Tiny GGE secures option over 1BN barrels of oil (gross mean prospective resource)

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 101,981,879 GGE Shares and 6,172,030 GGE Options and the company’s staff own 5,000,000 Shares at the time of publishing this article. The Company has been engaged by GGE to share our commentary on the progress of our Investment in GGE over time.

Offshore Namibia is one of the hottest parts of the world for offshore oil & gas exploration right now.

Over 11 billion barrels of oil have been discovered in the last three years.

Global super majors active in the region include Shell, Chevron, TotalEnergies, and GALP.

After the slew of recent discoveries, a further seven offshore wells are scheduled for drilling in 2025.

And now our Investment, the tiny, micro cap stock Grand Gulf Energy (ASX:GGE) is entering the fray...

GGE announced today it has acquired an option on a 70% working interest of an offshore block in Namibia.

The block already comes with a mean prospective resource of 1.1 billion barrels of oil.

GGE is capped at $5.6M (at 0.2c per share), which is the price it just raised $700,000.

We have Increased our Investment in GGE at 0.2c.

We originally Invested in GGE for its USA helium project, which drilled multiple wells but didn’t manage to deliver a commercial discovery or flow rates.

For GGE investors it's great to see a new project that can breathe life into the company again...

Especially a “swing for the fences” offshore oil & gas exploration play (our favourite kind).

At the same time as GGE’s new asset, GGE has brought on a strong team too...

GGE has hired proven African oil finders, Havoc Services, led by Dr Alan Stein as Technical Advisors.

Havoc’s track record includes discovering 2 billion barrels of oil and raising more than US$1BN in capital.

They’ve even sold an asset offshore Namibia before - Havoc’s subsidiary, Harmattan Energy previously operated a block that was sold to Chevon in 2022.

Excellent guys to have advising GGE on high potential African oil and gas exploration...

Havoc will also support GGE in identifying and evaluating additional frontier basin opportunities globally.

This sounds like there could be more assets coming into GGE in the future.

Before we go too far, it's important to note that the offshore Namibia block GGE has an option over is still in the application stage - meaning the application will need to be granted and converted into a petroleum exploration license (PEL).

The application is still pending, and there is an element of permitting risk for GGE.

However under the terms of the agreement, consideration is only payable by GGE upon the successful granting of the PEL.

The deal offers GGE a low-cost entry (more on the terms below) into one of the world’s most prospective frontier basins.

It looks like GGE is evolving into an oil & gas explorer going for high risk, high reward, company making, discoveries.

We like these kinds of opportunities as they have the potential to generate large returns - however at the same time carry large risks of failure...

The offshore block that GGE has an option over has 6,100 km2 of 3D seismic and 4,700 line km of 2D seismic data already.

The block is about 50km south of a Chevron Joint Venture, where Chevron has an 80% operator interest in the licence.

GGE’s block is currently in the application stage, once granted we will look to launch a new GGE Investment Memo based around this project.

For now though, in today’s note we will cover:

• More on offshore Namibia, is it going to be bigger than Guyana?
• Why we like swing for the fences oil & gas exploration
• The history of the block GGE is acquiring
• More on the deal structure
• What we want to see next and the risks

Namibia on track to become a top 10 oil producer...

GGE has moved into one of the hottest countries for oil and gas exploration.

In 2022 Shell opened up offshore Namibia to oil exploration with a 5BN barrel discovery.

Then TotalEnergies followed up with a 11BN barrel discovery - one of the largest discoveries made in the last 20 years...

(Total is actually targeting final investment decision on its project in 2026)

Then just last year, the $15BN capped Portuguese multinational energy company Galp made a ~11BN barrel discovery.

Just for some context, the three discoveries alone are more than the oil reserves of Guyana (the world’s third largest oil producer...)

Guyana has become a major oil hotspot in recent years, and Namibia is quickly emerging as a potentially much larger jurisdiction for discoveries than the small South American country

The discoveries in offshore Namibia are so big, that once in production it is expected to catapult Namibia into the top 10 oil producers in the world by 2035...

Offshore Namibia has become a genuine playground for giants... Qatar Energy has even entered the region doing a deal on ground late last year.

Tiny GGE will be capped at ~$5.6M and is now the latest entrant into the region.

(As we pointed out above, GGE’s block is in the application stage and there is a risk that the block does not get granted to GGE)

GGE’s new technical advisors - proven oil finders

Today GGE has strengthened its technical team by bringing on Havoc Services led by Dr Alan Stein as the company’s technical advisor.

Alan’s team knows Namibia well, they operated PEL 90 before it was sold to Chevron back in October 2022.

They also know oil and gas well - having discovered over 2BN barrels and raised US$1BN...

(Source)

We like the change of direction by GGE, moving into ‘swing for the fences’ exploration...

Why we like high-risk, high-reward exploration

We like to Invest in big oil and gas drilling events because they usually follow a similar excitement/interest pathway.

As a company gets closer to a big drilling event, market interest in that drilling event increases.

It usually looks something like this:

It’s important to note that increased excitement/interest shown on our chart below does NOT necessarily correlate to share price increases, which depends on many other factors and broader market conditions.

As drilling gets closer, investors start to price in varying levels of success which inevitably lead to big blue sky outcomes being priced into a company.

If we are able to time our entry well with a valuation low enough, we can typically free carry our Investment ahead of a company going into a drill program with a binary result.

GGE right now is capped at $5.6M and is currently at the “Permitting” stage of the lifecycle.

A lot of the geophysics and target generation work has been done however, which means GGE can move quickly once the PEL is granted.

The block has 1.1BN barrel of gross mean prospective resource, which GGE could increase with re-processing and remodelling of existing data.

Assuming that the PEL is granted, as we get closer to a drilling event we expect to see a big difference in valuation.

Pancontinental is a good point of reference to see what GGE could grow into.

Pancontinental has an oil and gas exploration block offshore in Namibia.

At its peak Pancontinental was capped at ~$225M, largely from a farm-in deal with Woodside (well before a drill program).

Unfortunately for the Pancontinental Woodside pulled out, but the company is still capped at $57M and looking to fund its next drilling campaign.

Even IF GGE were to be half of Pancontinental’s market cap right now, that would be 5x higher than today’s market cap.

History of GGE’s (pending) block

GGE has an exclusive option to acquire a 16,800km2 block in offshore Namibia.

The block was previously owned by AIM listed company Chariot Energy.

Chariot Energy conducted 6,100km2 of 3D and 1,700km of 2D data over the package and drilled an exploration well.

The exploration well hit "reservoirs with clear seismic signatures”, but no official discovery was declared.

Chariot’s well cost ~US$16M, which isn't that much considering this is a deep offshore well.

Here is what Chariot said at the time:

(Source - Chariot Announcement 2018)

Now that GGE is looking to secure the project we are hoping that it will have more drill success than the previous owners of the block.

(and the dreaded oil & gas “not a discovery but a ‘technical success’ that we can learn from for our next well” has already happened on somebody else's coin)

Discovery success can happen with more data and a different team.

The project still has a 1.1BN barrel prospective resource across the remaining targets, which means there are plenty of “shots-on-goal” for GGE...

Here is the target that has been drilled (Prospect S) and the ones that haven't (the other letters):

In 2021 Chariot Energy relinquished the rights over the block...

~12 months before the mega discoveries in the region...

Why Namibia is the place to be right now

A lot has changed since the block was dropped by Chariot... (now GGE has its hands on it)

As mentioned earlier, some mega discoveries have been made, the big three being:

• Galp Energia’s Mopane field with an estimated 10 billion barrels.
• TotalEnergies’ Venus-1X discovery, accounting for approx 5.1 billion barrels.
• Shell’s Graff-1X and Jonker-1X, holding 5 billion combined.

The three discoveries alone are bigger than all of the discoveries made in Guyana (across over 30 discoveries)...

(Source)

Since that first discovery in 2022, there have been 17 exploration wells and 6 appraisal wells drilled in the basin with a success rate >80%...

And there are still seven wells set to be drilled in offshore Namibia this year.

A lot is happening in the region... which will be good for GGE if it gets its exploration licence (PEL) granted.

The other block we will be watching closely is PEL 82, as it has ramifications for the potential of GGE’s block.

Chevron entered PEL 82 just a few months ago, and it sits just north of GGE’s (pending) block.

(Source - Offshore Technology)

Here is where Chevron's farm in sits relative to GGE’s application:

And here is where GGE’s block sits relative to all of those major discoveries we mentioned earlier:

Will Namibia be the next “Guyana” for oil?

The bull case for Namibia

There have been 3x major discoveries in the region, which on their own are bigger than all of the reserves discovered in Guyana.

TotalEnergies is looking to get its discovery into a final investment decision by 2026.

Shell, Qatar Energy, Chevron and Portuguese giant Galp are all active in the region too...

These are companies capped in the 10s of billions of dollars.

Namibia’s plan is to eventually become a top 10 oil producer globally...

(Source)

Our view is that as these guys spend more cash developing their assets and making new discoveries - the look through valuation for acreage in the basin will increase.

Once the capital is spent getting the mega discoveries into production and developing all of the processing infrastructure required to handle these projects, smaller discoveries and projects will become more and more valuable.

The bear case for Namibia

Offshore oil & gas drilling is high-risk, high-reward.

In the past few months there have been some drilling dusters including:

• Chevron hit a dry exploration well in the Orange Basin (not the one near GGE’s block).
• Shell was not able to economically extract hydrocarbons citing technical and geological difficulties.

Also Woodside pulled out of a farm-out deal with ASX listed Pancontinental.

After a few dusters risk-reward acquisition changes, and the larger companies may leave it to the smaller guys like GGE to work up the smaller prospects for drilling.

Dusters will also scare away capital from high risk deep water wells which for juniors like GGE who don't have the balance sheets to drill these wells may make life hard in the short-medium term.

Our view isn’t a short term (6-12 month) view.

Again, we think that eventually as these bigger projects get developed smaller projects will become more and more attractive drill targets...

What were the deal terms? What did GGE pay?

The deal is structured in two stages.

Stage 1: Initial Payment

GGE is initially paying US$115k cash and US$100k (in cash or GGE shares) as an option fee.

To exercise the option GGE pays an additional A$150k cash and 250,000,000 GGE shares.

Exercising the option is conditional on the application being converted into an exploration license AND it expires on the earlier of - 30 days after the block is awarded or 11 April 2026.

Stage 2: When project is granted

The next stage of payments come due when the application is finally granted.

Then GGE will pay another US$325k in cash and US$200K in GGE shares.

All in, once all payments are complete and GGE takes ownership of the 70% interest in a granted exploration license, GGE would be paying:

• US$750k (mix of cash and shares,
• A$150k cash
• 250M GGE shares.

What do we want to see next?

🔄 Conversion of application to a granted license

Next for GGE’s acquisition we want to see the exploration license application converted into a granted block.

What are the risks?

In the short term the key risk for GGE will be “permitting risk”.

There is no guarantee that GGE’s application will be converted into a granted exploration licence.

Today’s announcement said the application had only been acknowledged by the Namibian regulators and that the application had not yet been “evaluated”.

There is always a risk the application is rejected and GGE fails to get control of the project.

If that were to happen we would expect GGE’s share price to react negatively to the news.

As a result this will be the key risk to our Investment in the short term.