Investors take punt on Berbice oil find
-ON Energy raises US$545K to further research
Stabroek News
March 19, 2004
Local investors may not be queuing up to finance either a Berbice bridge or GPL, but around twenty have decided to take a chance that Canadian oil company,CGX Energy will find oil in Berbice.
CGX is moving ahead with exploration in the upper Corentyne helped by local subsidiary, ON Energy, closing US$545,000 in financing. As a result of this, local Caribbean and Guyanese investors now own 14.5% of subsidiary ON Energy with the balance of 85.%% being owned by CGX.
ON Energy filed a prospectus with the Guyana Securities Council and late last year made a public offering with a minimum subscription of US$5000. The offer was said to be well subscribed and director Kamal Dookie said further offers might be made. Information on the offering has not been sent to the stock exchange.
CGX now has US$2M to deploy on what one analyst group has described as "a 10% chance of success on establishing 350 mmbbls of reserve potential" on its on shore holding which covers 800,000 acres.
In the meantime John Lewis, a director of ON Energy says, "there is every likelihood that oil lies somewhere between Rose Hall, East Canje Berbice and Skeldon... based on indications from neighbouring Suriname and Trinidad and Tobago." While admitting that oil exploration is a "very high risk venture" Lewis is quick to note that "the returns could be very significant."
The former CEO of the Berbice Mining Enterprise [Bermine] made the observation while speaking to members of the Rotary Club and the Berbice Chamber of Commerce and Development Association [BCC&DA] at the Association's Chapel Street office in New Amsterdam last week. The forum was held to allow the company to explain its operations in the region and to inform participants about the problems associated with off-shore exploration.
According to Lewis, during the First Phase, "the geo-chemical Phase" last year, some 8,250 samples were taken and sent to a laboratory in the United States. "Based on the results of those tests, Rose Hall, Canje, Black Bush Polder and Skeldon were identified as the likely areas where oil could be found. It is in these areas that On-Energy proposes to conduct seismic work under Phase II of the project in April," he told the handful of businessmen.
Phase II involves shooting 200km of 2D seismic to explore further anomalies discovered in Phase I. This is expected to cost US$1.5M.
In Phase III, which could begin as early as the middle of this year, CGX plans to drill up to six of the most attractive prospects. This will cost a further US$3M.
Lewis confirmed that ON Energy attempted to raise some US$750,000 on the local market for Phase I of the project and was able to realise in excess of US$500,000.
Octagon Capital Corporation, an investment research group in Canada is recommending a speculative Buy on CGX shares. It reports that "CGX believes its current exploration programme has so far identified leads covering 250 sqkm which could hold recoverable reserves of 350m barrels."
Octagon says CGX does not have the funds to go beyond Phase II and would have to either joint venture its remaining programme or seek financing through the capital markets
In the long term, it suggests that with no refinery infrastructure in Guyana a pipeline to a marine shore tank farm for export to Caribbean refineries on small tankers, would be feasible for threshold reserves of more than 20M barrels.
Octagon calculates the risked value of the exploration programme at US$175M and has set a target of US$2.56 for the company's shares which currently trade on the Toronto exchange at US 75 cents.
The company last week began interviewing prospective labourers and drivers for its second phase. Its New Amsterdam Office at the corner of Main and Chapel Streets was mobbed by applicants last Thursday and Friday looking for one of 200 jobs. The phase is expected to start in April.
(Additional reporting by Daniel da Costa)