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Shares in Sintana Energy have just about doubled over the past couple of months as investors have begun to wake up to the potential of its exposure to exploration activities in the Orange Basin.
But that recent price action may prove to be just the start of something much more significant.
“Sintana is a company with multiple shots on goal.” says chief executive Robert Bose.
By this, he means that the company has exposure to several targets in the Orange Basin.
“We have interests in three licences in the Orange Basin: PEL 90, PEL 83, and PEL 87,” he says.
And activity on all three is ramping up.
The first of is operated by Chevron, the second by GALP, and Woodside has an option to become operator on the third.
Also in the area are Shell, which has had significant discoveries at nearby wells including Graff-1, Jonker-1X and La Rona-1, and Total, which holds PEL 56, home to the giant Venus-1 discovery directly adjacent to PEL 90.
At PEL 90, it is expected that Chevron may move to secure a rig by the end of the year, and subject to availability potentially spud in the first quarter of next year.
At PEL 83, GALP already has a rig contract, and that rig is expected in Namibia in the early part of the fourth quarter of this year, with spudding two wells shortly thereafter.
Galp has signed a N$911 million (US$50 million) contract with SFL Corporation for the semi-submersible rig Hercules.
Galp operates PEL 83 with an 80% interest, while Namibia's National Petroleum Corporation has 10%, and Custos Energy, half-owned by Sintana, has a 10% stake.
And at PEL 87 covering an area of 10,970 sq km, which is currently operated by Pan Continental, but which is likely to go over to Woodside shortly, the expectation is that, if things go well, drilling will also take place early in 2024.
Sintana, together with its subsidiary Custos Investments, announced an agreement in March with Woodside Energy for an option to acquire a 56% participating interest in the PEL 87 block offshore Namibia.
The agreement stipulates that Woodside will have the option to take the stake in the block if it pays the full cost of a 3D-seismic survey covering an area of at least 5,000 square kilometers within the license, at an estimated cost of N$635 million (US$35 million).
So, a huge amount to play for, and plenty of upside.
But what exactly is on offer?
First off, it’s worth noting that Sintana itself is not a direct holder of interests in these licenses. Rather it holds a 49% stake in a local company, Custos Energy, where its partnering Businessman Knowledge Katti, which in turn owns indirect 10%-to-15% interests in the licenses. So, in simple terms, between 4.9% and 7.4% nets back to Sintana.
Given how big the targets are, though, that 4.9%-to-7.4% ought to be plenty big enough to drive a significant further uplift in the shares in the event of any discovery.
This, after all, is the same jurisdiction in which Total’s initial Venus discovery was estimated by Wood Mackenzie to have in excess of 3bn barrels, a total which may potentially doubleas a result of ongoing exploration efforts. The capital budget for Venus is larger than the GDP of Namibia.
And any one of the licenses to which Sintana has exposure could have a similar size and valuation.
We’re not talking small potatoes.
Wood Mackenzie gave phase one of Venus alone a U$3.8bn net present value at US$50 Brent discounted at 10%.
Big ticket items like that cost a lot, though, right?
Yes, but not in Sintana’s case.
The way Sintana’s deals are structured, no major spend is likely at all.
Indeed, Robert Bose goes one further.
“Within the confines of Sintana’s existing portfolio, Sintana is unlikely to need money again,” he says.
That’s because Chevron has indirectly carried Sintana on an initial 3D seismic campaign and will carry it on the first exploration well too.
Galp carries its partners, including Sintana’s local company, on PEL 83 through production.
And, dependent on Woodside’s election, it will carry the other partners on the first exploration well on PEL90, and the legacy agreement with the current operator, Pancontinental, provides for significant carry beyond that.
What’s more, at the end of the first quarter of this year the company had C$5mln in cash, with a up to C$22mln likely to come in from in-the-money warrants that suddenly look very good after that recent share price gain.
So, the stars are aligning nicely for Sintana.
All this Orange Basin activity will likely drive interest and potentially add to the value, while it continues to work up options for the other assets in its portfolio, notably another off-shore block in Namibia’s Walvis Basin and some onshore exposure in Namibia as well.
The shareholders are solid, with Bose representing a major family office as cornerstone investor.
A weaker oil price might move the shares down, but not by much, and increasing anticipation as drilling dates draw near ought to counteract any drag like that. Not that the oil price is particularly likely to weaken.
The global situation means that now’s as good a time as any to be on the hunt for huge oil discoveries. And a company like Sintana looks well set up to capitalize on massive upside. -The Brief/PI