formation while two others have been selectively tested in the Vaca Muerta and Tight Agrio sections.

The company expects to provide further information regarding the the results of its Puesto Rojas drilling and completions campaign in conjunction with the reporting of the full year results for 2018. Those results will also include discussion of the evolution of the reserves and resources profile following this current campaign.

In addition to the seven well completions discussed above, the company has also drilled and completed the CDM-3012 unconventional well at Cerro Del Medio. This well represents an initial tailored completion in the Vaca Muerta interval aimed at gathering more data on the zone in advance of the drilling programme planned for the remainder of 2018 and into early 2019.

Mata Mora

Following the drilling activity in Río Negro Province (Laguna El Loro Block) the Nabors rig was moved to the Mata Mora field in Neuquén province to commence drilling of the company's first horizontal well into the Vaca Muerta formation.

This first horizontal well spudded in September and, during the drilling of the vertical section, a gas kick was experienced at the top of the Vaca Muerta formation. Such kicks are not uncommon in the Vaca Muerta and the rig being used to drill the well was pre-specified with a Managed Pressure Drilling system to deal with such an issue should it arise. The kick resulted in pressure control issues that were successfully managed thereby stabilising the well. Drilling was able to safely resume following certain modifications to the well design.

The drilling of the horizontal section has now commenced. Once this section is complete and the production casing is set, the rig will move to drill the second well from the same pad.

Business development activity

During the third quarter the company participated in the August Neuquén open bid round and submitted a bid for the Corralera Noroeste block. If successful, this will unify the company's interest in the Corralera block, adding to the acreage already secured at Correlera Sur and Corralera Noreste in April 2018. The company believes that the addition of Corralera Noroeste could add up to 26,000 additional acres of Vaca Muerta and Tight Agrio potential proximate to the company's existing licenses.

Production operations

Neuquina basin

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
  5,026     4,588     4,157 
          --------  -------- 
 

Puesto Rojas Area

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
  2,697     1,987     1,649 
          --------  -------- 
 

The production decrease at Puesto Rojas was due to several key wells including the CDM-3002, CP-1014, and CP-1010 being shut-in for maintenance and necessary well repairs. The prolific CDM-3002 well was shut in for a total of 20 days due to its proximity to the completion operations being undertaken on wells at Puesto Rojas discussed above. Following this work the well came back on line and returned to production at more than 500 bpd. In addition, unplanned downtime was incurred at certain locations at Puesto Rojas due to unusually high winds in the area that caused wells to be shut-in for HSE reasons.

Other work undertaken at Puesto Rojas in Q3 included the isolation of gas producing perforations in the CP-1009 well to improve oil production. A pump was changed on CP-1010 after a brief drop in production and, following the changeout, the well returned to its approximately 120 bpd production rate. In addition, the rod pump previously in place at CP-1014 was changed to an ESP allowing for increased capacity and adding a further 60 bpd of production.

Chachahuen Sur (non-operated)

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
  1,976     2,426     2,311 
          --------  -------- 
 

Production at Chachahuen was largely consistent with Q2 2018 as drilling activity is reduced in the substantially developed main production area of Chachahuen Sur. The Chachahuen operator, YPF, is currently preparing to ramp up development activity in the Cerro Morado Este portion of the block that is expected to increase overall production from Chachahuen.

Drilling activity at Chachahuen Sur continues albeit at a lower level with eleven new wells drilled during the third quarter (Q2 2018: 13), including two horizontal wells that are currently under evaluation. In addition, YPF continues to selectively convert certain producing wells to water injectors. As a result, overall recoveries are expected to be greater over time due to improved secondary recovery. This activity is part of the field wide enhanced recovery efforts and is aimed at improving waterflood conformance to ultimately increase the recovery factor from the area. In addition, a total of twelve workovers were carried out during this period at Chachahuen.

Going forward, development activity in the main producing Chachahuen Sur field portion of the similarly named Chachahuen Sur concession is expected to decrease as the area is now substantially developed. Most of the future development will likely be focused on the Centenario play in the Cerro Morado Este field portion of the Chachahuen Sur concession.

Other Neuquina basin activity

Final seismic volumes have been delivered from the company's recent seismic acquisition in the southern Puesto Rojas and La Brea concessions. The company is currently interpreting the seismic volumes and integrating the results of that work with existing geologic data to identify new prospects and areas for development in these blocks as well as determining a development strategy for the areas.

The company drilled the Puesto Galdame.x-1 exploration well at the Laguna el Loro concession in the period. This well was designed to evaluate resource potential at the concession however the well was determined to be unsuccessful and has subsequently been abandoned as a dry hole. Abandoning the well resulted in a US$4.8 million exploration expense that has been recognised in the period. The well at Laguna El Loro satisfied the licence commitments for the initial exploration phase on the field.

An initial exploration well planned at Rio Atuel during the period has been deferred because of permitting delays. The well will likely now be delayed until early 2019. It is anticipated that the initial exploration phase of the concession will be extended as a result of delays experienced in the permitting process. The initial exploration phase was originally due to expire in September 2018.

Austral basin

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
  3,900     3,979     3,902 
          --------  -------- 
 

Production remained largely flat in the Austral basin due to a combination of well downtime and natural decline at the company's Santa Cruz assets that was offset by production gains from new wells in the Tierra del Fuego area.

Santa Cruz Sur (non-operated)

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
  3,180     3,147     2,966 
          --------  -------- 
 

Production decreases at Santa Cruz Sur were driven largely by natural decline in the Chorillos area combined with downtime events at the El Indio Oeste field that were not remediated in the period as access to the wells is not possible in periods of seasonal flooding.

Tierra del Fuego (non-operated)

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
   720       832       936 
          --------  -------- 
 

Production increases in Tierra del Fuego were largely driven by the new SM.x-1002 well that came online in August 2018 adding approximately 1,877 boepd of gross production. Also during Q3 2018, the newly drilled May.x-1 well was tested at 1,836 Mscfpd (312 boepd). The well is currently awaiting pipeline connection to commence commercial production.

Three wells were drilled in the Tierra del Fuego area, two of which were offset wells to the successful SM.x-1001 well and the third being an exploration well. The first of these offset wells, the SM.a-1002 came online with gross production of over 2,000 boepd. The well is currently producing at a reduced rate because of offtake capacity constraints related to infrastructure. The remaining two wells show promising log characteristics though will likely need hydraulic stimulation to perform at economic rates. This fracture activity is currently planned for 2019.

Austral basin activity plan

The continued development plans for both Santa Cruz Sur and Tierra del Fuego remain under discussion between Phoenix and the asset operator, ROCH.

Cuyana basin

 
     Production (boepd) 
 FY 2017   Q2 2018   Q3 2018 
          --------  -------- 
  2,136     1,867     1,685 
          --------  -------- 
 

Natural production decline continues at the relatively mature Cuyana basin assets. The company actively manages the well stock to counter natural decline where possible through workovers of existing wells. The opportunity for further drilling in the mature Cuyana concessions is limited.

Further workover activity is planned at both Tupungato and Chañares Herrados through year end and into 2019.

Cuyana basin activity plan

Operational maintenance and minor facility upgrades took place at the Cuyana basin assets during the quarter.

Additional information

Production summary

 
 Basin/Concession                  Q3 '18     WI     FY 2017      Q2 '18      Q3 '18 
                              Gross BOE/D      %   Net BOE/D   Net BOE/D   Net BOE/D 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 AUSTRAL                           11,657              3,900       3,979       3,902 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 Angostura (CA-14)                  3,033    13%          50         252         383 
 Campo Bremen                         770    70%         573         586         539 
 Chorillos                          2,798    70%       2,103       2,055       1,959 
 Las Violetas                       4,216    13%         646         559         532 
 Moy Aike                             112    70%         105         114          78 
 Oceano                               557    70%         399         391         390 
 Rio Cullen                           171    13%          24          21          22 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 CUYANA                             1,793              2,136       1,867       1,685 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 Atamisqui                            316   100%         333         310         316 
 Chañares Herrados               487    78%         514         542         380 
 Puesto Pozo Cercado                    -    78%         274           -           - 
 Refugio Tupungato                    989   100%       1,014       1,014         989 
 GOLFO SAN JORGE                                           8           7 
 Sur Rio Deseado Este                  16    25%           8           7           4 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 NEUQUINA                          13,638              5,026       4,588       4,157 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 Cajon De Los Calallos                334    38%         159         110         125 
 Cerro Mollar Norte                    83   100%         105          86          83 
 Cerro Mollar Oeste                    88   100%         107          80          88 
 Chachahuen Sur                    11,287    20%       1,949       2,375       2,257 

 Chachahuen Sur (Permiso)             267    20%          28          52          53 
 El Mmanzano Oeste (Agrio)              -   100%          43          12           0 
 El Mmanzano Oeste (Resto)             48    40%          16          15          19 
 La Brea                               54   100%          67          31          54 
 La Paloma                              -   100%           -           1           - 
 Puesto Rojas                       1,477   100%       2,485       1,821       1,477 
 Rio Atuel                              -    67%           -           -           - 
 Vega Grande                            -   100%          68           6           - 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 GRAND TOTAL                       27,103             11,070      10,442       9,748 
---------------------------  ------------  -----  ----------  ----------  ---------- 
 

- ENDS -

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November 15, 2018 02:01 ET (07:01 GMT)