Natural gas was the worst-performing commodity in 2023, experiencing a decline of nearly 50% for the year. The primary reasons for this poor performance were supply outstripping demand and cooler winters in the Northern Hemisphere. Furthermore, the European energy crisis of 2022, which had initially fueled the ascent of natural gas to over $10/mcf, transitioned to a more stable and better-supplied market in 2023. With 2023 now behind us, it will be interesting to observe whether the cure for low prices is indeed low prices. In the second half of 2024, three new LNG plants are expected to commence operations in the U.S. These new facilities will increase U.S. export capacity by six Bcf/d (or 42%).
Natural Gas (Daily)
It's worth noting that the North American natural gas futures price has little to do with the price that Europeans pay (Europe is the likely destination for much of those new US LNG exports later this year). Imported LNG (liquified natural gas) will always be much more expensive than domestic natural gas reserves.
The weak natural gas price trend in combination with permitting delays resulted in a ~50% decline in the shares of European natural gas exploration company MCF Energy (TSX-V:MCF, OTC:MCFNF):
MCF.V (Daily)
Given the recent decline in the MCF share price I thought it would be a good time to check-in with the company and better understand MCF's exploration plans for 2024. A couple days before Christmas, I had the opportunity to speak with MCF Energy senior technical geoscientist advisor Deborah Sacrey.
Mrs. Sacrey is a geologist and geophysicist with 45 years working in the oil & gas industry. She is an expert in the use of Paradise Software, machine learning that utilizes multi-attribute neural analysis to study seismic data. Paradise is able to generate very fine detail and higher resolution “maps” of rock properties in a 3D viewer. The net result is a much better understanding of what is beneath the Earth's surface, and more precise targeting of hydrocarbons. Another important aspect of machine learning models is the ability to recognize patterns in data that correspond to oil and gas deposits. These patterns are often complex and not easily discernible by human analysts.
What follows is the transcript of my December 2023 conversation with Deborah Sacrey....
Goldfinger
I’m speaking with Deborah Sacrey, a technical advisor to MCF energy. Deborah, from what I understand, you're a geophysicist with expertise in using Machine Learning, multi-attribute neural analysis, to study seismic data and optimize targeting to make oil & gas discoveries. Can you tell us about that?
Deborah Sacrey
I've been involved with a group of people for the last 13 years to develop some software called Paradise. Paradise is machine learning software utilizing cluster analysis and pattern recognition using multiple seismic attributes.. MCF has an area of interest in Germany, and we're targeting two wells that were drilled back in the 80s by Mobil, both of which had excellent shows in two different zones, but Mobil did not choose to complete them at the time because they were natural gas and natural gas was not economically favorable. The price of natural gas in Germany, at that time, wasn't going to be enough to move Mobil’s needle, if you know what I mean. They abandoned the wells, but left all the well information behind for us to study. A 3-Dimensional seismic survey was acquired some time later.
We have all of the information necessary to apply machine learning and optimize locations now, and. That's what I've been doing. I'm one of three technical members of the team. Two others are located in London, and they're gentlemen who have vast experience all over Europe. Since I am new to the study of the European geological framework, they are helping me understand these depositional systems and all the stratigraphic understanding that go along with this area while I am working on the Machine Learning application to the area in Germany.
Goldfinger
For people who are relatively new to the oil & gas industry, how AI could possibly help in targeting to find a body of oil that's down deep in the earth. How can AI do things or find things that the human eye, the human mind can't?
Deborah Sacrey
That's an excellent question. The acquisition of seismic data is nothing but energy that's put into the ground. Much like radar or sonar can detect objects by bouncing energy pulses into the air or water, Seismic data uses energy sources at the surface to send energy pulses into the Earth. As the energy pulses travel downward, they bounce off different rock layers. And when that energy bounces back, it's recorded, much like sonar would be. When you have sonar or you have radar, it's sending out energy that bounces off objects. Right. So seismic data is nothing but energy that bounces off different rock layers. And we record it. Well, when we record it, we can't always see all the nuances in the change of the geology in the subsurface. We get the big picture, but we don't see the little picture. And what Machine Learning and the computer allows us to do is see the details in the subsurface our eyes cannot.
They can see minute fluctuations in the seismic signal that may indicate extra sand, may indicate oil and gas, may indicate a lot of different things. So the AI portion of this is really helping us put super strong glasses on and see the geology the way other people can't.
Goldfinger
And is the algorithm that you're working with, is it better with oil, or is it better with natural gas, or does it not matter?
Deborah Sacrey
It really doesn't matter. However, natural gas is easier to detect because the seismic energy reflects back differently in gas zones versus oil zones. The viscosity of oil in the ground is very similar to water, and sometimes there's not a lot of major seismic changes. When you go from, say, a water reservoir to an oil reservoir in the subsurface it is hard to see that transition. However, natural gas is just that. It's a gas, and so it changes the frequency and the density of the rock that the gas is in. Because of this phenomenon, it is much easier to detect, generally, than oil reservoirs.
Goldfinger
I see. Okay, so the work you're doing for MCF in Germany, can you give us an example of your targeting and how you've helped them to hone in on a new target that they might test?
Deborah Sacrey
Well, I can't show you the actual data because that's proprietary, and certainly Jim would not allow me to do that. But we have the information from the two wells that were drilled. Actually, we have three wells. One well was a dry hole. I can use the information from those wells to calibrate the machine learning software in the seismic data, Because two of the wells had significant gas shows and oil shows, and one well was a dry hole. I know what not to look for at the dry hole, but can target the clusters or the pattern recognition software to see what was produced at the wells that were tested. Then I can follow those same neurons or those same clusters around the whole of the seismic survey to see where there might be other areas that could be prospective, not just the one area in which the wells were drilled.
And in doing so, we have been able to set up five or six different drilling locations, some that are along the same fault block or the same structure where Mobil drilled their wells, but other locations that target the same cluster analysis information that could have the same results.
Goldfinger
Okay, so I imagine that you have a lot of evidence for how this targeting works in Texas and in Oklahoma. Is there any evidence of how it works in Germany, or is it just the same, because it's the earth.
Deborah Sacrey
Well, rocks are rocks. Mother nature is the same all over the world. Right? So one of the things that we're targeting and what the Mobil wells found in the subsurface in Germany is that they're targeting carbonates. 70% of the world's oil has come from carbonate reservoirs, limestone. Saudi Arabia is probably the prime example of that because some of their biggest fields are in the same age rocks as we're targeting in Germany. They're Jurassic age, which means those rocks were deposited when the dinosaurs were still alive and it was at the end of the Jurassic that the big meteor hit and killed all the dinosaurs. So the Jurassic age rocks around the world are the most prolific rocks in the world when it comes to hydrocarbons.
And we're targeting the same rocks, the same age, the same type of rocks as they have in the Middle east, where all the big prolific fields are located. And those rocks are very special because in this case, they were buried. They had oil and gas developed in them from millions of years of little sea creatures dying on the ocean floor as the carbonate was being deposited. We think that they're loaded. That's the kind of rock that we're targeting. We're not targeting sandstone like they do in the Gulf coast of Texas or in other areas around the world. We're targeting the same kind of rocks that they have in the middle east.
Goldfinger
And then that's a really good background. And I like the analogy too, there's Lech and there's Lech East. I imagine you've done a lot of work on helping targeting in both places. Based upon the presentation, in 1983 the Kinsau #1 well tested 24 million cubic feet per day of gas. To me, that sounds like a pretty good result. Is it realistic to have that sort of flow rate again now?
Deborah Sacrey
Absolutely. Lech is a defined structure. That was the target that Mobil was looking for. Like I said, this was before the seismic data was acquired. So we know that we have three or four locations along this structural feature. Lech east is all the rest of the 3D. This 3D is about 160 square kilometers. So it covers a really large area. And once you get off the lech structure, you can find other structurally advantaged places, which is what I'm targeting for Lech east. All the other additional locations, they're all look-alikes to Lech. In terms of the pattern recognition and the cluster analysis. They're all in very good structural positions to target.
Goldfinger
That’s very interesting, so I am assuming that the company is going to drill a couple of those targets in the next year or so, what will success look like? Assuming MCF drills some of your targets. What are you looking to see?
Deborah Sacrey
Well, of course, the beauty of the machine learning technology and the cluster analysis is designed to help reduce risk. So if you can have a lookalike to a well that's been tested for 25 million cubic feet of gas a day, and you see exactly where that same information is located somewhere else on the have reduced the risk in drilling that location. If you didn't use machine learning, that would be considered a rank wildcat because you're jumping away from the known area. But the machine learning technology is being applied here to help greatly reduce the risk of having dry holes. We are getting ready to permit three to four locations.
But the first thing we're going to do is drill a direct offset to the Kinsau #1. They plugged it. We can't go back into that same wellbore, but we're going to kick out about 110 meters and basically twin the well. Because of this close proximity to the original well, we should have the same results as they did in 1982. And with the price of natural gas in Germany right now, that flow rate should be very economic. Realistically, however, we'll probably cut that back a little bit, choke it back a little bit to test it and see how well the pressures maintain themselves. Do some reservoir pressure maintenance kind of work. But even at ten or 15 million cubic feet of gas a day, when the price of natural gas is $12 an Mcf, that's a huge amount of cash flow.
Goldfinger
Yeah. That sounds like a very promising target to be tested. Is that expected in the first half of 2024?
Deborah Sacrey
Oh, absolutely. MCF is working on submitting permits right now. And the other interesting thing about this is that because of the war in the Ukraine and the cutoff of natural gas from Russia, Germany has become much more friendly to finding hydrocarbons.. They considered natural gas now a green energy, and certainly that would help their manufacturing, that would help Germany all the way around, is to have another good source of natural gas. This whole area could be 200 or 300 billion cubic feet of natural gas, which would go a long way to helping Germany.
Goldfinger
Yeah. And let's talk about one more target from the presentation, the Reudnitz gas field. So this is in a different area of Germany, and it's also tested for helium and methane in past drilling. Is that another one that you've helped to work up some targets on?
Deborah Sacrey
I haven't started working on that. I just downloaded the seismic data. But that's on my list of things to get done in the next month or so. To start evaluating that. I'm still waiting on information. They're getting me information on the wells and how they were tested. All this is to help calibrate the seismic data and the machine learning application. So I have to have a lot more information yet to come in from what I have so far. I will say though, in the Lech and Lech East areas, there are three or four other target zones that are shallower, but they're primarily sandstones and maybe not as much potential. But when you're talking about really good prices of natural gas, everything is additive, right? I found several areas in shallower zones that could be five to ten Bcf per well, but they're spotty, maybe only four or five good locations.
There are several different locations that I'm working on now to make a presentation to Jim and the team on what I think is going on in the shallower section. And that's in addition to the Jurassic to the carbonates.
Goldfinger
So at Lech and Lech east, you have a very robust amount of data that gives you a lot of confidence in your targeting.
Deborah Sacrey
Yes. Well, when you say robust amount of data, I have 160 plus square kilometer 3d. And there have only been only four wells drilled on that whole 160 km². There was another well called the Ammersee that was drilled, and it was a complete dry hole. It wasn't part of the Kinsau wells. And it's off in the northeast section of the 3D. But none of our target neurons, none of our target clusters are anywhere close to that well. I feel a lot more confident that the stuff we're looking for, they're not present in a dry hole. And even the Kinsau number three, which was drilled off structure across a fault, encountered some shows, but mainly water. So we have in close proximity three wells which are easy to calibrate the seismic to, and give us a great amount of information for the rest of the survey.
Goldfinger
You say it’s a 160 square kilometer total land package. Is that all 100% owned by MCF?
Deborah Sacrey
Yes.
Goldfinger
If we were to compare this to Texas, like one of the really active gas fields in Texas, over such a large property package I think you’d expect to have 1,000 wells drilled, right?
Deborah Sacrey
Well, no. 160 km² is about 100 sq. Mi. And in a typical south Texas area, and I'm working on a project right now in south Texas for another company, we only have 30 sq. Mi and we only have about 15 wells. So some areas of Texas are more densely drilled than others. But even in some of the bigger fields, like the Wilcox Fields,, it would take 200-300 square miles to have 1000 wells, unless you're on a salt dome. Now, salt dome rules are that you can drill a well every acre. So salt domes tend to be very densely drilled, as opposed to the rest of other areas where they have spacing requirements, that you can only drill a well every 160 acres or drill a deep well every 640 acres.
Texas and most of the places in the US have very strict spacing requirements which means that you don't have the kind of density that you were thinking of.
Goldfinger
It seems to me that Germany has kind of been dormant for oil and gas exploration for a few decades. And that means that in theory, as long as the government is supportive of more exploration activity, that this is very promising for exploration using modern technology and targeting techniques. You have a lot of low hanging fruit, possibly.
Deborah Sacrey
Absolutely. Part of it is that fortunately or unfortunately, when the climate change people got a hold of Germany, they convinced Germany to shut down their oil and gas business, similar to France cutting off all drilling in the Paris basin about 20 years ago. And they went all nuclear because of the environment and because of the beginnings of the global warming craziness. And I will call it crazy because there's no such thing as global warming. There is climate change. The earth has been changing its climate for four and a half billion years and in our brief lifetime. we just don't see the huge cyclical nature of climate change. But that being said, Germany had started shutting down their oil and gas business for green energy some time ago.
And they've invested a lot of money in geothermal, they've invested a lot of money in solar and wind. And what they're finding is that they can't keep people warm in the wintertime without hydrocarbons. And their manufacturing industry is suffering for lack of hydrocarbons.. I mean, they're the top manufacturing country in the European Union, and they can't sustain the manufacturing sector just on solar and wind. So they have to have hydrocarbons, they have to have natural gas to smelt steel, and do all the things that they need to do in their manufacturing process. They have, because of the Ukrainian war, kind of done an about face and have said, okay, let's drill, baby, drill. And that's where the opportunity for MCF comes in, because we're sitting on all these areas that have 3-Dimensional seismic data on them. Germany has a lot of seismic data in the country.
And there are a lot of wells that were drilled with shows. There are a lot of fields that have more or less been shut in, and now it's an opportune time to go back in, like you said, and pick the low hanging fruit.
Goldfinger
Yeah, exactly. It makes a lot of sense. It's quite a compelling opportunity. So, just to put a bow tie in the conversation, what are you comfortable with saying the company will accomplish in the first half of 2024, how many wells are you going to drill at Lech and Lech east?
Deborah Sacrey
Well, I'm very confident that we will drill. We have one well that I was not involved in, in Austria. That was part of the program before Jim brought me in to start working with machine learning and on which there's no 3D. So it's a rank wildcat, and we just got the permit to drill that well. That'll be the first quarter of 2024 in Austria. It's on a huge structure, so if they have any luck at all in finding a good well there, they'll shoot a 3D seismic survey. Then we would be off to the races in Austria. We're getting ready to submit permits for at least three wells, possibly four, on Lech and Lech East. This would allow us to drill at least the sidetrack to the number #1Kinsau in Q1 2024, with two or three other development wells following in Q2 2024.
Hopefully by the third quarter of next year, we will have four wells in the ground, all producing.
Goldfinger
That would be fantastic. That would be a huge amount of progress in six months. So it's kind of like the company has been getting everything ready, setting the table so to speak, and now it’s time to have dinner.
Deborah Sacrey
It’s taken us over six months to get the permit in Austria. And it's been delayed and delayed, but we finally got it.
Goldfinger
So that's definitely going to be drilled in January/February of 2024?
Deborah Sacrey
Yes. The Welchau Area.
Goldfinger
The first time I saw MCF Energy CEO Jim Hill present the Welchau play, it struck me as having grand slam home run potential. There's a lot of potential there.
Deborah Sacrey
There's no doubt, but there's no 3D over it. They have one old 2D seismic line, which is pretty rough because there's a lot of structure. There's some thrusting. I mean, it's not an easy area, geologically to interpret, but there is a huge structure. And like I said, if they have any oil and gas indications, or if they can find a good pocket of sand or carbonates and produce that reservoir, then you're off to the races. Because once you have that confirmation, then you have the confidence to go ahead and shoot a big 3d in there. And that won't be cheap, but you don't want to start drilling a whole bunch of wells without understanding the subsurface, for sure.
Goldfinger
That would be incredible. Deborah, thank you very much for your time, and for helping me to better understand the MCF Energy opportunity.
Deborah Sacrey
It’s been my pleasure, I’m also happy to answer any further questions you have in the future.
Disclosure: Author owns MCF Energy shares at the time of publishing and may choose to buy or sell shares at any time without notice. Author was not compensated for this article, and has no business relationship with MCF Energy Ltd.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
