Opera Investments plc
Update of Potential Acquisition
Competent Persons Report issued on Helium Two Project
27 June 2016
Further to the announcement by Opera Investments plc ("Opera" or the "Company") on 15
June 2016 regarding the heads of terms agreed with Highlands Natural Resources plc
("Highlands") to acquire all of the issued share capital of Highland's subsidiary, Highlands
Helium Development Limited, the Company is pleased to note Highland’s announcement
earlier today that it has received the results of a Competent Persons Report (“CPR”) from
Knowledge Reservoir LLC dba RPS (“RPS”) on its Helios Two helium and natural gas
project in Montana, USA.
Opera notes that a copy of the CPR will be available shortly on the Highlands’s website
(www.highlandsnr.com). As announced by Highlands, the Executive Summary from the CPR
is set out below.
Executive Summary
On 19th May 2016, Knowledge Reservoir LLC dba RPS ('RPS') was engaged by Highlands
Natural Resources Plc ('Highlands') to provide a Competent Person's Report (the 'Report')
on the resource potential of low saturation gas found in the Muddy Formation in southeast
Montana, U.S.A (the Muddy Prospect).
The Muddy Prospect is located within the Northeastern part of the Powder Basin of
southeast Montana and Wyoming which has been a prolific producer of hydrocarbons.
Conventional exploration in the area has targeted and been developed in fields that exhibit
normally expected hydrocarbon saturations with typical conventional flow characteristics.
However, many wells were drilled into equivalent reservoirs across the area through time
and were reported as finding low gas saturation in brines (high water saturation) which would
bubble and/or ignite at the surface but were not thought to be commercially productive, and
certainly not in comparison to the high gas saturation accumulations that were being
discovered at the time. Consequently, the low gas saturation reservoirs were ignored and
classified as water-wet.
However, two further developments have occurred since those times:
•
The development of Helium gas in the area which now commands very high prices
and is forecast to be increasingly short-supply;
•
The advent of commercial "co-production" in other similar reservoirs which provide
good analogues to support the belief that the high water saturation reservoirs in the
Cretaceous of southeast Montana (and elsewhere in the local) could be a by-passed
play.
The combination of these two factors in the Muddy Prospect area means that, if the concept
can be proved via a pilot test program, a whole new economic play may open up.
The Muddy Formation is of Lower Cretaceous Aptian age and is time equivalent to the
Viking/Bow Island formations of Alberta, Newcastle Formation of Manitoba and the J
sandstones of Colorado. The sands were deposited in valleys cut during periods of low-
stand into the underlying basinal Skull Creek shales and filled with estuarine / tidal delta
sediments during the subsequent transgression. A key feature of the Muddy formation is a
high clay and fine silt content contained within otherwise reasonably porous and permeable
sands (hence the name). These clays (primarily Kaolinite and Illite) are thought to act as a
resistivity suppressant resulting in low and unrepresentative water saturations when
calculated using the conventional "Archie" type method. The true initial gas saturations are
still very low when compared with less clay rich and conventional reservoirs but the
production technique of "co-production" has now been documented in several analogue
cases from Oklahoma, Japan and elsewhere, and, in one particular well (Jorgenson #1-R
drilled into and tested the Virgelle Member of the Milk River Formation in Hill County,
Montana), in close proximity to the area in 2002. Co-production is a production method
whereby a well is produced by lifting (pumping) produced water with low gas saturations and
as the reservoir pressure drops gas becomes more mobile and gradually increases in ratio
(gas to water ratio), in some cases to the point where gas flows at good to excellent rates.
This co-production methodology requires the production, handling and disposal of significant
quantities of water (normally via re-injection) and the balance between disposal costs and
revenue realization from a slow-buildup of the gas production profile may be uneconomic.
However, low concentrations of Helium in the produced gas may well deliver significant netback economics since the Helium price is currently more than $100/Mcf and predicted to
increase as stored volumes are drawn down and demand increases. The Muddy sands
have been shown to contain 0.36% Helium, from analysis of produced gas from a drill stem
test of a wildcat well drilled by Pan American Petroleum Corporation in Section 23, Twp 5N
Range 52E, Custer County, Montana in 1969.
This has the potential to change the economics even at low concentrations but it should be
noted that the methane is not valueless if sufficient volume and hence revenue can be
achieved to cover the water disposal costs.
RPS has reviewed data supplied by Highlands and accessed the production database for all
gas wells in Southeastern Alberta and Southwestern Saskatchewan, using Accumap, to look
for other local analogues. RPS has found good evidence of Helium production and has a
logical and coherent explanation for the Helium concentrations found as well as support for
the fact that the sample in the area could well be representative over a wider area and
maybe even pessimistic. Based on RPS' independent analyses and drawing on suitable
analogue data, RPS has developed a model of the in-place volumes expected per acre, the
Resource potential for the three Township area and a type well based on production
characteristics from two key wells (Howard #17-1 and Jorgenson #1-R). RPS has estimated
the Geologic Chance of Success for the prospect at 80%, with the primary identified risk
being the risk of being able to mobilize and produce gas at commercial rates from the highly
water saturated gas reservoirs.
A conceptual development plan for the full three Township area has been modelled for
economics in excel and supplied to RPS. RPS has reviewed this model and updated the
well production forecast based on an RPS derived type well production, and for capital and
operating costs based on RPS estimates. This gives a simplistic but reasonable view of the
potential Resource volumes of Methane and Helium and also an indicative success case
value based on Highlands's assumptions which have been reviewed and do not seem
unreasonable and will be further demonstrated by the pilot program in terms of cost control
etc. The table below summarizes our findings of gross and net attributable Prospective
Resources for the three Township area of the Muddy Prospect and the following Report
gives more detail on the work and assumptions behind the results.
Prospective Resources Summary for Muddy Prospect
Muddy
Prospect
(WI=100%)
Co-production
Gas (Bcf)
Methane (100
Section
development)
Helium (based
on 0.36%
concentration)
Low
Estimate
Gross
Best
Estimate
High
Estimate
Net Attributable
Low
Best
High
Estimate
Estimate
Estimate
Risk
Factor
Operator
341
710
1,225
284
592
1,021
80%
1.2
2.6
4.4
1.0
2.1
3.7
80%
Highlands
Helium
Development
Limited
Notes:
"Gross" are the 100% Resources that are attributable to the licence whilst "Net Attributable" are those estimated to be
attributable to Highland's 83.33% WI after royalties.
"Risk Factor" means the estimated chance or probability of discovering gas in sufficient quantity for it to be tested to the
surface (also referred to as GPoS). It should be noted that a pilot test program to confirm that co-production is possible and
the development of a 100 Section area is necessary to achieve the volume range quoted. The Chance of Development is
specifically not included in the Risk Factor shown.
The unrisked P50 indicative success case valuation (NPV10), before income tax, calculated
for the 100 Section development based on capital cost and operating cost estimates built up
by RPS is US$341MM. This value does not represent any form of market value for the asset
and requires several critical events to occur to be achieved including discovery, appraisal,
capital expenditure and the successful negotiation of the third-party midstream service
contract described in Section 7.2.2 of the Report.
This indicative success case valuation does not include specific economics for the Helium as
it is not possible to estimate Capex and Opex requirements until the Helium percentage
content has been confirmed as the scale of the processing and methodology for extraction
will be critically dependent on this ratio. As noted above, however, Helium is in increasing
demand and could be a significant upside to the existing success case based on the
methane project alone.
Background
Opera and Highlands have conditionally agreed that Opera will acquire all of the issued
share capital of Highlands Helium Development Limited which owns Highlands' Helios Two
helium and natural gas project in Montana, USA for a consideration of approximately £4.0
million (the "Acquisition"). The heads of terms provide that the Acquisition will be satisfied
by the issuance of new ordinary shares of £0.01 each in Opera ("Opera Shares") to
Highlands at a price of £0.15 per Opera Share (the "Consideration Shares"), valuing the
existing issued share capital of Opera at £2.5 million. In addition, it is envisaged that, in
conjunction with completion of the Acquisition, there will be an equity financing raising net
proceeds of not less than US$750,000 to fund certain future investment and working capital
requirements of Helios Two. The heads of terms also stipulate that Opera will reimburse
Highlands all of the professional costs incurred by Highlands on this project as well as any
costs of further leases that could be acquired for the project (with any such further leases
also being the subject of the Acquisition).
Both parties believe that the Helios Two assets represent a significant opportunity to take
advantage of a potentially significant helium resource, at a time of global concerns around
helium scarcity and helium price increases. It is the intention to establish a team dedicated
to the development and commercialisation of the Helios Two project, which consists of
exploration licences covering 59,033.82 acres in Custer, Carter and Fallon Counties,
Montana. Numerous shows of gas have been encountered across the Helios Two target
region. Historic gas analysis confirmed the gas contains elevated concentrations of helium
(0.36 per cent) similar to the producing US Hugoton helium field, which is the largest natural
accumulation of helium in the United States. Consequently, Highlands and Opera believe
that a significant volume of gas containing helium could exist in this region which, if correct,
would represent a significant helium resource in North America.
The Acquisition remains conditional on a number of matters, including:
•
The Acquisition will be considered a reverse takeover for Opera in accordance with
the FCA Listing Rules and, consequently, will be subject to the publication of a
prospectus by Opera and its shareholders' approval.
•
New directors will be appointed to the board of Opera including, in particular, a nonexecutive director with experience of helium. In due course, but expected to be after
completion of the Acquisition, Opera also expects to appoint a chief executive who is
experienced in this industry. Highlands and Opera will also enter into a relationship
agreement pursuant to which, amongst other things, Highlands will be entitled to
nominate two directors to the Opera board.
•
At the time of announcing the full terms of the Acquisition, Opera will also carry out a
fundraising by way of the issue of new ordinary shares in Opera (the "Fundraising"),
the purpose of which will be to put the Company in funds to carry out the first stage of
the development plan for Helios Two, namely the drilling of the first two wells and their
associated injection well.
•
Following the issue of the Consideration Shares, Highlands will be a majority
shareholder in Opera and, accordingly, the Acquisition will be subject to a Takeover
Code whitewash (the "Whitewash") and Opera shareholder approval in respect of the
provisions of Rule 9 of the Takeover Code. Details of the Whitewash will be contained
in Opera's prospectus.
•
Finally, the Acquisition will be subject to conclusion of the parties' due diligence, and
the parties entering into final documentation including an acquisition agreement. It is
expected that for the first 12 months following the Acquisition, Highlands will provide
its expertise and management services to Opera in return for a management fee of
£20,000 per month.
Enquiries:
Opera Investments plc
Paul Dudley
+44 (0) 20 3551 4872
Buchanan
Ben Romney / Bobby Morse +44 (0) 20 7466 5000
This announcement is not intended to, and does not, constitute or form part of any offer,
invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or
otherwise dispose of, or vote in any manner, any securities pursuant to this announcement
or otherwise. The distribution of this announcement in jurisdictions outside the United
Kingdom may be restricted by law and therefore persons into whose possession this
announcement comes should inform themselves about, and observe such restrictions. Any
failure to comply with the restrictions may constitute a violation of the securities law of any
such jurisdiction.
The statements contained in this announcement that are not historical facts are "forwardlooking" statements. These forward-looking statements are subject to a number of
substantial risks and uncertainties, many of which are beyond the Company's control and
actual results and developments may differ materially from those expressed or implied by
these statements for a variety of factors. These forward-looking statements are statements
based on the Company's current intentions, beliefs and expectations about among other
things, the Company's financial condition, prospects, growth, strategies and the industry in
which the Company operates. Forward-looking statements are typically identified by the use
of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should",
"intends", "estimates", "plans", "assumes" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that involve risks
and uncertainties. By their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not occur in
the future. In addition, from time to time, the Company or its representatives have made or
may make forward-looking statements orally or in writing. Furthermore, such forward-looking
statements may be included in, but are not limited to, press releases or oral statements
made by or with the approval of an authorised executive officer of the Company. No
assurance can be given that such future results will be achieved; actual events or results
may differ materially from those expressed in or implied by these statements as a result of
risks and uncertainties facing the Company and its subsidiaries. Many of these risks and
uncertainties relate to factors that are beyond the Company's ability to control or estimate
precisely, such as changes in taxation and fiscal policy, future market conditions, currency
fluctuations, the behaviour of other market participants, the actions of governmental
regulators and other risk factors such as the Company's ability to continue to obtain
financing to meet its liquidity needs, changes in the political, social and regulatory framework
in which the Company operates or in economic or technological trends or conditions,
including inflation and consumer confidence, on a global, regional or national basis. Such
risks and uncertainties could cause actual results to vary materially from the future results
indicated, expressed or implied in such forward-looking statements. The forward-looking
statements contained in this announcement speak only as of the date of this announcement
and the Company undertakes no duty to update any of them publicly in light of new
information or future events, except to the extent required by applicable law or regulation.