Global Oil & Gas Ltd
Shares Held at Open: 40,499,997
What does GLV do?
Global Oil and Gas (ASX: GLV) holds an 80% interest in an offshore oil & gas exploration project in Peru.
What is the macro theme?
Oil and gas demand continues to increase with oil prices trading near decade highs, whereas investment in new supply continues to fall below record lows year on year.
Underinvestment in new exploration means the world is heading towards a supply/demand shortfall in the medium term.
Our Big Bet for GLV
GLV defines a multi-billion barrel prospective resource and sees its market cap re-rate by 20x prior to drilling
Why did we invest in GLV?
Connection to IVZ
IVZ’s Managing Director Scott Macmillan has agreed to join the GLV board. We have had success backing Scott before - our Initial Entry Price for IVZ was ~3.5c, and the company has traded as high as ~41c per share.
We are Investing in GLV at a similar stage to when we first Invested in IVZ.
4,858km2 with a portfolio of leads and prospects that can be followed up.
Project has existing 2D & 3D seismic data
7,935km2 2D seismic data and ~3,878km2 of 3D seismic data. As well as ‘well control’ and ‘geological’ data. This data would cost tens of millions of dollars if it were to be done again. GLV benefits from all of the old work done on the project.
Surrounded by multi billion barrel oil fields
GLV’s project is spread across Tumbes/Talara basin. Talara was responsible for ~1.6 billion barrels of historical production. Nearby oil fields are producing at rates of ~3,000 barrels of oil per day.
Already has existing discoveries
GLV’s block has three confirmed discoveries already sitting inside it. The three discoveries that sit inside GLV’s block were also a part of a project-sell down by Canadian explorer BPZ Energy worth ~US$335M back in 2012.
Existing processing infrastructure
GLV’s project sits ~70km to the north of the Talara oil refinery. The refinery has been processing oil from the Talara basin for decades.
Farm-in deals in offshore Peru signed for up to US$900M
Offshore Peru has attracted big ticket farm-ins before. KNOC (South Korean National Oil Corporation) and Ecopetrol (Colombian National Oil Company) in 2009 signed a deal worth US$900M for projects to the south of GLV’s block.
Low-cost work program
GLV’s Technical Evaluation Agreement (TEA) means it will be doing mostly desktop work (identifying and ranking drill targets) for an initial two year period. There is no large capital commitment for any exploration wells which gives GLV two years to rank its highest priority drill targets and put together big prospective resource numbers.
Low market cap leverage to re-rate
At its current share price (1.6c per share) GLV has a market cap of $7.4M. GLV had $2.4M in cash at the end of the September quarter giving it an enterprise value of ~$5M.
We have had success in the past with “swing for the fences” style oil & gas drilling, and we like that GLV fits this type of investment.
What do we expect GLV to deliver?
Objective #1: Reprocessing of 3D seismic data across the highest priority areas.
As part of its first year work program, GLV plans to process 1,000km^2 of 2D seismic data. We want to see GLV pick the highest priority areas of its block for this reprocessing work.
Pick highest priority targets
Start reprocessing 3D seismic data
Results from the reprocessed data
Objective #2: Prospective/contingent resources for highest priority targets.
After the seismic data is reprocessed, we want to see GLV put out prospective resource numbers for leads that haven't been drilled yet, and/or contingent resources for the leads that have been drilled in the past.
Prospective resource estimates
Contingent resource estimates
Objective #3: Progress funding for first exploration well.
At the end of the two year Technical Evaluation Agreement (TEA) we want to see GLV either progress a farm-in deal to fund its first exploration well and/or go it alone if the company’s market cap is high enough to sole fund the well.
Prepare promoting data room
Signed non-binding farm out deal
Sign a binding farm out agreement for one well
Sole funding plan for first exploration well
The project is located in Peru which in the past has gone through periods of geopolitical instability. There is always a risk that geopolitical issues could lead to permitting issues. Any geopolitical instability in Peru is likely to impact GLV’s share price significantly.
GLV’s project is currently permitted under a Technical Evaluation Agreement (TEA) for a period of two years. Eventually before any drilling work can happen GLV will have to convert it into an exploration licence. There is always a risk that the licence doesn't get granted and GLV is left with no claim over the asset.
GLV’s project is leveraged to the price and demand for oil & gas. As the world looks to move away from fossil fuels, hydrocarbon projects may be phased out.
GLV does not generate any revenues and so is reliant on raising capital to fund its exploration programs. If the markets are unwilling to finance GLV’s exploration programs the company may need to go slow on its operations or offer large discounts to its share price when raising capital.
If the broader market sells off, investors may shy away from high-risk investment opportunities like junior explorers. During market downturns, investors will look to pull capital away from the high risk investments. GLV is a junior explorer and may be impacted by these market wide sell offs.
What is our investment plan?
Our Oil and Gas Investment Strategy is to:
- Invest early, as the company is in the early exploration work stage.
- Increase our investment, as the company de-risks the project through permitting, geophysics and target generation.
- Top Slice, if the share price runs in anticipation of the drill results
- Free Carry, into the drill results while still maintaining a large position to be leveraged for a positive drilling outcome
- Evaluate our position post-drilling results
For GLV, we plan to hold the majority of our position for the next 2 years.
Disclosure: Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 40,500,000 GLV shares and 6,750,000 GLV options at the time of publishing this article. The Company has been engaged by GLV to share our commentary on the progress of our Investment in GLV over time. 20M shares and 5M options are escrowed for 2 years and subject to final approval.