The event was facilitated via a Facebook group event which enabled investors to ask important questions and receive answers directly from the Company's senior management.
Thank you to Mike Adams, Irene Stark, Jeremy Foote, Lloyd Short, Jason Stinton, Bailey Bailey, Paul Stokes and all other contributors, for their questions, thoughts and comments.
We have tried to reflect all queries within the questions asked. To do this some paraphrasing has been necessary in order to produce a broad session with reasonable coverage in all areas.
We would also like to thank Range Resources plc for participating in this new interview initiative. You can subscribe to Range Resources email alert system by clicking here .
We expect this will be the first of many such events, so in order to stay informed and ensure you are invited to participate in all future events, you can join the Miningaven Facebook group by clicking here .
Range Resources is an oil and gas exploration company, listed on the Australian Stock Exchange (ASX: RRS) and the London Alternative Investment Market (AIM: RRL). The company has active exploration programmes in Puntland (Somalia), Texas (USA) and Georgia.
Range Resources responses below have been provided by Range Directors, Pete Landau and Anthony Eastman, with input from Texan consultants – Texas Energy Advisors and the Company’s Georgian partner, Strait Oil and Gas.
Texas:
Mining Maven (MM): You have achieved something quite remarkable with Texas turning a relatively small investment into a material revenue producing asset in just a few months. Could you explain briefly how you were able to secure this stake and how this commercial discovery will be managed?
Range Resources plc (RR): The project was offered to Range when one of the original participants elected not to join in the drilling of the Smith #1 well due to financial fall out from the GFC. Testing, further completion, and production of the well will be managed by the operator, with Range’s management team, Texas Energy Advisors, part of the Joint Operation Committee. Production will commence imminently (weather pending) following the successful completion of the flowline connection to the sales line and revenue will be recognized at the end of each month and payment for production typically lagging by 45 days and distributed by the operator. Following tie up, the next stages will include production rates and independent reserve reports, anticipated to be in the coming weeks. The second well in the field is expected to spud in April of this year.
MM: You announced on the 21st December that the well partners had purchased an additional 560 acres in the North Chapman area to bring the total leased area to 1,680 acres. Could you explain how this was secured, the funding for the purchase and how this additional land will be utilised?
RR: The additional acreage was acquired through standard oil and gas leases from landowners in the area. Range’s contribution was made through existing cash. The acreage both protects the consortium (including Range) from competitors in the region and immediately adds additional development drilling locations. Based on 80-acre spacing, the new leases could result in the drilling of seven additional wells.
MM: Are you looking currently looking for, or examining, additional farm in prospects onshore in Texas?
RR: Not at this stage, Range is comfortable with its portfolio of assets and will only consider new opportunities (anywhere – not just Texas) it they arise through unique circumstances where the Company is starting from a position of intimate technical knowledge of the play. Importantly, there will be another well drilled in the North Chapman field around April 2010 which will benefit from the technical base already established with the Smith #1 well.
MM: Please explain the Georgia programme you are undertaking and when you expect the key milestones to be achieved?
RR: Range and Strait are well advanced in completing Phase II (of III) of the PSA programme (see announcement 17 February 2010).
Key milestones under Phase II:
- A 350km Seismic Acquisition / Processing / Interpretation Program that is designed to lead to the identification of a number of drilling targets.
The seismic acquisition commenced in November 2009 and is due to complete end of March 2010.
- Processing and interpretation of the seismic data will be completed May / June 2010 which should lead to the generation of a number of drill targets.
- Drilling to start - assuming suitable targets identified - in Q4 2010. Whether Range/Strait drills or farms out will depend on a number of circumstances (status of Puntland and Texas projects, interest in Georgia from potential farm-in partners, quality of prospects generated etc.)
There are local groups that are suitably staffed / equipped to drill exploratory wells and bring them into production if commercial discoveries are made.
MM: What evidence do you have that there are, potentially, material quantities of oil and gas within the prospect areas?
Key milestones under Phase II:
- A 350km Seismic Acquisition / Processing / Interpretation Program that is designed to lead to the identification of a number of drilling targets.
The seismic acquisition commenced in November 2009 and is due to complete end of March 2010.
- Processing and interpretation of the seismic data will be completed May / June 2010 which should lead to the generation of a number of drill targets.
- Drilling to start - assuming suitable targets identified - in Q4 2010. Whether Range/Strait drills or farms out will depend on a number of circumstances (status of Puntland and Texas projects, interest in Georgia from potential farm-in partners, quality of prospects generated etc.)
There are local groups that are suitably staffed / equipped to drill exploratory wells and bring them into production if commercial discoveries are made.
MM: What evidence do you have that there are, potentially, material quantities of oil and gas within the prospect areas?
RR: These Blocks were well researched during the Soviet period of Georgia's history - 204 wells were drilled for assessing general geology and Oil & Gas. Certain levels of production were achieved. Major development did not occur due to far more significant multi billion barrel discoveries in areas a lot more stable than Georgia at the time. The Georgian wells were abandoned / sealed during the civil war pre the Rose Revolution. The information was reviewed / checked by an Independent Technical Evaluator as part of the Company’s technical due diligence and their findings indicated 383 million barrels of estimated recoverable Oil in Place. An assessment as to the potential Gas in place is currently in progress focussing on the area where previous production occurred.
MM: On the positive assumption that your exploration efforts are productive, please explain the revenue sharing agreement you have negotiated for the Georgia assets?
RR: The Product Sharing Agreement:
- 50% goes to the Cost Recovery Programme in favour of the Company;
- 25 % is returned to the Georgian Government; and
- 25% is 'Profit Oil ' for the Company.
- When Cost Recovery has been achieved the' Profit Oil ' is divided as follows:
- 65% is returned to the Georgian Government; and
- 35% is for the Company.
There are no significant tax issues:
- we have VAT exemption;
- The Company - when in profit - excluding 'Cost Recovery '- will be liable to Corporation tax at 12%
- The Operating Company is non -profit but pays local employment tax on Georgian employees and 4% for foreign ' Contractors / Consultants '- When in commercial Oil production:
- 50% goes to the Cost Recovery Programme in favour of the Company;
- 25 % is returned to the Georgian Government; and
- 25% is 'Profit Oil ' for the Company.
- When Cost Recovery has been achieved the' Profit Oil ' is divided as follows:
- 65% is returned to the Georgian Government; and
- 35% is for the Company.
There are no significant tax issues:
- we have VAT exemption;
- The Company - when in profit - excluding 'Cost Recovery '- will be liable to Corporation tax at 12%
- The Operating Company is non -profit but pays local employment tax on Georgian employees and 4% for foreign ' Contractors / Consultants '- When in commercial Oil production:
MM: Range has more skin in the game with Georgia than Texas or Puntland, by virtue of the participation percentages. Please explain how Georgia will be managed and funded, assuming successful exploration?
RR: Too early to tell, key factors in how to commercially exploit Georgia include:
- Status of Puntland and Texas projects;
- Level of interest (corporately and partnering oil & gas companies) in farming into Georgia (currently at the moment at least 5 other companies operating in Georgia).
- Quality of drilling prospects derived from the seismic programme.
As referred to above, local logisitics and technical management already exists in Georgia.
- Status of Puntland and Texas projects;
- Level of interest (corporately and partnering oil & gas companies) in farming into Georgia (currently at the moment at least 5 other companies operating in Georgia).
- Quality of drilling prospects derived from the seismic programme.
As referred to above, local logisitics and technical management already exists in Georgia.
MM: Is Puntland the major focus of the company going forward and why?
RR: Puntland has been the cornerstone for the Company since it secured the exclusive onshore and offshore exploration rights to Puntland in August 2005. Following the Puntland elections in January 2009, which resulted in a change of President and Government, there was a requirement for a review of the existing PSA’s.
The review was led by Range’s JV partner Africa Oil Corp. and was successfully concluded in December 2009.
There is no doubt that Puntland is still the major focus of the Company, given the potential for a unique world class discovery to be made. Georgia and Texas were introduced as a result of a number of factors (GFC, delays in Puntland etc.) but there is no doubt Puntland is still the driver behind Range.
From Range’s perspective, political risk is very manageable (as demonstrated by the recent change in Government and PSA affirmations) but there will always be greater country / terrorist risk by virtue of the current volatile environment throughout pockets of Somalia.
The review was led by Range’s JV partner Africa Oil Corp. and was successfully concluded in December 2009.
There is no doubt that Puntland is still the major focus of the Company, given the potential for a unique world class discovery to be made. Georgia and Texas were introduced as a result of a number of factors (GFC, delays in Puntland etc.) but there is no doubt Puntland is still the driver behind Range.
From Range’s perspective, political risk is very manageable (as demonstrated by the recent change in Government and PSA affirmations) but there will always be greater country / terrorist risk by virtue of the current volatile environment throughout pockets of Somalia.
MM: Please explain why Puntland is geologically an exciting area of operations.
RR: The Nogal and Darin basins are believed to be part of a failed rift system and are considered extensions to the prolific Yemen rift system found to the North across the Gulf of Aden. These two areas were joined approximately 18 million years ago prior to the rifting of the Indian plate away from the African plate. The Cretaceous and Jurassic sedimentary basins in Yemen host estimated reserves of over 6 billion barrels of oil with current production over 400,000 barrels per day.
Several of the targets traps were subsequently drilled, however, only drill data from the Nogal-1 and Kalis-1 holes are available for interpretation. Drilling reports for these two wells indicated that the oil shows were reported in some of the shallower sandstones but the important host, the Jurassic sandstone was not reached. In 1990, the Kalis-1 well was drilled to 5100 feet, far short of the original target depth of 14,850 feet. The Nogal --1 well was also drilled in 1990 and reached a total depth of 10,736 feet.
Following Africa Oil's successful acquisition of 775 kilometres of 2D seismic in the Dharoor Block, prospects for 2010 drilling are being finalized. Preliminary interpretations indicate the presence of robust prospects which have the potential to contain large reserve volumes.
MM: Please describe the expected Puntland programme and when the key milestones should be reached for investors.
RR: Africa Oil has commenced operations with an intention to spud the first exploration well by July/August 2010, followed by a second well in approximately November 2010. Leading into the spudding of the first well, you will have rig mobilisation and site establishment – April through June 2010.
Several of the targets traps were subsequently drilled, however, only drill data from the Nogal-1 and Kalis-1 holes are available for interpretation. Drilling reports for these two wells indicated that the oil shows were reported in some of the shallower sandstones but the important host, the Jurassic sandstone was not reached. In 1990, the Kalis-1 well was drilled to 5100 feet, far short of the original target depth of 14,850 feet. The Nogal --1 well was also drilled in 1990 and reached a total depth of 10,736 feet.
Following Africa Oil's successful acquisition of 775 kilometres of 2D seismic in the Dharoor Block, prospects for 2010 drilling are being finalized. Preliminary interpretations indicate the presence of robust prospects which have the potential to contain large reserve volumes.
MM: Please describe the expected Puntland programme and when the key milestones should be reached for investors.
RR: Africa Oil has commenced operations with an intention to spud the first exploration well by July/August 2010, followed by a second well in approximately November 2010. Leading into the spudding of the first well, you will have rig mobilisation and site establishment – April through June 2010.
Offshore negotiations are ongoing with a possible agreement timeline of Q2 2010.
MM: Please outline the costs Range will face with regard to the Puntland programme in the coming year and how will the company fund their contribution?
RR: Upon completion of the rights issue, Range will have covered its costs associated with the first well. Second well, Range may be fully covered (possibility of AOC moving Nugaal carry into Dharoor depending on well programme, Texas cashflow, corporate play with Georgia etc.), however too early to tell.
Range is still free carried for the next US$17m to be spent on Nugaal. Range contributes their 20% interest in Dharoor.
MM: How committed are Africa Oil with regard to their Puntland interest and how are they likely to take this forward?
RR: Cannot emphasise enough Africa Oil’s commitment to Puntland, spent circa US$40m to date and assembled one of the best drilling / technical teams available for Puntland. Managing risk (by looking for farm-out opportunities) and questioning management commitment are two very different issues. Range will not comment on Africa Oil’s behalf other than stating Range is 100% supportive of their commitment, efforts and ability in Puntland.
MM: Please outline progress with regard to Puntland Offshore and specifically the likely process and timescale to securing a possible farm-in partner?
RR: Following the successful completion of negotiations regarding the onshore licences and previous technical presentations to the Government on the proposed offshore areas of interest, Range will look to continue negotiations regarding the formalisation of a new PSA with respect to the exploration and development of offshore Puntland in Q2 2010. Range has had a number of discussions with interested parties; however the current focus is a PSA terms sheet with the Government followed by joint venture talks..
General:
MM: Could you provide more regular updates to your shareholders concerning operation progress / timelines for significant news releases?
RR: Range updates shareholders with all material events on a regular basis, as and when these material events occur. To combat rampant speculation the Company would almost have to provide daily updates. Importantly, any material information is immediately released to the market in accordance with ASX Listing Rules.
MM: Can you provide some transparency on the holdings in Range Resources by directors and connected persons?
RR: Under ASX and Corporations Act requirements, all directors’ holdings and any movements are disclosed. Any on-market buying is very difficult due to the operation of insider trading rules and Directors being in possession of price sensitive information. All directors have in the past taken, and will take up, their entitlements in full under the rights issue
MM: Range Resources has suffered from a number of historical and well publicised difficulties, not least the extensive dilution to existing shareholders. How do you intend to win back the confidence of current and prospective Range Resources Investors?
RR: A year ago Range’s only asset that it held was its interests in Puntland. Following unavoidable delays and a change in Government in early 2009 (as mentioned above), the Company sought opportunities to diversify its asset base and mitigate the risk associated of being only a ‘one asset’ Company in a volatile region, hence the successful completion of the Georgian and Texan deals.
Range believes that the current portfolio of assets has established Range as a well diversified junior oil & gas Company, providing shareholders with exposure to low risk short-term cashflow through Texas, all the way to enormous upside through its Puntland interests.
It is now up to the Company to deliver value from the current portfolio of assets, with 2010 being a very exciting year for the Company. Forecast activity for the year includes:
- First production on Texas and subsequent further development during the year;
- Completion of 350km seismic program in Georgia that will potentially lead to the identification of drilling targets, with the possibility of drilling late 2010.
- First well spudded onshore Puntland in over 16+ years, followed by second well late 2010.
In short, confidence will only be obtained through delivery of commercial success from the activities summarised above. Also note that commercial success based upon known prospectivity should equate to a market capitalisation many times greater than the current market capitalisation of the Company.
MM: Please summarise Range's Resources short term opportunities and describe the medium to long term future (2-5 years)?
Range believes that the current portfolio of assets has established Range as a well diversified junior oil & gas Company, providing shareholders with exposure to low risk short-term cashflow through Texas, all the way to enormous upside through its Puntland interests.
It is now up to the Company to deliver value from the current portfolio of assets, with 2010 being a very exciting year for the Company. Forecast activity for the year includes:
- First production on Texas and subsequent further development during the year;
- Completion of 350km seismic program in Georgia that will potentially lead to the identification of drilling targets, with the possibility of drilling late 2010.
- First well spudded onshore Puntland in over 16+ years, followed by second well late 2010.
In short, confidence will only be obtained through delivery of commercial success from the activities summarised above. Also note that commercial success based upon known prospectivity should equate to a market capitalisation many times greater than the current market capitalisation of the Company.
MM: Please summarise Range's Resources short term opportunities and describe the medium to long term future (2-5 years)?
RR: Whether it’s short, medium or long term focus, there is only one driving factor, maximise shareholder value / returns. How this is ultimately achieved depends on the circumstances on any given day. One thing which is certain, the Board or its individual Directors are not driven by ego or empire building and have all had a serious level of exposure in listed resources plays (globally) to assess maximising returns and mitigating risk. The focus will still remain with oil & gas.
END
This summary represents the views and opinions of Miningmaven, has been prepared for information and educational purposes only and should not be considered as investment advice or a recommendation. All opinions expressed in this weblog are those of the author and should not be construed as being made on behalf of any featured Company.
Readers are advised to do their own extensive research before buying shares which, as with all small cap exploration stocks, should be viewed as high risk. Investors should also seek the advice of their investment adviser or stockbroker, as they deem appropriate.
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