Natural gas is a very important commodity to follow as we head into the new year. This commodity represents the cleanest-burning hydrocarbon on the planet and will play a role in helping transition the world to more renewable energy sources.
Gas produces around half the carbon dioxide (CO2) and just one-tenth of the air pollutants of coal when burnt to generate electricity. There is incredible potential to reduce near-term CO2 emissions and air pollution by using gas instead of coal.
Gas-fired power becomes more competitive again when long-term costs associated with climate change and the impact of air pollution, both on people and the environment, are included.
In fact, Goldman Sachs is very bullish for a broad range of commodities as they have publicly forecasted that a structural bull market is emerging for commodities, which includes natural gas. Notably, here is the thesis in short form:
Goldman estimates US industrial production will grow by 4-5% by 2024, implying strong increases for consumption of natural gas, crude oil, gasoline and bulk commodities.
“Even if demand falters in coming weeks as winter exacerbates COVID-19, we expect markets will likely continue to rebalance, barring an outright collapse in demand,” Goldman said.
NG Energy Introduction:
An emerging significant natural gas player in Colombia is NG Energy. The company is looking to fuel Colombia’s clean energy transition with a:
- De-risked high-quality asset base set to commence production in 2021 with significant exploration upside
- Colombian based management team with significant in-country experience
- Competitive infrastructure advantage
- Strong pricing with long term take or pay contracts
The company has had a transformational 2020 by making a natural gas discovery when re-entering Aruchara-1.
Here is a complete look at the company’s diverse asset base:
The company is on track to commence initial production in the coming months, but a key point to the company’s value proposition is the exploration potential at its flagship asset which is adjacent and up structure from Canacol Energy’s main production field. Canacol is the largest independent gas producer in Colombia and currently has a enterprise value of nearly $1 billion dollars. Numerous wells from Canacol’s adjacent block have production rates of 20-40mmcf/d.
NG Energy’s flagship SINU-9 asset borders Canacol, and management projects future production to be 180mmcf/d at this asset, which coincides with its highly prospective exploration potential at the project, which is only 25km away from infrastructure. The company has already planned an extensive, fully financed Phase 1 Exploration program, which is set to begin in Q2:
Production is expected to begin on this asset in Q3 2020 from the Magico and Mago wells.
In the near term, it is estimated the company will begin production at Maria Conchita in Q2 2021. This asset alone has 2P net reserves of 25.9 billion cubic feet, with a management best-case estimate being 81 billion cubic feet. Management estimates show future production being between 20 – 30 mmcf/d at this project when fully developed.
Beacon Securities recently launched coverage on the Company with a $2.50 price target. That in-depth report can be found by clicking here.
I will be doing another article on the company in January to discuss more in-depth the type of cash-flow the company could generate in 2021.
I had the privilege of recently chatting with the companies executive chairman, Ronald Pantin, for a general update and to introduce the Gold Telegraph readers to this exciting growth story in the natural gas world.
Alexander Deluce:
Thank you, Mr. Pantin, for taking the time to give my readers an introduction to the exciting NG Energy (TSX.V: GASX | OTC: GASXF) story. Clearly, 2020 has been a transformative year for the business, starting with discovering a significant amount of natural gas back in July on the Aruchara re-entry.
Can you provide my readers with a general overview of the business and some of the milestones made in 2020?
Ronald Pantin:
Certainly, Alexander, thank you for the opportunity to introduce NG Energy (TSX.V: GASX | OTC: GASXF) to your audience. GASX is focused exclusively on the exploration, development, and production of natural gas in Colombia as the country weans off coal and oil and transitions to a cleaner energy matrix. We have three assets that we as management regard as the most prospective onshore conventional gas fields in Colombia:
1) Maria Conchita (80% WI) is a 32,518-acre block located in the Guajira Basin on Colombia’s Caribbean cost. The block boarders Chuchupa, Colombia’s largest gas field, to the north. Chuchupa holds more than 900 mmboe of reserves and accounts for 40% of Colombia’s daily natural gas output. GASX has completed 3D seismic on Maria Conchita and successfully re-entered the Aruchara-1 well hitting substantial volumes of gas with the well projected to yield 16 mmcf/d gross (13 mmcf/d net to GASX) with 2 additional re-entry wells and 3 new wells planned in the near-future at Maria Conchita.
2) Sinu-9 (72% WI) is the Company’s 311,353-acre flagship project located in the Lower Magdalena Basin and is adjacent and up-structure from Canacol’s Esperanza field, producing approximately 200 mmcf/d to the east. Based on management best case estimates, there is the potential for 1 tcf of gas at Sinu-9. GASX has a binding commercial offer from CPVEN to drill and complete four initial gas wells (Magico, Mago, Hechicero and Hechizo) with 32 additional wells planned to fully develop the field.
3) Tiburon (10-40% WI) is the Company’s blue-sky exploration asset with incredible natural gas potential of up to 2 tcf of natural gas (based on management estimates). It is in the same basin as Chuchupa to the east, south of the recent Orca offshore field discovered by Ecopetrol and Petrobras which is estimated to contain 6 tcf, and west of Perla (Venezuela) with 16 tcf. Tiburon is a large undertaking with significantly higher upfront CAPEX when compared to Maria Conchita and Sinu-9 which are shallow conventional onshore wells. With this in mind, we intent to shoot a seismic survey and look for a major farm-in partner.
As you stated, 2020 has been a transformational year for GASX with significant news flow and catalysts to come in 2021.
Alexander Deluce:
In October, the company provided an updated reserve of 34,582 mmcf of proven and probable reserves. This showcased a considerable increase in reserves.
The company is planning to become a major producer of natural gas in the months and years to come, which should help fuel Columbia’s clean energy transition.
Can you touch on when market participants can expect production to commence at Maria Conchita alongside SINU-9?
Ronald Pantin:
GASX recently announced that GTX International Corp. successfully completed a US$10 million debenture financing and has agreed to build and operate the compression facilities and pipeline that will extend 14km from Maria Conchita to existing national infrastructure. The pipeline will have a capacity of 20 mmcf/d and is expected to be in service by Q2/21. This is an exciting moment for the Company’s transformation from an explorer and developer to a producer of natural gas from our first well at Maria Conchita.
As previously mentioned, GASX has a financing package from CPVEN for drilling and well servicing of 4 gas wells for an aggregate cost of US$27.2 million at Sinu-9. We anticipate drilling to start in Q2/21. Like Maria Conchita, Sinu-9 is located in close proximity to existing pipeline infrastructure to take the natural gas to market.
We expect production to rise from zero currently to 13 mmcf/d in Q2/21, 20 mmcf/d by late Q3/21 and to 40 mmcf/d by YE/21. Further exploration success at Sinu-9 could drive production to 100 mmcf/d by YE/22, potentially making GASX one of Colombia’s largest independent natural gas producers.
Alexander Deluce:
One of the things I noticed was the strong pricing advantage the company has.
In Colombia, the price of natural gas is relatively high due to the declining supply in-country. This should help the company operate with a significant margin when rolled into production.
Can you touch on the operation’s economics with the addition to the optionality of long-term take or pay contracts?
Ronald Pantin:
Colombia has recently started to import LNG to alleviate the concern that a shortage of natural gas would result in electrical power rationing as 30% of electricity generated in the country is from natural gas. That concern was partially founded in the well-defined trend of declining proved reserves, with supply forecasted to fall by half over the next 10 years.
Air pollution is another major concern. In order to meet its targets from the Paris Agreement and to protect its population and economy, Colombia is on a path to phase out coal and diesel/crude oil use in electrical generation. Natural gas is considered the fuel of the energy transition, since it reduces the particulate matter that affects air quality by 96% and reduces carbon emissions by 40%.
Renewables will also be part of the solution as there is currently 2,800 MW of capacity under construction, but that is more than two years away. Hydro took a substantial hit when the 2,400 MW Ituango hydroelectric project suffered a collapse of its diversion tunnel system in 2018 that has rendered that facility un-operational for now.
This all adds up to an expected continuation of the 3%-5% annual increase in natural gas demand for the next decade of more. These dynamics combine to provide confidence that the natural gas price in Colombia is likely to trend upward to the price of landed LNG, which is in the US$7-US$8/mcf range when HHUB is around US$3/mcf.
GASX has signed contacts on a couple of fronts that should result in predictable operating netbacks of approximately US$3.25/mcf at Maria Conchita.
The economics for new wells on the Sinu-9 block are impressive due to the premium natural gas price (recent gas prices in the area have been over US$6/mcf) and manageable operating costs that drive an operating netback of more than US$3.60/mcf.
Alexander Deluce:
In addition to the near-term catalysts of production, can you touch on the company’s exploration plans in 2021?
Ronald Pantin:
The next activity that is planned on the Maria Conchita Block is the re-entry of the Istanbul-1 well in Q2/21. Similar to the Aruchara-1 well, GASX believes the initial test on Istanbul-1 was performed poorly and that significant natural gas exists in this well. If successful, the production potential is on par with the Aruchara-1 well. Looking into 2022, it is possible that the company will re-enter the Tinka-1 well along with the drilling of one or two new wells.
GASX is in the first phase of the exploration program on SN-9. The first stage of that phase includes drilling two exploration wells (Magico and Mago). The second stage of the first phase of the exploration program is to include drilling two additional wells (Hechicero and Hechizo) and acquiring 3D seismic.
Alexander Deluce:
Finally, Mr. Pantin, can you touch on your background and highlight the highly experienced team you have around you?
I think it’s important to note the extensive experience you and your team have regarding operating in Colombia and South America.
Ronald Pantin:
The team at GASX have worked together several times in the past in both mining and O&G, with Pacific Rubiales evidence that we can build a multi-billion-dollar E&P company.
I have spent 40 years in the oil and gas industry including 23 years at PDVSA (Venezuela state oil company) which at the time was the second largest oil producer in the world after Saudi Aramco. After leaving PDVSA following Hugo Chávez coming into power in Venezuela, my team and I headed to Colombia where we teamed up with Serafino Iacono and Frank Giustra to build Pacific Rubiales. As CEO and Executive Director at Pacific Rubiales, we built Pacific from 14,000 boepd to 330,000 boepd in only four years hitting a peak enterprise value of $14 billion.
We have now gotten the same executive team back together and see a tremendous opportunity to build a dominant natural gas company in a premium pricing environment.
Thank you for your time and happy holidays.
NG Energy currently trades on the Toronto Venture Exchange under the symbol GASX with a market capitalization of $85 million. We look forward to covering the company in 2021.
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