Canadian company capitalizes on Chinese mistake in Sudan
Imagine an energy company spending 10 years exploring the Rawat oil concession in Sudan, Africa. During that time, they spend millions on shooting and acquiring 6,700 kilometres of 2D seismic, shooting and interpreting 1,000 square kilometres of 3D seismic, and drilling 13 exploration oil wells.
And while they did strike a little oil, incorrect seismic interpretation made them think that their blocks held far less oil than they had anticipated. So, they give up on the project. Included in today’s commentary: Parsley Energy Inc, Kosmos Energy Ltd., Seadrill Ltd, Diamond Offshore Drilling Inc, Pioneer Natural Resources.
See, it turns out their seismic studies were flawed. Now they will have to watch other energy companies produce millions of barrels in part based on all their hard work (and money).
And that is because this story is a real one, taking place in a remote region of Sudan. It is the site of Block 25, the Rawat concession that a Chinese energy company gave up on because they incorrectly assessed the type of oil formation they were dealing with.
They thought the oil was locked in what’s known as a structural trap – which is when faults in the earth caused by seismic activity trap deposits of oil and gas. But in this case, the oil is actually locked in a stratigraphic trap, which hardly any oil company outside of North America looks for…or is equipped to handle.
This kind of trap is formed when oil and gas are locked within sandstone that’s encased in shale. Oil in stratigraphic traps is difficult to dislodge – and difficult to find – unless a driller knows what to look for.
Longtime oil man George Fulford – who’s drilled 77 wells in Sudan over the last 40 years and has a near perfect success rate – deserves credit for having discovered the Chinese mistake. And Stamper Oil & Gas – an under-the-radar Canadian energy exploration company – is taking full advantage of it.
Fulford’s conclusions not only interpreted the data correctly, the Sudanese government learned of them and its state-run oil company, Sudapet Co. Ltd., drilled eight new test wells.
The first five proved underwhelming, but the last three gushed out oil at a rate of up to 2,200 barrels per day (bpd). Now operators have identified 33 wells that can be drilled from Al-Rawat.
Plans are for an initial 6,000 bpd within the first year of operations growing as new wells are added on. One well achieved flow-rates of 2,255 bpd in January, so there’s little question this goal will be achieved. And with today’s rising oil market, all that oil could easily bring in millions more in the years ahead.
This is where Stamper Oil & Gas comes in.
Stamper has a Memorandum of Understanding to buy 100 per cent of State Oil Corporation for 25,000,000 shares and repayment of State’s expenses. State has the right to farm-in up to a 50 percent interest in the Al-Rawat field pursuant to an MOU with Sudapet.
Now estimates of probable reserves on this property are around 182 million barrels, according to a recent report by a well-known Petroleum Engineering company. The project has 6,000 bpd ready to produce and intends to add the 33 wells to be drilled as they come on line.
It all began about 20 years ago, when Stamper Chairman Lutfur Rahman Khan served as Chairman and CEO of a company heavily involved in Sudanese oil exploration.
That company was Arakis Energy Corporation, which at the time was listed on NASDAQ (and was bought out in 1998 by Talisman Energy Inc.). Arakis Energy Corporation was able to boost the reserves of two huge Sudanese oil fields (the Heglig and Unity fields) from 150 million to 750 million barrels by drilling 77 successful wells.
As one might imagine, this success created many high-paying jobs for local workers. On top of that, Arakis Energy Corporation was actively involved in considerable humanitarian work and social development in Heglig, where they built a 40-bed hospital and provided three fully equipped ambulances. All of this has generated a ton of good will and has endeared Khan and his team to the Sudanese government.
“We have built some great connections over there,” said Greenway. “You walk in as royalty over there… (now) they want Canadian companies.”
Imagine someone building a factory and equipping it with everything you need to produce one of the most in-demand products on Earth… and then giving that factory to you. That’s sort of what happened here.
The bottom line is the millions of dollar in investment that the Chinese made exploring its former property allows Stamper, on completion of all steps in the acquisition, to concentrate on its drilling, expanding its reserves, and on delivering, initially 6,000 bpd to market.
This team includes George Fulford, who has 40 years’ experience as a professional geophysicist and worked in Sudan from 1994 to 2003. During that time, he selected the drill sites of 77 successful wells. A remarkable near perfect success rate. Since then he’s worked on other sites in Africa, as well as in Southeast Asia and South America.
Stamper’s management team also includes CEO David Greenway, who has two decades experience managing, financing and developing growth strategies for a variety of firms, particularly junior public resource companies. For example, he achieved great success as CEO of Chief Consolidated Gold Mines and SNS Silver Corp., and now he’s ready to make a similar splash with Stamper.
And Chairman Lutfur Rahman Khan, who has more than three decades of experience in the oil and gas sector. Most importantly, he’s keenly aware of the difficulties of working in Sudan, thanks to his time serving as Chairman of Arakis Energy Corporation from 1995 to 1999. During this period, he oversaw the acquisition of a 12.2-million-acre oil concession in Sudan. That acquisition proved to be a huge triumph, as it resulted in the discovery of one billion barrels of oil.
For the last few years, institutional capital has been ignoring the Brent crude market due to shale oil saturation and the depressed oil complex. But now that’s changing, as evidenced by Brent’s rise from about $30 per barrel to $68 as of April 5.
JP Morgan expects this uptrend to continue throughout all oil markets and cites the following reasons:
• Stronger economic fundamentals;
• Synchronizing global economic growth;
• Continuing geopolitical tensions; and
• The likelihood of further OPEC production cuts.
Obviously, stronger oil prices bode well for well-run energy companies…especially those sitting on huge new oil discoveries.
Fulford is convinced that Stamper is poised to do really well from what he calls “one of the last great finds” out there.