Tuesday, 14 July 2015

Wentworth Resources ~ company snapshot

Wentworth Resources ~ company snapshot
by Peter Lynch
Mkt Cap (£47.4m) Cash $5.5m (end 2014). Debt ($26m facility in place /~80% drawn)

Attendee; Katherine Roe.

In what appears to be a developing focus on Africa for our recent company snapshots, we were lucky enough to meet up with Katherine Roe last week. Katherine handles investor relations for Wentworth Resources, the East African gas company which is about to begin production and sales from their key Tanzanian gas development; Mnazi Bay.
Mnazi Bay, Wentworth 39.925% WI (exploration)/ Wentworth 31.94% WI (development and production).

Wentworth expects gas sales from Mnazi Bay to commence in Q3 2015. The Mnazi Bay Concession joint venture partners are in the final stages of agreeing payment guarantees supporting the gas sales agreement signed with the buyer; state owned Tanzania Petroleum Development Corporation (“TPDC”).  Once agreed, physical production can start with sales proceeds to begin within a few months thereafter. The first task will be to fill the transnational pipeline, expected to take around 1Bcf and take approximately one month.

Once on production, the gas is to be transported from Mnazi Bay in the south of Tanzania to Dar es Salam, the commercial capital, via the newly commissioned, government funded $1.2bn 36’ gas export line, owned and operated by TPDC. The primary purpose of the pipeline is supplying gas the domestic energy shortage in Tanzania and supporting plans for expansion of power generation within the next three to five years. The economics support the project, with electricity generated from natural gas costing 10c/Kwhr to produce vs power generation from diesel and other liquid fuels at c50c/Kwhr.

36' Dar es Salaam to Mnazi Bay pipeline
Following the successful MB-4 development well, completed in June, the Mnazi Bay field has five wells, as shown in the cross section map below; all five wells are completed as producers. Results from the MB-4 development well were positive, with the well encountering both a 43m and 24m pay interval in the Miocene. The well also confirmed Wentworth’s interpretation of the field, as pressure measurements in the well confirmed the lateral and vertical connectivity of each reservoir.

Mnazi Bay Gas Field Cross Section

Once on-stream, the 5 wells at Mnazi Bay are to be brought on production, with output expected at 80mmscf/d between the five wells during the initial testing phase. Beyond the initial ramp-up to 80mmcf/d, Wentworth targets a plateau production rate of 130mmcf/d (the rate agreed within the gas sales agreement) which the group expects to achieve in the second quarter of 2016.

Achieving 130mmcf/d may require the drilling of additional development wells which would be expected to take place in 2016. At 130mmcf/d the full field reserves of 443 Bcf would be produced of the remaining 16 year life of the Mnazi Bay Development License. Expansion beyond this level of output is dependent on further exploration success within the Mnazi Bay Concession. Wentworth has six exploration prospects identified in Mnazi Bay (shown in the map below) representing 1.5Tcf (614Bcf net) of potential resources, hence further exploration is expected.

Exploration prospects: Mnazi Bay

In terms of funding exploration, Wentworth expects future exploration wells to be funded from cash flow. Once on-stream and producing 130mmcf/d, Mnazi bay is expected to generate c$3.5m in revenue per month. Funding exploration from cash flow is effective from a tax perspective as exploration expenses, whether the activities are successful or not, are recoverable against future cash flow within the concession.

In terms of potential for expansion beyond the current 130mmcf/d featured in the GSA, Wentworth estimates in the third year of production (2017) up to  four further development wells would be required to reach 210mmcf/d production, assuming reserves can be increased with exploration success to back this growth. Beyond this, in Year 5 (2018), the Company estimates an additional three wells would be required take output to 270mmcf/d. In terms of any capacity limits for future growth, capacity of the Mtwara to Dar es Salaam export pipeline is put at around 750mmcf/d; hence Wentworth are unlikely to find production scaled back due to export constraints.

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