The West Australian
By Peter Klinger
It has been a long time coming for investors in Pura Vida, the top sharemarket float of 2012.
Pura Vida and its partners Freeport McMoRan and the Moroccan Government hope to spud (the industry term for starting to drill) the MZ-1 well.
The float pitch three years ago, when the Damon Neaves-run Pura Vida raised $4 million at 20¢ a share in its initial public offering, was to drill the Mazagan permit off Morocco some time in 2013.
Delays have ensued for various reasons.
The latest hold-up is because the Atwood Achiever drill ship, to be used for MZ-1, has taken longer than anticipated to complete the Tortue-1 exploration well off neighbouring Mauritania. In what Pura Vida hopes is a good omen, Tortue-1 resulted in a big gas discovery for permit operator Kosmos Energy.
The MZ-1 well, in 2.2km of water about 100km off Morocco’s coast, should take about 80 days (or into August) to reach its planned total depth of 5km to 6km as the drill bit makes its way through four and, potentially five, separate hydrocarbon targets.
Oil is the target, and hope, and Pura Vida has done what any small-cap approaching a high-impact event like MZ-1 does — talking up the massive potential if the well strikes black gold.
The total gross unrisked mean prospective resource of the MZ-1 targets is 1.4 billion barrels, with a high case of 3 billion barrels.
Pura Vida holds 23 per cent of the Mazagan permit, so the upside for this $69 million Perth company is enormous.
Other big-name explorers off Morocco and Mauritania, including Woodside Petroleum and Chevron, will watch closely.
But as BP’s Asia-Pacific exploration boss Bryan Ritchie reminded the oil and gas industry last week, the average is for one-in-10 of these high-impact wells to be successful.
It is also a widely held view in industry that deepwater exploration is for the big players because of the costs involved.
Pura Vida estimates MZ-1 will cost about $US137 million.
Pura Vida, with $20 million cash at March 31, is free-carried by farm-in partner and permit operator Freeport (52 per cent stake). The Moroccan Government has 25 per cent.
Depending on MZ-1’s outcome, the permit partners plan to drill a second well, in shallower waters at an estimated cost of up to $US60 million.
Again, Pura Vida’s costs are covered by Freeport ($US215 million across both wells) so, baring a drilling catastrophe that results in budget overruns, there is little downside for Pura Vida.
Shareholders often take a different view, as those invested in fellow Perth small caps Neon Energy and Tangiers Petroleum, for example, have demonstrated over the past 18 months.
As hype and anticipation grew with the looming spud date for high-impact wells, the speculative money jumped into Neon and Tangiers, only for the sell-off to be massive and almost company-destroying when the exploration push was a failure — in both cases. In Tangiers’ case the dry well was off Morocco.
Pura Vida shares closed at 42.5¢ on Friday, having firmed from 40¢ a week earlier in line with pre-spud excitement. The same trend happened last month before it became clear the spud date had been delayed again.
Mr Neaves is acutely aware of the pitfalls at the junior end of the oil and gas game, which is why he has been busy not just diluting his company’s initial 75 per cent stake in Mazagan in return for cost carry, but diversifying his portfolio.
He has stayed in Africa and secured the Nkembe concession off Gabon and a half share of the Ambilobe permit off Madagascar.
A fully funded 3-D seismic survey of Ambilobe is under way, following which Pura Vida intends to farm down its stake to about 25 per cent in return for a cost carry on the first well.
Nkembe is the newest of Pura Vida’s three ventures. The company is seeking farm-in partners to pay for seismic and then drilling.
The trio of exploration activities should ensure Pura Vida maintains a steady newsflow — vital for a small-cap — over the coming year.