Junior among giants set for success

In the three years since being hailed IPO of the year, Pura Vida Energy has built up a widely diverse portfolio and funded a major offshore drilling program despite trying macroeconomic conditions.
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Pura Vida is on the cusp of spudding the first hole at its Mazagan offshore block in Morocco, which was healthily farmed out to a subsidiary of US giant Freeport McMoRan in 2013.

The Perth-based developer retains a 23% stake in the project, defining the company as the only Australian junior with a substantial ownership position in a region otherwise populated by multinationals like Chevron, Woodside and BP.

Since the Freeport deal set up Pura Vida with a $US215 million budget for two wells within the block, the company has pursued an exhaustive review of potential targets, reprocessing 3D data and refining technical modelling. The culmination of this work has been the identification of the Ouanoukrim prospect to be tested by the MZ-1 well, where drilling commencing this month will intersect up to five stacked targets in a single hole.

"It is fairly unique to be able to access up to five stacked targets with a single vertical well like this," Pura Vida managing director Damon Neaves told affiliate publication RESOURCESTOCKS.

"And across those five targets, we're actually testing two alternative play types, two different structural traps. Overall the implication is that it gives us a greater chance of finding a commercial oil accumulation."

The diligence exercised by Pura Vida in establishing MZ-1 as the first target has paid off with an overlapping of the deep Jurassic fans with Cretaceous four-way dip closures at a depth of around 3500m. Neaves said this serendipitous confluence of geological formations represented both a budgetary coup and a potential quantum leap in learning more about the nature of the block.

"If we had to test multiple plays in different wells, it would significantly add to the cost," he said.

"These aren't cheap wells, we're talking wells in the order of $100 million. So to be able to test two different play types with a single well is an excellent opportunity for us, which improves our chance of making a discovery and takes our understanding of the block much further."

According to Pura Vida estimates, the chances of successfully hitting oil at each of the five targets within MZ-1 range from 12% to 30%, with total gross un-risked mean prospective resources tipped to total more than 1.4 billion barrels.

A high-case estimate has even contemplated resources eclipsing 3Bbbl at the site.

"This is a frontier area, so it remains high risk, and therein lies the significance of drilling multiple targets with a single well," Neaves said.

"You get a number of cracks at it, and you'd much rather have five rolls of the dice than just one. The way I see it, we've got a very simple objective, and that is to find oil."

The location of the second well will be determined by the results at MZ-1. Candidates for the follow-up include the previously considered Toubkal prospect, which is believed to offer a 1-in-3 chance of successfully hitting commercial oil. The second well is scheduled to be drilled about nine months after MZ-1 to allow for analysis.

Brokers and analysts have championed Pura Vida in recent months for exceptional leverage to exploration success for shareholders, made possible by the funding provided to Pura Vida under the Mazagan farm-out deal, which provided a relatively small company with a rare opportunity to drill an emerging offshore hotspot despite the persistent global malaise in oil.

Neaves, however, attributes much of Pura Vida's success to his company's core technical competency.

"Our strategy rests on being effective in terms of identifying the right acreage, having the technical capability to carry out the early exploration work and get the project to a level that would be satisfactory for a major to invest," he said.

"We've got a very active approach to the management of our assets and the execution of our strategy. The Pura Vida management team is a real blend of different skill sets, bringing together both commercial and the technical disciplines.

"Our experience in Morocco really demonstrates that. We're able to firstly identify an emerging area ahead of the industry. Then we're able to go in there and execute the deal to acquire the acreage on attractive commercial terms. Then we're able to execute the work program and technically add value to that block before we farm out."

Pura Vida attributes its success in these endeavours to a work ethic that includes spending a lot of time on the ground in Africa, building relationships with governments and hunting down overlooked opportunities.

The effort has led to the creation of a pan-African portfolio of projects that reflect a layered approach to diversification.

"We're looking not only at working in different locations with multiple blocks, but also in projects at different levels of maturity and risk," Neaves said.

"We've got three different projects in three different phases. The strategy we're pursuing is about finding these emerging areas, capturing that acreage on sensible commercial terms and adding value in that early exploration phase. That can be done by shooting seismic or interpreting seismic data to mature up prospects and get them ready for drilling.

"At that point, we're ready to drill, and we'll look to de-risk our position financially by bringing on an industry partner."

Pura Vida's other African oil properties include a fully owned block offshore Gabon and a 50% stake in a block off Madagascar.

The Nkembe project lies in the proven Gabon Basin, where Pura Vida is repeating its role as a junior among giants. The company is looking to replicate its Morocco strategy here, with 3D data over the entire block and drill-ready prospects identified.

Talks are already underway with potential partners to come in and fund the drilling.

"That's a real quality address and we're fortunate as a junior to have 100% of a block there in amongst majors like Total, Exxon and Shell," Neaves said.

"We've positioned ourselves well there and it's very interesting acreage."

Nkembe focuses on Pura Vida's technical strengths in proving up salt-related plays, including an exciting pre-salt play which has recently produced a number of significant discoveries in Gabon. Current production in the Gabon Basin is mostly in post-salt deposits, but commercial pre-salt discoveries have accelerated in the last 12 months.

The plan is to test the pre-salt play in Nkembe which is analogous to the pre-salt plays which have attracted so much attention in recent years offshore of Brazil and Angola.

Eventual drilling at the project may also benefit from stacked plays in a single well at Nkembe's Palomite and Pompano prospect, which has potential to access 400 million barrels of prospective resources.

In Madagascar, the Ambilobe project is hoped to connect a proven basin hosting the likes of ExxonMobil with a booming corridor along the east African margin.

So far, Pura Vida's work in this area has included identification of leads on 2D data. It's still early days, but Neaves sees a lot of promise in the area following the restoration of democracy after Madagascar's 2013 elections and a nearby oil discoveries in a shallow borehole program undertaken by London-listed Afren.

"What we're looking at there is very similar to the plays that we're looking at in both Morocco and Gabon, so it falls squarely within our technical capability and field of expertise, which is specialising in the salt-related plays," he said.

"We're encouraged by what we see on the 2D data. We see big targets, potentially hundreds of millions of barrels, and we see stacked plays at multiple levels around these salt features."

With all of this activity in 2015, including drilling offshore Morocco, Pura Vida is positioned to become a substantial company with any success.

But for those sceptical about an oil junior's ability to profitably introduce new product into a depressed energy space, Neaves offers an investment case for conventional oil that transcends the market-rattling effects of booming but unsustainably inefficient alternatives.

"If you think about Morocco, for example, the prospects we're drilling have the potential to be developed into fields with, say, a 20-year productive life, which means they will produce over many cycles of the oil price," he said.

"That's why our strategy continues to work in this low-price environment. Unlike unconventional reservoirs, such as North American shale, where you're very exposed to spot oil price, opportunities being targeted in our portfolio offer high-margin barrels, and these projects remain economically robust through the full cycle of oil prices.

"So it's my belief that what we'll see is the industry return its focus to large scale, long-term conventional oil projects, because they offer the potential for high-margin barrels and sustained production over many, many years. That makes these projects more attractive, in a relative sense, in the market conditions we're experiencing at the current time.

"We started three years ago from pretty humble beginnings. We were a $4 million IPO in 2012, so we've really put this portfolio together in three years and I think it's a quality portfolio. And despite the state of the broader industry and macroeconomic conditions, we've got a very active program this year. We want to grow into something meaningful."

*A version of this report, first published in the May-June 2015 edition of RESOURCESTOCKS magazine, was commissioned by Pura Vida Energy.

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