MCF Energy Ltd. (TSX-V: MCF)(OTC: MCFNF) CEO James Hill on Delivering Large-Scale Natural Gas Exploration in Austria & Germany to Offset Europe’s Worsening Energy Crisis
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the CEO of MCF Energy — Mr. James Hill. Mr. Hill, how are you today?
James Hill: I'm doing well, thank you, Gerardo. How are things on your end of this world?
Gerardo Del Real: Things are well. I'm in Austin, Texas. It was quite a challenging week last week, somewhat ironically, right? We had some energy issues with our grid here and with ice but everything is back to normal. Thank you for asking.
Listen, let's get right into it. I love being early to stories, and I really love being early to stories when the scale and scope of the company's mission seems to be disproportionate to the current market cap. I say all that to say that I've looked at the team that you've put together. I've looked at the opportunities that you're pursuing. And given the current market cap, there is a lot of runway, and I think that's best crystallized by your past success.
So before we get into, kind of, the approach, can you just tell everyone a bit about your past because you've been extremely successful and you've managed to put together a brilliant team of ladies and gentlemen, obviously.
James Hill: Yeah, I've been very fortunate in being involved with some of the best people in the world, really. My experience with public companies started with a small company called Tartan Energy back in 2000. My partner and I had put together some producing assets, and we were looking for a way to equity fund some wells for ourselves because, back then, the price of oil was just down in the dirt, really was.
So in 2000, we merged with a small Canadian shell called Tartan Energy, and we were with them until about 2005. We drilled a number of wells; we drilled a couple of deep wells. But really, the major claim to fame with that one was we did a shallow steam flood there, which proved up 186 million barrels of oil.
And our sponsor at the time was a company called Nations Energy. And Nations liked it so much they tripled our share price and said, ‘Thank you for playing,’ and took the company over. That's when I suddenly realized that banks not only have a withdrawal limit but they have a deposit limit. So you can only deposit so much. So I had to go to the bank twice that day — so it was not a bad day.
From there, we went on to Bankers Petroleum, which, of course, was involved with Ford Nicholson and Frank Giustra and a number of the other high powered people out of Vancouver. And the main asset was in Albania. It was an oil field called Patos-Marinza. And the Albanians had drilled 2,000 wells into this. And who knew that the largest onshore oilfield in Europe was in Albania. And we had the whole thing.
So we took the wells over a 100 wells at a time and basically reworked them and took the production from about 600 barrels a day up to 19,000 when it was finally sold to a Chinese company.
I had left Bankers before that happened because we were doing exploration in the US at the time. We weren't just working Albania. And we made a discovery in Oklahoma called the Tishomingo Field, which was an unconventional shale field, which worked out very well. And they butterflied us off into what's called BNK Petroleum at that time in 2008. And we kept drilling wells.
And at that time I realized that most of our money was going to be spent drilling wells. So the only place we could go to tie up large acreage blocks without large amounts of money at that time was the European theater. And back 500 million years ago, all of these areas were stuck together in one big supercontinent. So the idea was that the shale in Europe should be just as good as the shale in the US. So from 2008 to 2012, we maintained one of the largest concession holdings in Europe.
We had over 5 million acres under concession in Poland, Germany, and Spain. At that point, we drilled six wells in Poland. Germany, we were still doing fieldwork. Spain was a mess politically so we had a hard time doing anything there. But we found shale gas in Poland. We drilled a well; it looked real good. But unfortunately, because of some political upheaval in Poland at that time, we couldn't find a partner to help us develop it. It takes a large scale operation to really bring in the services for an unconventional play.
And unfortunately, because of the hydrocarbon law changes that the Polish government put on us at that time, we just couldn't find a partner. So we had to walk away from it. So I left BNK in 2012 but I've been involved with them as a large shareholder and, also, the CEO was one of my best friends during all of this time.
That company has now morphed into a company called Kolibri. And we sold the deeper rights off to, I believe, it was ExxonMobil for US$150 million or US$160 million. But we kept the shallower rights, and that particular zone has worked out to be better than the deeper zone. So Kolibri exited last year at 4,000 barrels of oil equivalent per day. So that was a real success as well.
Gerardo Del Real: It sounds to me, Jim, and correct me if I'm wrong, that all you've done for your career is make discoveries and monetize assets to the tune of billions of dollars, right? And so again, I mentioned the runway here with MCF's market cap and the fact that, fully diluted, you're right around C$135 million, give or take a bit.
That to me screams opportunity. I would love to provide a bit of context to people that may be new to this story to your approach in western Europe. You mentioned large scale exploration and how that kind of is your track record, right? You look for these big opportunities with significant scale and, luckily or not so luckily, you've been really, really good at being able to make those discoveries and monetizing those assets and creating what can only be described as a lot of wealth for a lot of people. What's the plan with MCF moving forward?
James Hill: Well, the goal for MCF is to become the go-to company for those that want exposure to the current European energy play. We came together about six or seven months ago.
The same large investor people — Ford Nicholson, Frank Giustra, and a number of the others — came to me and said, ‘Hey, Europe is in trouble. The energy situation there is going to become critical. This is an opportunity to go in and exploit and actually make happen projects in Europe,’ which, quite frankly, have been ignored for the past 30 or 40 years. With the cheap Russian gas coming in, there was no real reason to explore within their borders.
So a lot of these prospects, and even a lot of the fields, have gone completely ignored for all of this period of time. Well, now they're suddenly realizing that the energy security of their countries is at stake. And to be honest with you, let's face it, the most secure energy resources you can have are within your own borders. And I think that this is what the European countries have finally, finally gotten it through their heads that they have to develop their own energy resources.
So this is the opportunity that we saw. And we have been involved — and me especially in the European energy community — for over 10 years. And I know all of the companies and I know all of the major players. So when they came to me and said, ‘Hey, we're going to build a company… we're going to go after assets,’ I knew exactly who to go to and exactly who to talk to. So it's worked out very well. It really has. We've tied down two projects in Europe so far. We've looked at over 20 different projects before we selected these two.
The first one is with a company called ADX. Now, we're farming in on their interest, which means that they had the concessions already. So we don't have to go through any of the problems of going to the government to get approvals for concession applications and that sort of stuff. It's already in place.
And ADX is an underfunded company. They've got an office in Vienna and another one in Australia in Perth, and they're underfunded. They took over a bunch of OMB assets, OMB being one of the larger producers in Austria and Germany, actually. And basically, we’re trying to bring in partners with capital to prosecute these plays that they had. The one that we like the most — because it gives us the biggest bang for our buck — is a prospect called Welchau.
Now Welchau is kind of unique because it's located in the Austrian Alps. And this is an area which has gone underexplored, again, like most of Austria. And it's a giant anticlinal feature. Now, an anticline is like a dome. It's one of the things that you have to have to accumulate hydrocarbons or anything for that matter. You have to have a closure. You have to have a bottle to put this stuff in. And this particular anticline is over 100 sq km of enclosure. I mean, the thing is huge, absolutely huge.
The exploration that had been done up to this point was there was a well drilled in the '80s off of the Welchau anticline. It was actually drilled down on what's called the flank of the structure. That well found gas and it produced at 3.5 million cubic feet a day. They beaned it back to 2.5 mcf a day, flowed it for 16 days, and abandoned it.
And the reason why they abandoned it was they were over 18 km away from a pipeline and gas was worth nothing. So it's kind of an indication, number one, that there's gas in the system, okay, so I know I've got a bottle and I know I've got gas.
Gerardo Del Real: Right.
James Hill: And I know that I've got a closure there. And with the well having produced 3.5 mcf a day, I know I've got a reservoir. So all of those things are indicative of the fact that we could have a sizable accumulation there.
Gerardo Del Real: It's clear to me, Jim — and pardon me for cutting in really quickly — but I want to emphasize this to our audience… it's clear to me that you are hyper-focused on making sure that you have, potentially, very, very significant scalable assets but also that you want them in Europe's safest jurisdictions. Am I wrong in that?
James Hill: Oh, yeah, absolutely. We don't want to be in a risky part of town and have our discovery taken away by somebody or blown up.
Gerardo Del Real: Absolutely. Literally, I know exactly what you mean. It happens more often than not, and it happened recently I think. Back to the Austrian gas targets and then the earn-in there, I'd love for you just to provide a little bit more context as to the scale of what you're looking to earn into.
James Hill: Well, in this particular asset, we just got a reserve estimate on possible reserves, and we're looking at, let's see, about over 640 BCFE of equivalent gas here and condensate. That's the best estimate. If we get really lucky, it could well be over a TCF of energy that we drill into here.
And the nice part is that this is at 2,000 meters. I don't have to spend a billion dollars to get this. We have the surface location permitted at the moment, and we're looking at drilling the well this coming summer is when we plan on spudding this well.
Gerardo Del Real: Excellent, excellent. You also have a partner now that's a proven operator in Europe, a ton of technical expertise. Your team, frankly, has all of the network connections that come with decades of experience and success. Can we speak a bit about some of the other prospects that you have under evaluation and application, and then if we could talk a bit about your partner, Genexco, which I think is, obviously, an important partnership there.
James Hill: Well, actually the second asset that we have is called Reudnitz, and that is with Genexco. It's a large established gasfield. There are three wells that have been drilled that confirm there is gas present in producible quantities. And we're looking at very sizable reserves here, proven reserves, contingent and prospective reserves of more than 100 BCFE in this particular area.
And the thing about Reudnitz and all of the gasfields in Germany is that they're called low caloric gas. In other words, there's a significant percentage of nitrogen associated with the gas. That is a technology which has been well-established as far as how to extract that methane. And from the internal estimates that we looked at, it's quite an economic project to undertake. Now, the kicker here is that we've also got 0.2% helium with the gas, which, of course, is a very valuable gas.
Gerardo Del Real: Absolutely.
James Hill: We're looking at US$250 per thousand cubic feet for that. And so there's significant helium reserves. If we get lucky, we could get over a BCF of helium out of this.
Gerardo Del Real: Wow.
James Hill: But that wasn't the only thing that really tied me into this play… as they were drilling down to get to the gas zones, they ran through 19 meters of oil stained with what they call C2 Carbonate, which is oil producted in Poland and Germany. It hasn't been properly evaluated, obviously.
But we've got a significant area which could be oil, and could produce oil, and could provide us with significant oil reserves along with the gas. So this was kind of a no-brainer project for us. It's proven gas. You’ve got the upside of the helium. You’ve got the upside of the oil. It just said that we had to do this.
Gerardo Del Real: Jim, you have the team. You clearly have the assets. You clearly have your eye on other targets from the looks and sounds of it, and you clearly have the network to make those things happen. Walk me through, briefly, what you anticipate here for the next, let's say, two or three quarters because I know it's a pivotal one for the company.
James Hill: Well, we like Genexco so much that we decided to buy the company. We have a non-binding agreement right now as far as the acquisition. Along with Genexco comes an extremely brilliant established team. Genexco is an operator. They have huge amounts of experience. Peter Eckhardt was the former manager for Wintershall in Germany, which is, of course, one of the largest gas producers there. And, of course, he's got over 40 years in the industry and kind of sort of knows where all the bodies are buried.
So we already have one application in for additional concessions. We'll be following that up with many more applications very shortly — very, very shortly. So we're very, very aggressive in Germany, and we're extremely excited about the prospects of what we're doing there.
Gerardo Del Real: This has been extremely informative, extremely insightful. I encourage everybody… and we'll make sure to put a link up to go through the corporate presentation and really dig into the people, the background, the history of success, the ability to bring in assets and monetize them for many multiples of what you invest. Jim, anything to add to that?
James Hill: Yeah, basically we're bringing the newest technology to these assets. One of the things, we have Deborah Sacrey on our team, and she has helped develop the machine learning software, which industry is currently starting to apply to the seismic datasets.
One of the things that we've learned is that there's so much more information in the remote sensing data which you cannot see with your eye. A lot of times in the past, we’d look at the 3D seismic, we’d visually say, ‘Aha, this is where we want to drill because we can see it.’
But what the machine learning does is that Deborah will take and calibrate one of the wells, which is the producer, match that to a well, which is a dry hole, extrapolate out the various aspects of the data, which we cannot see with our eye, determine the differences, and then run it through the entire volume. Her success rate is over 80%.
Gerardo Del Real: Wow.
James Hill: And it really comes down to the fact that a lot of these places that were successes, we would not have drilled with our eye. We would not have picked these places out to drill. So the excitement of this only builds because we've got 3D datasets, which we're currently working, and, of course, we expect a lot more than just what we visually see right now to drop out.
Gerardo Del Real: That is fascinating to me. I am looking forward to having you back on. It sounds like we'll be chatting quite often given the pace and the scope of news that you have set up here for the rest of the year. Thank you so much for your time, and hopefully we can do this again soon.
James Hill: Alright, you have a nice day.
Gerardo Del Real: Alright, cheers.
James Hill: Bye-bye.