Cash flows commence in China and Nigeria for Camac Energy
After recently restructuring, junior oil and gas producer Camac Energy (“CAK”)(NYSE:CAK) is looking like a very solid emerging company. The company recently reported its first operating revenues from the Oyo Oilfield, offshore Nigeria and from the commercialization of its Enhanced Oil Recovery and Production (EORP) technology in China. At the same time, Camac benefits from a strong balance sheet, with assets of US$419.5 million, no debt and cash and cash equivalents of US$22 million.
The Oyo Oilfield is currently the major producing asset owned by CAK and was purchased from Camac Energy Holdings Ltd. for a 62.74% interest in the company. This was made up of 89.5 million shares in CAK, plus two cash payments for a total of $38.84 million. Oyo is located 75 miles offshore from Nigeria in 200-500 meter deep water. The Oilfield has two wells that currently produce from 12,000 to 20,000 barrels of oil per day, and gas of 15 MMCF per day and is operated by ENI/Agip, a major worldwide energy company. Oyo uses a floating production storage and offloading vessel rated at 40,000 barrels per day, with storage capacity of 1 million barrels connected to subsea wellheads. The 10 year development plan for the field envisions the drilling of 2 additional production wells.
CAK has also executed an agreement to purchase the full interest in OML 120 and OML 121 that surround the Oyo Oilfield and cover a total of 1,803 kms², lie east of the 500 million barrel Erha Field, and have water depths of 150 to 1,000 meters. The vendors of these two lease blocks drilled a shallow well away from the Oyo Oilfield that contained oil in the Upper Miocene interval, and are evaluating the drilling of a deeper well into the Middle Miocene interval, which should be a more productive target. A well was also drilled in OML 121 in 2008, containing 90 feet of net gas pay in two sets of reservoirs. They also completed over 120 kilometers of 3D seismic, identifying 8 new prospects around Oyo that may contain up to 500 million barrels of gross un-risked oil resources and upside gas potential. An independent third party evaluation has commenced. Other prospects and leads are also under review.
CAK has made a major commitment to growing a number of energy assets based in China, with a team that has a lot of experience and contacts within the local energy sector and government. These projects are mostly in the development stage and will require substantial funding commitments. China has had an average GDP growth rate of 9% for ten years and is the world’s second largest oil importer. It has a ravenous appetite for both oil and coal is looking to diversify to cleaner energy sources. CAK is focusing on production of local heavy oil as a substitute for imported oil and CDM gas as a cleaner substitute for coal.
Chinese oilfields have 20 billion barrels of high viscosity and low pour point oil that remain in the ground, and identified 20,000 wells suitable for retreatment and further oil recovery. CAK has set up an entity to develop energy sources utilizing their patented Enhanced Oil Recovery and Production “EORP” technology. EORP has been successfully tested on hundreds of wells, where it reduces the viscosity and pour point of oil, allowing it to flow from a well and increasing production by 50-100%. Focus will be on proven fields with underperforming wells where operations with some cash flow have already commenced in Liaoning and Shandong provinces. CAK plans to conduct operations on several hundred wells over the next few years that will see operations expand across the country. The company is also developing technology and applications to extract oil from wells suffering with water issues.
The Shaogen Project is located at Chifeng City, Inner Mongolia, in a cooperation and joint development contract with Chifeng Zhongtang to acquire 95% share of crude oil production revenues. The project covers an area of 136 square miles.
CAK controls 175,000 acres in the Zijinshan Gas Block located in the Shanxi Province, which hosts the 2nd largest oil and gas basin in China. The property is a prime coal bed methane development project, where China United Coal Bed Methane Company estimates a potential gas resource in excess of 3.8 TCF. Current resources are at 504 BCF in coal beds and 701 BCF in tight sands. The company has the approval of the Chinese Ministry of Commerce for a production sharing contract with Petro China BCM and plans to drill two wells in the current quarter. The Zijinshan leases are located in the eastern section of the Ordos Basin gas fields, and are close to major pipelines running to Beijing and other regional centers.
CAK has signed a Letter of Intent to acquire 45% of Handan Changyuan Gas Company Ltd, and will put the company into downstream sale and distribution of gas. The business buys gas from Sinopec and Petro China and supplies it to 300,000 customers in Handan, which is a fast growing city of 1.4 million people. Other opportunities in both Africa and China continue to be evaluated.
These string of transactions and milestones put Camac Energy in a interesting position. The company has cash flow from off-shore Nigeria, but with ENI as operator, can sharpen its focus on the surrounding prospective area, while also developing an integrated energy company in China.
It is still early days for Camac, but the initial signs are encouraging.
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