CND signs MOU with Peruvian Gas Distributor for its 1tcf gas project

Our 2023 Energy Pick of The Year Condor Energy (ASX: CND) just announced a Memorandum of Understanding (MOU) for its 1 trillion cubic feet Piedra Redonda gas field.

The MoU is with Promigas Peru - an energy infrastructure company operating in Peru and Columbia.

Promigas manage, maintain and build gas infrastructure across northern Peru, supplying gas to homes, businesses and industrial facilities.

Promigas supply natural gas to 38% of the Columbian market and 94% of the Peru market. (source)

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The deal with CND is around a potential offtake from CND’s existing gas discovery at Piedra Redonda.

CND’s project has a 1 Trillion Cubic Feet (Tcf) discovered gas field and together with Promigas will do studies on:

1. Evaluating gas production potential
2. Assessing infrastructure and delivery options
3. Defining integration and commercial pathways

Basically, CND’s MoU with Promigas is to work out how best to take gas from its existing gas field and bring it to market.

One thing that stood out to us was CND’s comment on “Promigas’ efforts to expand access to natural gas in Peru’s northern regions”.

This region is key, because not only is the northern regions expanding rapidly, it opens up access to Columbia where Promigas already supplies, plus geographically borders Ecuador, which has had significant energy supply issues of late (source).

Supplying gas into Peru and north into Ecuador has been explored in the past too…

Back in 2006 CND’s project was almost developed as part of a plan to help solve Ecuador’s energy shortages.

Here is our rough image showing the 2006 gas to power development plan to “daisy chain” Piedra Redonda, Corvina and Albacora gas to the north via tie-in to the Amistad gas field platform just over the border in Ecuador:

The project even had even had backing from the World Bank International Finance Corporation who was going to partially fund it (Source)

THEN…

The previous owners at the time (a US company called BPZ) decided to also focus on oil and took on a huge amount of debt to develop their oil projects...

However a 2015 oil price crash eventually caused BPZ to declare bankruptcy - which led to a fire sale of their offshore Peru assets.

These events eventually led to ~$11M capped CND now owning 80% of the advanced stage, 1 TCF contingent resource Piedra Redonda.

We covered the history of the asset in detail in a previous note here: 1 Trillion cubic feet of gas - now one of the largest undeveloped offshore gas discoveries on the west coast of South America.

Now we will get to see a big distributor dust off those old development plans and look at it with fresh eyes.

Hopefully the studies end up in some sort of binding offtake/development deal.

No guarantees of course, there is always a chance nothing comes of the MoU.

We also note there is a commercialisation study that CND has completed recently which could be of assistance too.

We covered the work from that in a recent Quick Take here: CND completes commercialisation study for 1 trillion cubic feet gas discovery

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CND also has oil exploration prospects

Today’s deal is only for the gas part of CND’s resource.

The block also contains ~3BN barrels of undrilled prospective oil resources.

And CND’s block sits right next door to a block held by $205BN TotalEnergies and to the north of a block held by $469BN Chevron and $60BN Occidental Petroleum.

As CND holds 80% of the block, it has an attributable ~2.4BN of that prospective oil resource that is net to CND.

We think the oil prospects are big enough to warrant drilling AND IF someone gets lucky and discovers something there are plenty of other leads that can be followed up over CND’s blocks.

Next major catalyst we want to see is a deal…

CND has explicitly said before that it had commenced a “Farmout process” on its block “with multiple parties in (the) data room”. (source)

It’s hard to predict with so many different possibilities, but we think any of the following could be a big catalyst for CND’s share price:

1. CND deals out its gas asset - maybe some of the proceeds that come from this can go toward drilling an exploration well? Maybe CND gets a free carried interest in an asset that could generate revenues in a reasonable timeframe? Now with Promigas looking at the asset, this is more in play…
2. CND deals out oil exploration assets - Maybe CND gets a free carried interest in a well that would be fully funded by a farm-in partner. This means less dilution going into a big drilling event for existing shareholders…
3. Maybe a combination of the two? - CND could bring someone in that is interested in both…

Occidental, Total and Chevron are all active in offshore Peru and there have been big deals happen in this part of the world before.

Back in 2009, KNOC (South Korean National Oil Corporation) and Ecopetrol (Colombian National Oil Company) signed a deal worth US$900M for projects to the south of CND’s block.

(Source)

We think, CND is deal ready for two reasons:

1. We think the oil prospects are big enough to warrant drilling AND IF someone gets lucky and discovers something there are plenty of other leads that can be followed up over CND’s blocks.
2. Because a development scenario was considered for the gas asset back in 2006. Now with more demand for gas locally (in both Peru and Ecuador) as well as internationally, we think the chances someone relooks at that old development plan is much higher.