President Energy plc (LON:PPC), the energy company with a diverse portfolio of production and exploration assets focused primarily in Argentina, has announced an update on developments in Rio Negro.
Highlights
• New treatment plant to be built in Rio Negro with a projected completion of August 2021
• Will eliminate third party treatment costs with total savings estimated at US$2.5 million per year
• $5 million aggregate cost of project funded by favourable new Peso based medium term loan provided by Banco Hipotecario
• Of the US$3.7 million bank loan outstanding at the half year, US$2.2 million has already been repaid
• Paraguay farm out negotiations materially advanced
New treatment plant
Currently President’s battery in its Puesto Flores/Estancia Vieja Concession, Rio Negro, transports the Company’s oil through President’s pipeline to a third party treatment plant which then processes the oil to sales quality and dispatches it onwards via pipeline to the main regional hub. In order to transport the oil through the pipeline, some water has to be sent to the third party which is ultimately disposed of following processing. President pays the third party for that treatment, transportation of oil and the disposal of residual water.
President has now sanctioned a project to eliminate such third party costs by engineering a new plant with the capacity to treat all the Company’s oil to sales specification. The solution also will provide President with the capacity to transport its oil either through pipelines or by truck.
The plant has been designed by President’s in-house engineering team who will also supervise its construction.
The aggregate savings of opex including shrinkage, quality discount and transport fees are estimated to be approximately US$2.5 million per year with the total cost of the project estimated to be US$5 million. The feasibility study has been completed with work commencing in January and projected completion of end August 2021.
Funding of plant
The project is being funded by a new US$5 million secured loan from Banco Hipotecario. The Argentine pesos denominated loan is repayable in 36 months with an initial 12 months payment holiday. The interest rate in pesos is fixed at 30% with the projected rate of peso depreciation in Argentina for 2021 currently estimated to be in the range of 28-40%.
This type of loan has been propounded by the Argentine Government to stimulate growth and investment. Taking into account those projected depreciation rates and the fact that President is paid in pesos at the dollar equivalent at the time of payment (not invoice) for its oil and gas, it is considered that the loan is likely, in the absence of unforeseen circumstances, to have an effective zero or negative rate of interest.
As the Company has in H2 2020 repaid US$2.2 million of the US$3.7 million bank debt reported at the half year ended 30 June 2020, the total current bank debt is now US$6.5 million which by end June 2021 will have reduced by a further US$1.5 million leaving US$5 million, being the amount required to fund the plant.
Paraguay update
Negotiations with a substantial and reputable National Oil Company in relation to a farm out of the Pirity Concession, Paraguay have materially advanced recently with the next step to negotiate and agree legal documentation which follow the form of the AIPN international precedent documentation for operating and farm out agreements. Drafts of these agreements are already in circulation.
President’s principal focus has been on a contribution to well costs and finding a partner with sympathetic aims and ambitions. Inter alia under the terms of the deal under discussion, President will remain operator and retain a 50% interest in the relevant Concession.
As stated in previous announcements, although there can be no guarantee of a successful conclusion of negotiations, with every tick in the box the prospects of a positive outcome come ever closer. With that caveat, there has been material progress recently leading to the view that on current evidence there is a better than a 50% chance of a mutually satisfactory conclusion to the discussions. It is hoped to conclude matters before the end of Q1 2021 with a view to drilling an exploration well targeting a location in the Delray complex within approximately 12 months.
By way of reminder the Delray complex is estimated by President to have a mid case of 230 Million barrels of unrisked oil resources in place. The complex is unrelated to the two structures targeted in the previous exploration campaign and has as its analogue proven producing oil fields on the same trend located over the border in Argentina. A concise geological presentation on the Delray complex has been published by President and can be found on the Company’s web site at www.presidentenergyplc.com.
Peter Levine, Chairman, commented
“The new plant will materially reduce opex and produce improved cash flow and bottom line profits
“The benefits are enhanced by the funding terms which are projected to have a zero or even negative interest rate thanks to the Government’s initiative for which President is appreciative. President is likewise grateful to the Province of Rio Negro and its partner EDHIPSA for their continued support and encouragement
“The funding underlines the debt capacity and good credit standing of President and the project demonstrates the commitment of the Company to constantly find ways to improve its margins and profits
“As to Paraguay, in relation to the farm out, it is still very much a matter of step by step with each step bringing one closer to a positive outcome. In this regard although patience is required and whilst there can be no guarantees, we are encouraged by the progress to date and are cautiously optimistic as to a successful conclusion.”
