I have been covering NG Energy (TSX-V: GASX, OTC: GASXF) these past several months as I believe it is a very exciting emerging natural gas player in Colombia.
The company plans on fueling the country’s clean energy transition in the years ahead with natural gas, a critical energy component in Colombia which happens to have a long-term supply shortage with the supply imbalance indicating a deficit after January 2024:
Before I get into the value proposition of NG Energy, I would like to touch on natural gas very briefly as to why it will play a vital role in transitioning us to a greener future.
Natural gas has proven to be an efficient, relatively clean-burning energy source that results in fewer emissions of nearly all types of air pollutants and carbon dioxide (CO2) than burning coal or petroleum products to produce an equal amount of energy. The clean-burning aspect is why many nations are beginning to increase their dependence on natural gas for electricity generation and transportation fuel.
Now back to NG Energy. The company is guided by 4 primary pillars:
Everything remains on track for production, as it is expected to commence at the end of Q3 2021 while also pursuing aggressive exploration at Sinu 9 in the near term.
Before I dive into the assets, I want to address the ongoing concern of many investors about the protests in the country.
The Executive Chairman assured the marketplace in the May 14th news release that protests have not disrupted operations and its path to production:
“It is also worth noting that the Company’s business and operations are proceeding as usual and have not been disrupted by protests. At the same time, the construction of the Maria Conchita production facilities, including the design and construction of the gas-line, the treatment facilities and the connection to GTI are progressing and NG is receiving offers to assign the O&M contract for the required compression infrastructure.”
– Ronald Pantin
For more assurance, Canacol, which neighbors the companies Sinu 9 asset, recently announced the transportation and delivery of its gas to its clients has been uninterrupted while still averaging 172 million standard cubic feet per day of production.
The Maria Conchita field is located in the Guajira Basin on Colombia’s Caribbean coast. The property neighbors one of the largest natural gas deposits in Colombia, the Chuchupa field, with more than 900 MMboe in reserves and accounting for 40% of Colombia’s daily natural gas output.
Currently, the company is building the infrastructure to begin production.
Presently, 3.7 km of the 14 km of pipe needed has arrived on site.
Once the pipeline is installed and permits received, it is expected the Aruchara-1 and Istanbul-1 wells will begin production at a combined rate of 15-20 mmcf/d.
The company is focused on three wells in the short term at Maria Conchita:
The company successfully re-entered Aruchara-1 in July, 2020 and delivered 10 million cubic feet of gas per zone form three separate zones.
In May, the company announced the successful re-entry of Istanbul-1 and is preliminary testing several zones that have encountered gas; a part of this process consists of the gas being tested for flow rates and being burned by the flare stack.
The purpose of re-entry of Istanbul-1 well, initially drilled in 2018, is to repair wellbore damage, evaluate the potential extension of the Aruchara-1 producing zones, and define the potential of new identified gas-prone zones.
With the company announcing nearly 160BCFs of gas in unrisked best case resources, and nearly 30 BCF in reserves, the company hopes to expand the resources into the reserve category in the coming months.
Later this fall, the company is hoping to re-enter the third well, Tinka-1, which Ecopetrol originally drilled in 1988, offering the company great potential for re-entry.
The Sinu-9 Block covers an area of 311,353 acres and is located in the north part of Colombia sharing area in Lower Magdalena and San Jacinto basins, two of the basins with the largest gas and light oil potential in the country. The region has excellent infrastructure with open access to national oil and gas pipelines, 50km port access, and coverage of a reliable electricity grid.
This property is what really has me excited about the company long-term. Firstly, the property is right next to Canacol (market capitalization of $600 million), which has booked natural gas reserves of 559 Bcf and production of 200 MMcf/d.
The exploration potential is exceptional with best estimate contingent resources of 37 BCF in the area of the Hechizo-1 well drilled by Ecopetrol in 1992 which tested 10 MMcf/d and prospective resources (prospects) unrisked of 602.2 Bcf (risked 182.4 Bcf) and prospective resources (leads) of 459.0 Bcf.
The company recently received news that it will be receiving permits by July from the Ministry of Environment to commence drilling.
Interestingly, Canacol announced a significant discovery only six kilometers from where NG Energy will be putting their first well. So same zone, same environment, same place, and it seems to have the earmarks to host the same size of deposit.
Hocol also had a discovery from its Arrecife-3 well just south of Sinu-9.
It is expected that by the beginning of September, the company will begin reporting results on the drilling on the concession.
Prospective investors should note that the company is not anticipating any further financing to preserve its present fully diluted equity structure of 126.4 million shares outstanding.
I am very excited about the months ahead as it should be a transformational period, given
- Near-term production/cash flow.
- Aggressive exploration at Sinu-9.
In about four weeks, I will be doing another Q&A with the company’s CEO Serafino Iacono; please be on the lookout as we will go over upcoming production and exploration efforts for the remainder of 2021.
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