Prospex Energy plc (AIM:PXEN), the investment company focused on European gas and power projects, is pleased to confirm that on 19 August 2024, the Company completed the acquisition of 7.5% of HEYCO Energy Iberia S.L. ("HEI"), which has majority ownership in the Viura gas field in northern Spain, having raised, in aggregate, gross proceeds of approximately £4.2 million, as announced on 8 August 2024.
The acquisition marks a further important step in the development of the Company's strategy to become a mid-tier independent European energy producing group.
Highlights:
· By committing to fund 15% of the 2024-2026 HEI development programme, Prospex now owns 7.5% of HEI. Following the completion of the acquisition of SHESA's interest in the concession, HEI will own 96.4865% of the Viura concession, its reserves, existing production and the surface facilities. This will translate to a Prospex ownership of 7.2365% in the Viura concession.
· This is not a standard "2:1 Promote" transaction. Whilst Prospex is funding 15% of costs to earn 7.5% of HEI, the Company will not only earn a 10% coupon on its capital investment but will also be repaid its capital investment from 15% of the HEI production income (after OPEX and taxes), until payback at which point Prospex's share of net income reverts to 7.5%.
· Viura estimated gross remaining reserves is 90 Bcf (2.5 Bcm) which is 6.5 Bcf (0.18 Bcm) net to Prospex.
· The Viura 1B development well is expected to reach the reservoir horizon in the next two to three weeks and is expected to be generating revenues from production as early as October.
· Prospex is contributing to the funding of the 2024 development programme, including the Viura-1B well, at a cost of £3.51 million which is 15% of the estimated £23.4 million total costs in 2024.
· Prospex's 15% share of the 2025/2026 development programme is estimated at £4.84 million, which is to be funded by future cash calls or from Phase 1 production or both.
· Based on a conservative gas price assumption of €31/MWh, Prospex estimates that this £4.84 million figure will be reduced by production income to ~£2.7 million by May 2025 when the cash call is due for the 2025 drilling campaign.
· If the gas prices achieved in the coming year are higher, then the requirement for further funding is reduced or even negated.
· The current TTF gas price is approximately 30% higher than €31/MWh at ~€39/MWh.
Mark Routh, the CEO of Prospex, commented:
"I am extremely pleased to have closed the Viura transaction with HEYCO Energy which is a highly respected and competent operator in Spain. This acquisition has increased gas production and our booked gas reserves, with the potential for further upside from the very large remaining resources we have modelled in this very large gas field.
"The development well Viura 1B is approaching its reservoir target and I look forward to updating shareholders with the results from that well as soon as we have them.
"With the recent extension of the El Romeral concessions being confirmed by the Spanish regulatory authorities, Prospex becomes a significant energy producer in Spain. With the five new wells on the El Romeral concessions advancing through the permitting process, Prospex is set to become an important supplier of energy to the Spanish nation further enhancing its energy security."
Completion of this acquisition was confirmed by HEYCO Energy Group Inc. ("HEGI"), the majority owner of HEI, on 19 August 2024, when HEGI confirmed receipt of US$4,342,500 for the purchase by PXOG Muirhill Limited, a wholly owned subsidiary of Prospex, of 7.5% of the total shares in HEI.
In Spain there are only three producing onshore gas fields: El Romeral; Viura and Marismas. Prospex currently owns a 49.9% share in El Romeral. HEI currently has a 58.7964% interest in Viura. The other participants in the ownership of the Viura Field Development are Sociedad de Hidrocarburos de Euskadi, S.A. ("SHESA") (owner of the 37.6901% of the Concession) and Oil and Gas Skills, S.A. (owner of the 3.5135% of the Concession). On 5 April 2024, HEI entered into an asset purchase agreement with SHESA for the acquisition of the participation of SHESA in the Viura Field Development which is subject to the fulfilment of certain conditions precedent. Following the acquisition of SHESA's interest, HEI will have HEI a 96.4865% interest in Viura, therefore Prospex will indirectly own 7.2365% of the Viura concession, its reserves and the existing surface production facilities of the Viura gas plant, which is connected to the Spanish national grid, through its 7.5% shareholding in HEI.
The Viura producing gas field onshore in northern Spain has an estimated original gas in place of 211 Bcf (6 Bcm) and estimated reserves of 105 Bcf (3 Bcm). To date, just 16 Bcf (0.5 Bcm) of gas has been produced from Viura meaning that the remaining reserves are 90 Bcf (2.5 Bcm) which is 6.5 Bcf (0.18 Bcm) net to Prospex.
HEI acquired its interest in the Viura gas field and became operator in 2022. A new 3D seismic survey was acquired in 2013. There is one well in production in the field, which produces intermittently as water production is managed. There is a workover planned on an existing well to convert it into a water injection disposal well. HEI has permits in place to drill two wells, Viura 1B (currently drilling) and Viura 3B, scheduled in the second half of 2025. Permits have been submitted to drill a third development well on the concession Viura 3A in the second half of 2025.
The Viura 1B well commenced drilling operations on 22 June 2024 - at an estimated gross cost of £20.6 million and is expected to reach the reservoir horizon in the next few weeks. The new investors (including Prospex) into HEI are funding 31.56% of the development costs to earn 15.78% ownership of HEI. 8.28% of new HEI shares were already allocated to new investors in HEI. Their investment in HEI is on the same terms, in that they are funding 16.56% of the development costs to earn a 8.28% ownership in HEI. Prospex is funding 15% of the development costs of the HEI development programme comprising the current well in 2024 and the proposed 2025/2026 two well drilling programme to earn 7.5% ownership of HEI and indirectly up to 7.2365% of the Viura asset. The two wells to be drilled in the second half of 2025 are to be funded from revenues from existing and new production from Viura or from new funds if required. Viura 1B is expected to be generating revenues from production as early as October 2024. The 2025 & 2026 development programme is to be funded by future cash calls or from Phase 1 production or both.
There is a preferred pay-back mechanism for Prospex and all participants (including HEGI and new investors) of this new investment in HEI, the ("HEI Investors"). The HEI Investors will enjoy a 10% interest on their capital investments paid out from the existing and future production from Viura. Until the HEI Investors have recovered their full capital commitments, plus the 10% preferred interest return, HEGI will not receive production income on their other 50% ownership of HEI over and above operating expenses and an allowance for Spanish taxes and royalties. The three phase, three-year Viura development programme is estimated to cost a total of £55.4 million ($70.4 million). HEGI is funding over 50% of that programme and the new HEI Investors are funding 31.56% through their interest in HEI which earns them an indirect 15.2255% ownership of the Viura asset (net 7.2365% to Prospex).
Prospex's 15% share of the 2025/2026 development programme is estimated at £4.84 million. This figure will be reduced by the preferred payback mechanism, including the 10% interest receipts from current and future Viura production. Based on a conservative gas price assumption of €31/MWh Prospex estimates that this figure will be reduced to ~£2.7 million by May 2025 when the cash call is due for the 2025 drilling campaign. If the gas prices in the coming year are higher than the conservatively assumed €31/MWh then the requirement for further funding is reduced or even negated. (N.B. The TTF current gas price is approximately 30% higher at ~€39/MWh.)