19May 2017

LGO Energy Plc (AIM:LGO) Video Interview – Q&A with Exec Chairman Leo Koot

Today we publish question’s collected from across social media from LGO share holders. The new LGO Energy Plc Executive Chairman, Leo Koot has kindly took the time to answer these questions personal.

Plus the new Exclusive – LGO Energy Plc video interview with Exec Chairman Leo Koot for Share Talk TV.

Technical Analyst, Zak Mir spoke with incoming Executive Chairman, Leo Koot of LGO Energy Plc (AIM:LGO) for Share Talk TV. Leo talks about what the future holds for shareholders of LGO and what steps he is taking to accelerate production in Trinidad.

Share Holders Q&A 

  • Please supply 2016 prod figures for Spain & Trini as for 1st time they were omitted from annuals.

The 2016 accounts state that Group oil sales averaged 464 bopd, whilst Spanish sales averaged 86 bopd

  • Was application paperwork done following 678 to enable sidetracking or re drilling (stated as prob preferred option at the time) from a new pad allowing for trajectory bypassing of stuck drill location below the 9 5/8″ level.

Well GY-678 is being re-evaluated in line with Columbus Energy’s focus on maximising economic flow from Goudron to deliver shareholder value. We therefore are considering all options before making any decision.

  • It appears as though there may be a lull with imminent drilling operations, apart from converting some of the wells to electric pump for enhanced performance – will the electric pumps provide enough additional Bopd / revenue to allow for further cash flow?

All economic opportunities to increase production will be considered.  Due to the low variable costs on incremental barrels, each new barrel is valuable to Columbus and will contribute positively to cashflow

  • What is the expected / hopeful increase in Bopd with using an electric pump?

We have just started the review programme and cannot therefore provide a specific number.  The company keeps an open mind on the possible benefits

  • What are the costs related to using them (I presume any cost is off-set against nodding donkeys maintenance).

We cannot provide specific numbers on the costs just yet until a full test is done, however all investments must be value accretive to the Company and to Shareholders. 

  • Why, in all things holy, did NR not consider using these types of pumps (too expensive / not aware / unavailable).

Historically, a number of production enhancing activities have been considered and executed in the field.  We are now trying to apply additional optimisation methods

Why did no-one from the original LGO team recognise the fact that the oil from the shallows could be from a larger oil deposit? How is it that you’ve just come along and suddenly noticed it? What did you do to recognise this?

Historically, a number of production enhancing have been considered and executed in the field.  We are now trying to apply additional optimisation methods.

  • Re 678 could you not re enter and drill a deviated sidetrack around the lost tool?

Sidetracking the well is a possibility, however this may not be the lowest cost, or optimal solution.  

  • Lgo was/is notorious for being a leaky ship, moving office will potentially plug one massive hole, is there more you can do to plug more holes before the good ship Columbus sets sail

LGO has kept high standards of confidentiality in line with its legal and regulatory requirements.  There is much speculation on the bulletin Boards and this speculation should not be mistaken for access to information directly from the company.  As has been stated, Columbus Energy intends to move offices imminently and will continue to look for the best solutions for the Company and for Shareholders. Columbus will continue to be compliant with all its legal and regulatory requirements.

  • Does Leo intend to utilise more of the Lind debt facility or does he see an end to that arrangement in favour of a better deal elsewhere?

The Company has access to a number of potential sources of funds.  The Lind facility will be considered as part of the wider availability of funds and will be evaluated on its own merits.

  • Neil had ambitions of doubling current production by the end of 2017. Is this potentially still on the table with the direction you are pursuing for 2017?

We will seek all optimisation and economically attractive production enhancing activities.  Further updates can be expected after the initial review.

  • Can you commit to a date by which you will give a detailed plan for the next 12 months? The plan needs to include overall strategy, but also concrete actions with targets, clear financial objectives and deadlines

We are early in the process of the review and intend to update the market and shareholders in due course. Leo however has already mapped out his personal intentions for the next six months.

  • Cedros/sw peninsula was intended to be jv/farmout/free ride. Is this still the case and does he see more of Columbus’s assets being operated on a jv basis allowing the company to expand further into South America without overstretching itself ?

There are a number of ways to fund the South West Peninsula assets including farmouts/JV’s.  The Company will endeavour to find the most effective/efficient solution for this and future activity. 

  • A  lot of SHs seem to think you are well connected which could give us access to funding. is this correct and what would this mean for Cedros. If not correct could you outline your thinking on potential funding strategies for the Cedros field?

The Company has access to a number of potential sources of funds.  The most appropriate source of funding will be considered for each specific investment opportunity.

  • I’d like to know what happened to the storage tanks and LACT meter do we actually have them where are they? Will they be used??

The company is utilising all plant and machinery to enhance asset value.

  • What is the latest on the upgraded pipeline that was installed?

This has been upgraded and is in use.

  • I assume these were put in place or actioned owing to the then presumed increase in production?

This has been upgraded and is in use.

  • I’d like to know the latest on BOLT?

Whilst the company has not completed the acquisition.  Ahead of closing the deal, it has already started operating the field, completing the first sale in early May. 

  • In addition where is the finance likely to come from on any acquisitions or drilling?

The Company has access to a number of potential sources of funds.  The most appropriate source of funding will be considered for each specific investment opportunity.

  • Spain – how much did we get for the oil produced there and was it all sold successfully?

All the oil was successfully sold. The price was a market related price, a discount to Brent.

  • Will there be any future thoughts on a share buy back scheme to reduce the amount of shares in issue.

The company has not issued any guidance on this.  Right now, the company believes that the best use of cash is to enhance production in order to build a strong exploration portfolio

  • What are we doing with the Ariel information that we paid for had it given up any potential sweet spots?”

This data has been used throughout all the assets in Trinidad to help identify the best targets.

Thank you to LGO Energy Plc and Leo Koot for answering share holders question.

 

LGO Operation Overview

 Goudron-GY-683-and-Drilling-Pad-3-in-Trinity-Hills.

Trinidad

Trinidad operations comprise of four main assets; the Goudron Field, the Icacos Oilfield, the Cedros Peninsular leases, and Beach Oilfield Limited leases (BOLT) containing the Bonasse Oilfield.

The Gourdon Field (LGO 100%) lies between the East Moruga and Beach Marcelle fields in south-eastern Trinidad and has direct access to the Petrotrin oil export pipeline to the Pointe-a-Pierre refinery in western Trinidad. The field was originally discovered by Trinidad Leaseholders Limited in 1927 and was largely developed in its current form by Texaco between 1956 and 1986, when ownership passed to Petrotrin and its predecessors. A field reactivation contract, Incremental Production Service Contract (IPSC), was signed in late 2009 and the contract acquired by LGO in October 2012.

The Icacos Oilfield (LGO 50%, Touchstone 50%) lies on the Cedros Peninsular in southwest Trinidad and is surrounded by a number of LGO’s 100% owned petroleum leases.

The Cedros Peninsular and BOLT leases all lie within Trinidad’s south-west peninsular.

Goudron-GY-683-with-Rig-18-and-nearby-Drilling-Pad

Goudron Field (100% LGO, operator)

The transfer of the Goudron IPSC was completed in October 2012 and production enhancement activity commenced immediately. LGO published the results of an independent reserves evaluation of the field commissioned from Challenge Energy Limited.

Senergy (GB) Limited (“LR Senergy”) were commissioned in 2014 to conduct a comprehensive review of the Goudron Field to determine in-place hydrocarbon volumes and to estimate recoverable volumes, using all historic data but also work-over, drilling and production data obtained from operations since the Company acquired the asset.

Using these studies as a baseline, the Company has updated the reserves assessment by incorporating drilling data from the 2015 drilling campaign as well as production data from wells drilled in 2014 and 2015. This work was audited in June 2016 by Deloitte’s Resource Evaluation & Advisory team in Alberta (Canada) (“Deloitte”) and as a result the best estimate oil in place (“STOIIP”) within the field had increased over 20% since the 2015 independent review by Senergy and is currently estimated to be up to 975 million barrels (“mmbbls”).

Reserve estimates also increased. Proven (1P) gross oil reserves in the producing Goudron Mayaro Sandstone and deeper C-sand and pre-Cruse reservoirs have increased by over 3% to 1.58 mmbbls, and the gross proven and probable reserves (2P) have increased by 4% to 11.79 million barrels of oil (“mmbbls”). Proved, probable and possible reserves (3P) have increased by 9% to 25.60 mmbbls.

Beyond the primary depletion case considered in the Deloitte reserves study, it is believed that the field would benefit from Enhanced Oil Recovery (“EOR”). Several analogue fields in Trinidad have implemented a water-flood scheme in the past and, based on experiences seen in those fields, the Company is confident that similar reserves and production uplift potential exists in Goudron.

The first resource report commissioned by LGO prior to acquiring the field in 2012 reported incremental estimated gross upside (3C) contingent resources of 63.20 mmbbls, related to a future EOR scheme. The 2015 report performed for the Company by LR Senergy did not consider contingent resources, however, the 2016 Deloitte report includes a gross 3C estimate of 63.40 mmbbls, which is very close to the 2012 estimate and again confirms the significant potential inherent in the planned EOR phase of the development.

It is important to note that all wells decline as the natural reservoir pressure around the well is depleted. Historic field decline rates have varied between 10% and 90% in the first year. The shallow Goudron Mayaro Sandstone wells generally decline at lower rates than C-sand wells and the C-sand well performance is markedly influenced by the quantity of gas in solution with the oil. In order to arrest decline it is desirable to inject a fluid (typically water) into the reservoir to replace the oil volumes being removed and hence to maintain pressure; this is the expected EOR mechanism to be deployed at Goudron.

It is estimated that a water-flood project has the potential to recover up to 60 mmbbls of incremental oil from the existing field. Beyond that, much of the concession is underexplored and there is thought to be significant potential for additional exploration opportunities. These projects will be considered once primary production from the field has been fully optimised.

A water-flood is being planned for Goudron to enhance oil recover and following the estimations reported by the independent review, it is estimated that a water-flood project has the potential to recover up to 63 mmbbls of incremental oil from the existing field. Beyond that, much of the concession is underexplored and there is thought to be significant potential for additional exploration opportunities. These projects will be considered once primary production from the field has been fully optimised.

Currently, all the oil from around the field is first sent to Gathering Station #207 (GS-207), where water is separated from the oil and the treated water cleaned and returned to the natural environment. Any solids are collected in the base of the tanks, but the quantities are generally small and are removed periodically during routine maintenance. The tanks all hold produced oil and water and the size of the station ensures there is sufficient latency time to get full separation of oil from the water. Oil is then transported by pipeline to Gathering Station #134, from which sales to Petrotrin are made.

If any water reaches the sales tank it is bled off and returned to GS-207 for further treatment. Most wells on the field are connected by flow lines routed to GS-207. A few wells flow to separate well head tanks and these are emptied by road tanker and the oil and water taken to GS-207 for treatment.
The production strategy of each well is determined individually on the basis of its characteristics. The majority of the legacy and some of the new wells are being produced by conventional downhole pumps by means of beam engines or so called nodding donkeys.

All wells undergo routine and non-routine interventions as necessary. The costs and expected production impact of all intervention work is carefully considered on a well by well basis, along with the availability of rigs and equipment to carry out the work. As a result it is likely that there will be some wells off-line on any one day.
A Lease Automatic Custody Transfer (LACT) Meter has been considered for installation, however, it is not required at the current production levels. As higher rates are achieved a suitable unit will be procured and installed.

Preliminary design and planning work for a shallow well drilling program at the Goudron field has been undertaken. Environmental approvals have been secured and applications for approval to drill will be submitted as required. The Company will commence this new Mayaro Sandstone Program as soon as funding is available.

The Company previously issued guidance that the Goudron Field could produce at rates of up to 1,500 bopd in the medium term; achieving this target will require production from the planned Mayaro Sandstone wells. Currently the Company is unable to commit to this drilling programme, hence an increase in production will be delayed.
Icacos Oilfield, (LGO 50%)
Located in the extreme southwest of the island the Icacos Oilfield (“Icacoa”) is operated by the Territorial Services Group (a subsidiary of Touchstone Exploration Inc).

  • 1,960 acres onshore, producing since 1960’s
  • Very limites available seismic data
  • Recent exploration is limited to shallow horizons
  • Average production of approx. 35 bopd
  • Additional development potential and possible deeper targets

Cedros Leases (LGO 100%)

LGO holds a number of new 100% LGO owned private petroleum leases acquired in 2011 and 2012 covering some 1,752 acres of prospective, underexplored, lands around the Icacos Field. LGO’s title to its 100% owned Cedros leases have now been accepted by the Ministry of Energy and Energy Affairs, who are in the process of issuing a Private Petroleum License for those leases.

BOLT – Shallow and Deep Rights

LGO entered into a Letter of Intent with Beach Oilfield Limited (“BOLT”) to cross-assign the interests of the two companies within the Cedros Peninsula at stratigraphic levels below 7,000 feet. Exclusivity on this agreement currently runs to 31 March 2017, however, this can be renewed by mutual consent.

Leni Trinidad Limited (“LTL”), a wholly owned subsidiary of LGO will be the operator of the combined leases and will hold a 100% working interest of the deeper rights, with BOLT receiving an overriding royalty on any future production revenues.

Progress continues to be made on bringing this arrangement into effect and on completion of this transaction LGO will hold interests in over 10,900 acres of private petroleum leases in the Cedros Peninsula.
On the 12th October 2015 LGO acquired a 25% direct interest in BOLT. Through this acquisition LGO now has access to an interest in the shallow petroleum rights above 7,000 feet held by BOLT, including the producing Bonasse Oilfield.

Goudron-Site-Entrance

Trinidad Growth Potential

The onshore oilfields of southern Trinidad perfectly fit LGO’s strategy of acquiring and redeveloping oil and gas fields with unexploited reserves. Using new technology and making investments in work-overs, new facilities and infill wells LGO expects to substantially increase the production from its acreage in Trinidad in the next few years. Additional opportunities exist to add further assets in Trinidad from thirs party operator, Petrotrin or from the State, and there is also untapped exploration potential associated with each of LGO’s fields.

LGO seeks to maintain high quality relationships with all stakeholders and to be considered as a partner of choice in the ongoingj development of onshore resources in Trinidad. The Trinidadian Minister of Finance recently stated that there were 3 billion barrels of oil to be recovered onshore in Trinidad and LGO seeks to pay a leading role in that effort.

ARKeX FTG survey South West Peninsular, Trinidad
LGO, as an original participant and licensee, is uniquely placed to benefit from the Full Tensor Gravity Gradiometry (“FTG”) survey that covers approximately 5,700 square kilometres prospective onshore and near-shore areas in Trinidad.

The survey was successfully completed in early 2015 by ARKeX Limited (“ARKeX”) and will enable LGO to integrate the data into existing technical studies at Goudron as well as to better understand the Cedros Peninsula and other areas of onshore Trinidad where the Company holds approximately 10,900 gross acres of underexplored prospective leases.

Spain

Operation Overview

The Ayoluengo field, located in the La Lora concession area, has a long history of oil production, dating back to the 1960s. A total of 54 wells were drilled within the field boundary north of Burgos, targeting reserves in Purbeck aged sandstone formations at between 900 and 1,400 metres below surface. Peak production of 5,900 bopd was achieved in 1969.

The La Lora licence, which includes the Ayoluengo Field, was granted in January 1967 for a period of 50 years.
When LGO’s Spanish subsidiary, CPS, took over full operations of the field at the end of 2007, no modern geological assessment had been conducted to identify enhancement opportunities. Having undertaken this assessment CPS identified a variety of proven conventional recovery methods and scheduled an exploitation plan to prioritise developments to enhance production levels, though activity levels were curtailed owing to the uncertainty related to the concession expiry date.

As the Company continued to operate the concession without operational or environmental issues, providing local employment in an area where there is high unemployment and with considerable potential still remaining in the field, the Company prepared an application for an extension to the licence period and this was submitted for consideration by the Spanish Authorities in August 2015.

On the 27th January 2017 the Spanish Cabinet of Ministers informed the Company that its Licence extension application for the renewal of the La Lora Concession had been rejected. Contrary to advice obtained by the Company in Spain which suggested that there was a strong case for a renewal, the ultimate decision was taken on a purely legal, rather than commercial or technical basis and this was complicated by relevant petroleum laws changing several times between the granting of the initial licence and its expiry. As a consequence, the Concession terminated at midnight on 31 January 2017.

The Spanish Ministry of Industry, Energy and Tourism (“Ministry”) has indicated that it will offer the Ayoluengo Field to CPS for a new 30-year concession as soon as possible. In the meantime, operations at the Ayoluengo Field have been suspended and employment contracts for the vast majority of CPS’s staff members have also been suspended.
Given the uncertainty in the renewal of the licence, as announced on the 13th January 2017, a temporary shutdown of operations began in mid-January 2017 to ensure the Company was not in breach of operating without a valid Licence. Up to the time of this shutdown, there were 12 wells producing at the Ayoluengo Field. Gas generated from the site was either used directly for the oil heater and pump motors, or converted to electricity and used to run every aspect of the field (from the pumping systems to the office computers).

All wells were produced using conventional downhole pumps and beam engines (nodding donkeys) that were powered by gas produced in the field. The production facility enabled the oil to be treated (by removal of water) and safely stored before being transported to industrial consumers in Northern Spain. Water produced on site was re-injected. Operating in this way ensured that CPS could maximise oil production, whilst fully safeguarding the environment.

Ayoluengo Oilfield (100% LGO)

  • Acquired by LGO in October 2007
  • Largest Spanish onshore oilfield
  • Low sulphur crude, 37 degree API
  • Total production 17 mmbbls, peak in 1969
  • Original oil in place 104 mmbbls (P50)
  • Original facility capacity 10,000 bopd
  • Production enhancement plan awaiting licence renewal
  • Future potential in EOR and deeper reservoir targets
  • Oil sold as fuel oil to industrial users
  • Oil sales agreement with BP to handle higher output

The field lies in a National Park and extensive remediation had been undertaken by LGO to remove oil contamination accumulated on some well sites during the field’s history. New concrete pads and bunded storage tanks were installed by CPS to remediate historic damage and prevent future environmental impact.

Up to the point of the field suspension, the produced crude was sold as fuel for furnaces in industrial processes such as glass manufacture and cement making. At higher production rates the oil could be transported to the BP oil refinery at Castellón for use in the manufacture of a wide range of petroleum products.

Hontomin Oilfied (100% LGO)

Following additional well intervention in 2011 on previously drilled well Hontomin-2 CPS has applied for a concession to produce the Hontomin Oilfield located some 25 kilometres from Ayoluengo Field. The Hontomin accumulation is relatively small, however, the Company believes that if it could be developed in combination with a renewal of the La Lora Concession for the Ayoluengo Field. This application is now unlikely to progress given the rejection of the La Lora renewal.

www.lgo-energy.com

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