TSX.V: GASX OTC: PENYF FRA: 56PQ
I had a friend reach out to me to talk about energy. I have gained attention for my love of battery energy metals and the importance of mining including uranium for nuclear energy. He is an old friend from Calgary, Alberta, Texas of the North as some call it and he told me about this Canadian listed company with an outstanding Colombian project and management team that is impressive, to say the least.
It is time for us to realize the facts. It is going to take years to move towards battery energy metal; and even when most of the world does manage to transition to new energy, there will still be a need for oil and gas. We may become less dependant on fossil fuels; however, just as there is still incredible use of coal in the third world, there will be a transition to gas for other developing nations. This is not to become despondent on – if we approach the energy needs with intelligence and reason, we can make a difference and making a fortune along the way.
This is where NGX Energy enters the conversation: a pure-play gas company in Colombia.
Let me get this out sooner than later. The management team has specific experience in the region and have grown other projects from 14,000 bopd to 330,000 bopd in 4 years. They are working in the highest margin market. Any concerns about global trade and growth are removed as they are focused solely on South America. Many analysts expect global growth to decline as we finish the year and continue on a downward trend through 2021; however, that is perfect for markets targeted on a specific region that have a need and demand for growth.
This is an ESG story as we must understand that we are transitioning towards goals and certainly removing the demand for coal would be the first step.
Figure 1. Total energy consumption in Columbia by fuel type, 2019
Source: BP Statistical Review of World Energy, 2020
To put this into some perspective in Colombia roughly 1.6 million families cook with wood or coal, and 500,000 families do not have access to energy in Colombia. Energy is the foundation of a country and delivering that opens potential for growth not only in the lives of the poor but in the entrepreneurs that start to innovate and apply technology. I think it goes without saying that most people understand how much cleaner gas is then coal: natural gas produces 50% less CO2 than coal and 30% less than oil.
A driving factor is demand. Analysts see a 200% increase in domestic natural gas demand is expected over the next 30 years driven by a move to cleaner fuels and economic growth. By harnessing natural gas Columbia intends to meet its Paris Agreement CO2 emission target of a 20% reduction by 2050.
An interesting CEO Survey from PWC has illustrated that the main concerns with trade relationships, over regulation and uncertain growth. This Canadian listed company will be focused solely on delivering to the country it is developing the asset. It does not need or wish to trade in North America or Asia. They intend on being the dominate leader in South America. They are helping to make the transition from coal to gas and cleaner solutions as economics and society can deliver.
To give some backstory, Pacific Rubiales was created in January 2008 and drilled 19 successful wells out of 22, for a success rate of 86%.The Company´s gross production grew 75%, a 61,683 boe/d increase, reaching an average of 144,307 boe/d at the end of the year of 2010 the results went from a net loss of $125.8 million in 2009 to net earnings of $217.6 million in 2010. The revenues increased by 160%, ending the year at $1.7 billion, and our EBITDA rose to $922.9 million, up 21% year-over-year.
Well, here is the thing: Pacific Rubiales had enormous success, but it was remote and far from infrastructure.
NGX Energy does not have this issue.
In fact, one of the key drivers in this opportunity is that NGX is so close to infrastructure!
A Derisked Project
NGX has three significant assets offering near-term production and cash flow with significant exploration upside:
Maria Conchita – Near-Term Production and Cash Flow
NGX Energy has an 80% working interest in the Maria Conchita block which neighbors the Chuchupa field (shaded purple below), one of Colombia’s largest fields with more than 900 MMboe in reserves and accounting for 40% of Colombia’s daily natural gas output. Management best case estimates suggest a potential 81 Bcf (billion cubic feet) of natural gas at Maria Conchita, best case peak production between 20 to 30 MMcf/d (million cubic fee per day), US$130 MM AT NPV10%, and an after-tax IRR >100%. In August 2020, the Company successfully re-entered the Aruchara-1 at Maria Conchita and hit a substantial amount of gas. They are currently raising a US$10 million debenture to construct PRODUCTION FACILITIES AND a 14 km pipeline connecting the Maria Conchita field to national infrastructure and estimating to commence production from Aruchara-1 by the end of Q1 2021. Based on initial testing, Aruchara-1 is projected to produce between 14 – 20 MMcf/d.
The Chuchupa filed to the north, which is operated in partnership between Hocol and Ecopetrol, has been producing for 35 years but is in significant decline. Ecopetrol is Colombia’s biggest company by revenue and contributes 2 percent to the country’s GDP. This is great news for Colombia and for NGX Energy. They will be able to pick up the diminishing capacity and being only 14km from the main TGI pipeline means minimal infrastructure cost.
Sinu 9 – The Crown Jewel
The company has a 72% working interest in Sinu 9 which is adjacent and up structure to Canacol’s large producing gas field which has booked natural gas reserves of 559 Bcf and production of 200 MMcf/d. The area has excellent infrastructure with open access to national gas pipelines and coverage of a reliable electricity grid.
NGX has identified four near-term drilling locations: Magico, Mago, Hechicero, Hechizo.
Sinu-9 is big! Management estimates that, after completing the above near-term targets, there are 32 additional wells to be drilled with best estimates of 1 Tcf of natural gas, 180 MMcf/d best case peak production, US$600+ MM after-tax NPV10%, and an after-tax IRR >100%.
Drilling and testing of the first two wells, Magico and Mago, are planned for Q2-Q3 2021 ― these will serve as major catalysts for the Company as it tests its crown jewel asset.
In addition to the size of Sinu-9, these are conventionally wells only being drilled to 4,500 – 6,000 feet and are estimated to cost between $4 – 6 million per well. This one property could prove to be a company making field and contribute substantially to Colombia’s declining natural gas production.
Tiburon – Blue Sky
Tiburon is a MASSIVE target in elephant country surrounded by gas giants. It is neighbored by Chuchupa (Colombia’s largest field) to the south, Orca to the north west and Perla (16 Tcf field over the Venezuelan boarder) to the east. NGX management estimates there to be a potential 2 Tcf of natural gas at Tiburon with the Company having a 10-40% working interest. They estimate best case peak production is 400 MMcf/d , after-tax NPV10% of US$4+ Billion and after-tax IRR of 50%. Tiburon’s potential is enormous but also requires a significant amount of CAPEX, much more than Maria Conchita and Sinu-9. Being prudent allocators of capital, NGX management intends to shoot a seismic survey next year to confirm the potential and look for a potential farm-in partner.
NGX has obtained letters of intent for take or pay contracts with Colombian gas utilities
McKinsey notes that significant investment is required to deliver LNG demand despite the explosive push for battery energy metals, energy storage, alternative and green solutions. We must remember that gas is still a relatively green solution, especially when you are considering growth and economics in the developing world. There needs to be a reasoned approach and sensible guidance for these countries to grow and NGX Energy has the platform, infrastructure, and ability to deliver cleaner solutions to a market that has incredible economics
This management is world class and has the specific experience and track record.
The company has a market cap of $74,514,790 as of close on Tuesday, October 20, 2020 and although trading volume is not that high yet, that is simply because the company has not been promoting itself. There is a lot of work to do but that works for us. You have a chance to be a part of this next opportunity before the story gets out.
It may seem contradictory to be looking at the gas market especially when I am a huge voice for the electrification of the future. I scream loudly that I love the idea of an electric future but that includes oil and gas – it obviously includes energy not only to transition over the coming decades but simply as a matter of fact to provide the demand that is growing. I believe there is an energy shift coming with this great reset and stock picking will be the way to profit. Finding regions that have stable prices, strong demand, strong regulation, and government willingness along with less demand on foreign trade can remove some risk. Having the management team and property that NGX has closes that triangle to offer an outstanding opportunity to build wealth while navigating the chaos of the economic woes here and still coming.
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Securities Disclosure: I, Andrew O’Donnell, was paid for this article and I do work with NGX Energy.
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