Gondwana Oil (CSE:GO) has made a splash with its initial listing on the Canadian Securities Exchange, raising $3.5 million, well north of its initial $2 million target, with investors banking on the potential of the company’s prime oil play in offshore Ghana, which sits next to the giant Jubilee Field – the first major discovery in the West African country.
Indeed, the Jubilee Field, which was discovered in 2007, has 2 billion barrels of reserves, and 110,000 barrels per day of current production, with the junior company’s Gondwana block sitting just 25 km southeast of the enormous play.
“The producing Jubilee Field is 25 klicks from us,” says CEO Troy Grant in a recent interview with Proactiveinvestors.
“It has the same water depths as Jubilee, which is a 2 billion barrel field,” he adds, referring to water depths of between 500 metres to 1,700 metres, compared to Jubilee’s depths of 900 metres to 1,400 metres.
Gondwana is not alone in its quest to develop this region, with neighbouring majors including Vanco, ENI, Kosmos and Hess. The company says there have been multiple recent discoveries on the west and northern borders of its Gondwana block, targeting the same aged rocks as Jubilee, which has “started a staking rush up and down the entire coast of West Africa.”
“The entire coast, all the way up to northern Africa, is staked now, with a 65% success rate,” says Grant, noting the unusually high percentage of discovery for offshore wells in this frontier area.
The company is negotiating final terms with the government on the block, which is held 70% through its local Ghanaian subsidiary, Miura Petroleum. The asset covers 1,604 square kilometres with past work including a “strong existing 2D and 3D offshore data set”, comprised of 2,378 line km of 3D seismic and 1,687 line km of 2D seismic, ready to be reinterpreted.
According to Gondwana, there are approximately 28 wells being drilled around its block in a short span of two years, from 2014 to 2016.
Grant says a solid comparable to the junior explorer is Canadian Overseas Petroleum (CVE:XOP), which is exploring the West African Transform Margin play – searching for a Jubilee analogue – in Liberia and has a $103 million market cap based on speculation of upcoming drilling in H1. Canadian Overseas Petroleum is partnered on its play with ExxonMobil (NYSE:XOM), which spent an estimated $250 million to secure its stake in the block of which $120 million is constituted of drilling over three years, while the junior company has retained an 18% stake.
While Liberia has so far seen zero commercial-producing discoveries, the Gondwana block sits directly adjacent to a massive discovery, and the company has a valuation of just $5 million out of the gate. If Gondwana were to secure a similar type of partnership deal, the company’s hope is that its valuation would potentially skyrocket to the $50 to $100 million range, in line with peers.
Over 5.0 billion barrels of oil has been discovered in the West Africa Transform Margin play in only five years of exploration, setting Gondwana Oil up nicely for a potential high-profile discovery. Ghana, with rising GDP year-over-year and “excellent infrastructure”, became the first nation to declare independence from colonization in sub-Saharan Africa, and has had a stable, democratic government system ever since.
Gondwana is currently negotiating the final terms of a production sharing contract (PSC) with the Ghana state oil and gas company (GNPC), which the CEO described as very productive and proactive given “the strength of [its] local partners”.
Indeed, one of Gondwana’s most significant local partners is Kojo Annan, the only son of ex-UN Secretary-General Kofi Annan and a man with an extensive global network who founded Sutton Group in 1999 with a broad range of partners across various business sectors in West Africa.
Douglas Manner, former COO of Kosmos Energy, which owns 20% of the Jubilee Field, is also guiding the efforts of the local team. “He knows all the players in the region from his days at Kosmos as Jubilee was unfolding. It’s fantastic to have someone with that credibility and experience helping to direct our efforts.”
The experience of the team stretches even further with John Lindemood as Gondwana’s manager of negotiations. The majority of Lindemood’s career has been in the petroleum business with Phillips Petroleum Company, which is now ConocoPhillips, where he was employed for 30 years, moving to the ranks of president of the Africa and Middle East Strategic Business Unit. In 1999, he was elected President of the Association of International Petroleum Negotiators, a worldwide organization for upstream contractual arrangements with membership from both host countries and international oil companies. "John used to sit on the other side of the table negotiating for Phillips, so now to have him with the minnow rather than the major will be very helpful throughout the process," Grant says.
“The Ghana National Petroleum Corporation (GNPC) has substantial interest in the block from major companies, but we believe that they elected to move the ball forward with us because of our local content, technical merit, and development game plan,” said Grant. Once the final terms of the PSC are negotiated with the government, the agreement will go to parliament to get ratified.
Grant estimates that drilling could commence as early as the second half of 2015, with one to two wells drilled in the initial exploration period, at a cost of roughly $50 - $75 million per well.
“This block will be the major focus of the company until we achieve our planned milestones, but we always have our eyes open if there are accretive acquisitions to be made,” says the chief executive.
The company, which has a combination of high net worth and institutional investors in North America and Europe, completed its initial listing earlier this year at half a penny, bringing an Australian-type share structure to Canada for the first time, says Grant. Gondwana is currently trading at 1.5 cents on the Canadian Securities Exchange.