AIM-listed Prospex Oil and Gas has announced the conditional acquisition of up to a 49.9% indirect stake in El Romeral, an integrated gas production and power station operation located in the Guadalquivir basin in southern Spain. El Romeral is comprised of three production licences on which three producing wells supply gas, through its own network, to a 100%-owned 8.1 MW power station.  In addition, the Area contains two development locations and 11 very-low risk prospects with gross contingent and prospective gas resources of 5Bcf and 90 Bcf, respectively.

Based on current levels of gas production, electricity generation, and revenue per Mwh, the Project generates small amounts of free cash from revenue of c. €800,000 per year. There is the potential to increase the number of generating days at the Project (historically equivalent to five days per week) and in the medium-term increase utilisation of the generation equipment (current 22%) by sourcing new gas supplies from within the Project Area, specifically from its assigned 90 Bcf of very-low risk prospective resources. When gas was not a limiting factor the power station regularly produced c. 60,000 Mwh per annum, which would equate to a revenue of >€4.2 million per annum (based on current revenue per Mwh). 

El Romeral is being acquired by Tarba Energia with funding provided by Tarba's shareholders, Warrego Energy and Prospex.  Warrego will fund the initial consideration of €750,000.  Prospex has three months to elect an ownership stake in the Project (up to 49.9%) and refund to Warrego the corresponding proportion of the initial consideration. Warrego will indirectly own the balance of the Project. The acquisition of Prospex's stake is conditional on Prospex securing funding for such investment.  

El Romeral: existing gas production, multiple development opportunities, and an operational power station

• Ten wells drilled since 1950s, including seven post-1983 which discovered gas:
  • Three wells currently producing with gross 2P reserves of 0.30 Bcf
  • Two shut-in gas wells with low cost workover potential
• Large dataset of c. 550 km of 2D seismic supported by AVO analysis clearly identifies multiple follow on opportunities
• Two development locations with 5 Bcf of gross contingent resources (as per 2019 independent reserves and resources report from Netherland Sewell & Associates ("NSAI"))
• 11 prospects with 90 Bcf of gross, unrisked prospective resources (as per the same NSAI report), thought to have a very low geological risk (Chance of Success >70% in most cases)
• Profitable El Romeral power station operating 16h/d provides immediate revenues
  • Constructed in 2001-2002 at an approximate cost of €10 million
  • Currently operating at c. 22% capacity offering significant upside potential
  • Consumes c11,000 scm/d in a typical generating day
  • Generates monthly revenues c. €65,000, via sales to the Spanish electricity grid
  • Low-cost maintenance contract in place with equipment vendor General Electric

Multi-well drilling programme at El Romeral offers low cost, low risk opportunity to substantially scale up production

• Planning and permitting process for three well campaign expected to commence in Q1-Q2 2020
• Shallow low cost wells
• Low cost route to commercialisation via tie-in to Project-owned power station

Acquisition leads to step-up in Prospex's 2020 production profile to five producing gas wells across its portfolio, which could generate over 9,000,000 scm net in 2021

• Prospex on track to have interests in five producing gas wells in 2020:
  • Three existing wells at El Romeral
  • Bainet-1 well on 50% owned Suceava Concession in Romania which continues to perform in line with average production rate of 15,000 scmpd (530 mscfd) assumed by Joint Venture for 2019 budgeting purposes
  • Podere Maiar-1 well on 17% owned Podere Gallina licence in Italy which is expected to commence production in 2020 at rates up to 150,000 scmpd (5,300 mscfd), subject to regulatory approvals and installation of production equipment

Prospex non-executive Chairman, Bill Smith, said:
"With three producing wells, an 8.1 MW power station and gross reserves, contingent and prospective resources of 0.3 Bcf, 5 Bcf, and 90 Bcf respectively, the El Romeral gas power project not only promises revenues from day one, but also significant upside potential.  Located in a proven hydrocarbon region with very low geological risk, it is the substantial development opportunity, specifically the combination of the power station operating at only ~22% capacity and the presence of two undeveloped discoveries and 11 prospects, which excites us most.  Based on current and forecasted annual revenue, the economics for Tarba and in turn Prospex are expected to be favourable for an efficient return on investment with major scope for significant upside by exploring the very low risk 11 prospects.

"Our expected 2020 production profile, subject to completing the investment in the Project, will be centred on five gas wells in three projects in Romania, Spain and Italy, once the Selva field comes on stream. This would represent a fivefold increase on 2019 and, combined, we anticipate these five wells have the ability to produce over 9,000,000 scm net to Prospex over the course of 2021. With our joint venture partner, we plan to apply for permits for three new wells at El Romeral in 2020. At the same time, we will continue our technical work programme to de-risk the independently estimated 830 Bcf gross prospective resources (best estimate) at the Tesorillo project in Spain. 

"We have been saying for some time that we believe our current market cap represents a fraction of Prospex's underlying value. Our asset base could soon include an interest in a gas power station and associated infrastructure which cost ~€10 million to install, material interests in four producing gas wells, and a stake in a fifth well in Italy which is expected to be brought online in 2020. The value case behind Prospex is, in our view, very clear."

Link to Prospex Oil and Gas Spain country profile