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Drilling results to come in over the weekend

PRM and GLV

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Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 7,000,000 GLV shares, 49,000,000 PRM shares and 11,833,332 PRM options at the time of publishing this article. The Company has been engaged by PRM and GLV to share our commentary on the progress of our Investment in PRM and GLV over time.

The Sasanof-1 well is now being readied to drill into the primary target zone THIS WEEKEND.

That means come Monday, we should know whether our Investments Prominence Energy (ASX:PRM) and Global Oil and Gas (ASX:GLV) have an ownership stake in a new gas discovery.

While our original plan was to De-Risk our Investment and be Free Carried into the drill result, the share prices of PRM and GLV haven’t run up enough prior to the drill result for us to execute this strategy while retaining a meaningful position into the drill result.

So we haven’t sold any shares - we will be rolling the dice on this drill result a bit harder than we had originally planned, and holding our full position into the result.

Next week we will either be very happy with a great result, or looking inwards for the lessons to be learned from a bad result.

We should know in just a few days time...

PRM holds a 12.5% interest and GLV a 25% interest in what we hope will be Australia’s latest gas discovery in the liquefied natural gas (LNG) capital of Australia - home to the biggest ever discovery in Australian history, the Greater Gorgon gas field.

The Sasanof-1 well is targeting a prospective resource of:

  • 17.8 Tcf and 449 million barrels of condensate on a 3U basis (high case), AND,
  • 7.2 Tcf and 176 million barrels of condensate on a 2U basis (mid case),

Today, PRM and GLV confirmed that everything is in place for the drill rig to start drilling into the primary target reservoir that stretches down 500m - at a total depth of 2,000m between 2,500m below sea level.

Below is an image of the drilling equipment being lowered to the seabed before drilling of the primary target starts.

With results likely to come in either over the weekend or very early next week, we have reaffirmed our expectations for the drilling program and what “success” looks like for our Investments:

  1. Bullish case (Exceptional result) = Gas columns measuring greater than 20m.
  2. Base case (Good result) = Gas columns measuring between 10 and 20m.
  3. Bearish case (Poor result) = Gas columns measuring less than 10m.

We expect an announcement on Monday from both PRM and GLV, or for both companies to go into a trading halt pending the final results from the drilling program.

We are hopeful a new discovery is made, but offshore gas exploration is risky and the chances of success are low.

The fact of the matter is that this is a high risk drilling event with a binary outcome.

Either a discovery will be made and our Investment will pay off OR the drilling program will return nothing and the exploration risk we have highlighted in our 2022 PRM/GLV Investment Memo will turn into a reality, in which case we expect to take a significant paper loss on our Investment.

PRM and GLV

To catch up on the Sasanof story, see our previous coverage leading up to this point. This sets the context for what the results from this weekend’s drilling program might mean for our Investments.

Summary of our coverage so far

1 - Introducing our latest investment (13 April 2022)

In this note we launched our 2022 PRM/GLV Investment Memo and detailed our Investment thesis, highlighting the six key reasons why we invested in PRM and GLV.

2 - PRM & GLV’s well is ranked amongst highest impact wells of 2022 (22 April 2022)

Here we did a deep dive on what makes the Sasanof-1 well a “high impact well” and how the prospect could become a takeover target for oil & gas supermajors in the case of a successful discovery.

We also did a side by side comparison with previous international takeovers of major Australian gas discoveries.

3 - PRM & GLV’s Drilling Equipment has been mobilised - Just a Few Weeks til Drilling Begins (5 May 2022)

Here we covered all of the key risks that the Sasanof Prospect has already had addressed from permitting, environmental, funding to technical risks.

We also did a side by side comparison of the technicals behind the nearby 378 Bcf and 16.4 million barrels of condensate Mentorc discovery and what that could mean for the Sasanof Prospect which sits over a project area that is ~28x the size of Mentorc.

We discussed here the key risk that remains, which is the most important - exploration risk.

4 - The rig is in the outer harbour - towing to begin in five days (13 May 2022)

A look into the current news environment surrounding the global liquefied natural gas (LNG) markets and the upwards pressure on gas prices.

We also looked at how a new major discovery in the North West Shelf in WA (home to ~47mtpa of LNG export capacity) would fit into the global LNG markets in the event a successful discovery is made at the Sasanof Prospect.

5 - Anchors lifted, drill rig in transit - GLV & PRM Days Away from Binary Drilling Event (18 May 2022)

Here we touched on the success at the Equus Project, which sits right next door to the Sasanof Prospect, where 15 out of 17 previous drilling campaigns have made gas discoveries (a success ~88% rate).

The Sasanof-1 well has a geological chance of success (GCOS) of 32%. But we hope this will be discovery number 16 out of 18, and add to that already very impressive exploration success rate in this part of the North West Shelf in offshore WA.

We also touched on the ownership structure in the prospect leading up to drilling and looked at the interest of UK listed Clontarf Energy (LSE: CLON) (a 10% interest in the prospect) and its recent share price rally of >50% in the lead up to drilling.

6 - PRM & GLV’s Offshore Drilling has Begun. Here’s what we’re Watching for Next (30 May 2022)

Here we set some expectations for the drilling program detailing what we think a “success scenario” will look like.

Going through some of the previous discoveries made offshore, WA in the North West Shelf we looked at some of the drilling results at the Scarborough and Greater Gorgon gas fields.

These discoveries were made with gas column interceptions measuring from as low as 20m and higher than ~350m.

Again, our expectations for Sasanof-1 are as follows:

  1. Bullish case (Exceptional result) = Gas columns measuring greater than 20m.
  2. Base case (Good result) = Gas columns measuring between 10 and 20m.
  3. Bearish case (Poor result) = Gas columns measuring less than 10m.

Key risk (Exploration risk) is now in play

It goes without saying that the drilling this weekend will have a binary outcome, meaning:

  • A) it will make a discovery and our Investment will pay off,

OR

  • B) the drilling will return nothing and the exploration risk will turn into reality, in which case we expect to take a significant paper loss on our Investment and will wait to see what forward plan will be announced by each company.

We went into detail with respect to the exploration risk in a previous note which can be read here.

Alternatively, check out our 2022 PRM/GLV Investment Memo by clicking on the image below.

Our 2022 PRM/GLV Investment Memo

Below is our 2022 Investment Memo for PRM and GLV where you can find a short, high level summary of our reasons for investing.

The ultimate purpose of the memo is to track the progress of our portfolio companies using our Investment Memo as a benchmark, throughout 2022.

In our PRM/GLV Investment Memo you’ll find:

  • Key objectives for PRM/GLV in 2022
  • Why we continue to hold PRM/GLV
  • What the key risks to our investment thesis are
  • Our investment plan


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