The global energy crisis continues worldwide, with energy prices surging across Europe even before the cold weather of winter starts.

Last week, we saw two more energy suppliers in the UK collapse, bringing a total of 23 energy suppliers in the country to cease operations.

With the resurgence of COVID, there is a possibility more countries will look to protect supplies which could force more leaders to potentially ask households to use less energy or potentially plan for rolling blackouts.

This energy crisis indirectly affects all businesses and households due to the dramatic increase in the cost of living.

In fact, Britain’s manufacturers face a “perfect storm” crisis of rapidly rising costs and soaring debts that could push them over the brink of collapse, according to a new survey.

A leading industry trade body said earlier this week that the government should introduce payment holidays on loans, warning that thousands of firms faced a “tipping point” that could make their business models unviable.

Regarding the European energy crisis, more liquefied natural gas is diverting to Asia and Russia as China has faced extreme pressure in the last 12 weeks to secure supplies.

The country has seen rolling blackouts that have dramatically affected factory output, which is quite dramatic considering China is the world’s manufacturing powerhouse.

Inventories remain very low at gas storage sites across Europe. Stores are 64% full, which is considerably below the ten-year average of 86% for this time of the year.

This continues to be of great concern as supplies from Russia remain limited. In addition,two weeks ago, a German regulator suspended the approval process of Nord Stream 2, which could delay the commissioning of the infrastructure until March of next year, according to government sources.

NG Energy: (TSX-V: GASX)

A company I have been covering for a while is NG Energy, located in Colombia and focused on helping fuel the countries clean energy transition.

The Company has a strong de-risked asset base in well-known producing areas of the country close to national infrastructure.

The assets:

  1. Maria Conchita
  2. SINU-9
  3. Tiburon 

The Company has been actively building out its facilities and gas pipeline at Maria Conchita these last few months with the hopes of beginning natural gas production any week now.

For new readers, the Maria Conchita field is located in the Guajira Basin on Colombia’s Caribbean coast. The property neighbours one of the largest natural gas deposits in Colombia, the Chuchupa field, with more than 900 MMboe in reserves and accounting for 40% of Colombia’s daily natural gas output.

 The asset hosts 2P Reserves of 27.7 Bcf at this block. The Company aims to be cash-flowing by the end of the year and sell its gas between $7.00 and $7.50 /MMBtu.

At this block the company currently has 3 wells:

  1. Aruchara-1
  2. Istanbul-1
  3. Tinka-1 (**Planning re-entry) 

Currently the company has commenced the re-entry of Istanbul-1 and has deployed a de-watering capillary technology to address existing water downhole from when the well was first drilled.

The Company and its contractors are in the final stages of defining procedures for the ten-day program, including all required approvals, and anticipate completion before the end of December.

The Company is confident that once the capillary system is deployed and the well is completed, Istanbul-1 should produce between 3-5 Million standard cubic feet per day. This is in addition to the 16 MMSCFPD anticipated to be produced from Aruchara-1.

In total, the Company should soon be producing 19-20 Million standard cubic feet per day, selling between $7.00 – $7.50 gross with the net being between $5.00 to $5.50 range.

These two wells will provide the company with significant cash flow with the prospect of a third well coming online in relatively short-order, only adding to the production profile.

In the near term, for Maria Conchita, be on the lookout for the upcoming production announcement in addition to an update on when the company plans a re-entry at Tinka-1.

Sinu-9:

Personally, this is the asset within the Company that really has me excited.

This is the NG Energy’s flagship asset, which covers an area of 311,353 acres and is located in the north part of Colombia, sharing area in lower Magdalena and San Jacinto basins, two of the basins with the largest gas and light oil potential in the country.

 

This project has excellent exploration potential for natural gas with Best Estimate Contingent Resources of 37.0 Bcf, Best Estimate Prospective Resources (Prospects) Unrisked of 602.2 Bcf (Risked 182.4 Bcf) and Prospective Resources (Leads) of 459.0 Bcf gross.

Sinu-9 is situated right next to Canacol, which has booked natural gas 2P reserves of 637 Bcf and production of 172 MMcf/d in 2020.

Recently, Canacol drilled Aguas Vivas 1 to the east of Sinu-9, hit 402 ft of pay zone and tested 35.5 MMcf/d.

NG Energy has received its environmental license for SINU-9, which allows exploratory drilling areas in the SN9 block, including the construction of civil works, production infrastructure and the construction of up to 11 locations for a total of 22 wells to be developed.

The company has identified 4 prospective wells, which will be drilled to 4,500 to 6,000 ft for a total cost of US$4-6 million per well, with an additional 10 potential areas identified with excellent conventional natural gas exploration potential.

In the near term for SINU-9, I expect a news release to announce that drilling has officially commenced at these wells.

This will be a very exciting period for shareholders.

I expect a dramatic rerating with any upcoming success, as the company is currently only trading at 3x EBITDA for 2022 just on Maria Conchita, without even factoring in the impact of Sinu-9.

Conclusion:


I anticipate continued tailwinds in the energy market, as more and more countries look to secure supplies before we get in the thick of the cold winter months.

I also see geopolitical pressure only continuing to ramp up with the numerous points of conflict that are currently occurring worldwide.

I believe NG Energy is well positioned to take advantage of this environment with strong pricing.

The Company will dramatically scale its production profile with drilling at SINU-9 and, most importantly, help Columbia transition to clean energy.

I will be interviewing the NG Energy CEO once again in the coming weeks for another update on all these exciting developments.




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