The fact that a 40% drilling success rate marks out 2013 as one of BP’s best years for exploration in decades reflects the kind of glass-half-full attitude hardy oil investors must persist with.
Disappointing results are too many to count, but, there few share price catalysts as pure as an exploration success.
It is because in most cases exploration wells have a binary outcome – i.e. the targeted hydrocarbons are there or it is not – such events are the bread and butter of a certain types of AIM investors.
Speculators, day-traders, punters; call them what you will, but what is certain is that the extra liquidity that comes with their bets plays an important role for many an exploration share.
It is no coincidence that the sector underperformed in the second half of 2013, whilst there was a dearth of drilling activity among AIM’s oil firms.
Compiling an exhaustive list of wells would be far from practical, here we highlight a clutch of the most high profile opportunities the drill schedule for 2014.
East Africa – Wentworth Resources
Having raised US$46mln earlier this month Wentworth is able to pay its way in an Anadarko led campaign in the onshore portion of the Rovuma basin, in Mozambique.
Anadarko has already established itself as a pioneer in the basin. It is the lead in the large LNG project upon which theCove Energy business – sold for US$1.2bn in 2012 – was based, with its 8.5% stake in the venture.
And Anadarko is now searching onshore. Thus far, onshore, seven prospects have been identified within the onshore Rovuma concession with the gas potential estimated at 4.3tcf.
The first well, due to spud in the second quarter, will test the Tembo prospect which could contain about 1tcf of gas or nearly 200mln barrels of oil.
The programme in Mozambique, expected in the first half of the year, has “company making” potential for Wentworth, according to Investec analyst Gallagher, who reckons the first prospect alone would be worth between 15p and 100p per share if the well’s a success.
Morocco – Cairn, Genel & Fastnet
After the disappointment of Cairn’s (LON:CNE) Foum Draa well in December, investors will be given a second chance at a ‘play opening’ success as the Cap Juby exploration well gets underway in the first quarter of the new year.
Cap Juby, a joint venture between Cairn and Genel (LON:GENL), will be latest to target the sort of large Atlantic Margin discoveries, like those found in the waters off Ghana and Brazil.
Experts say the bad result in the first well – which found no evidence of hydrocarbons – doesn’t condemn the Tarfaya basin to failure, but investor will want more comfort from futures wells.
The Eagle-1 exploration well is targeting an estimated 360mln barrel prospect and it is set to be one of next year’s closely followed programmes for investors.
Without an oil system in this basin as yet, these wells really are ‘wildcats’ and success is far from guaranteed – but, of course, in the event of a success; high rewards tend to follow high risks.
Mauritania – Tullow Oil
The Fregate well is another possible ‘play opener’ in the Atlantic Margin, in West Africa, as Tullow (LON:TLW) again looks to repeat the success of the Jubilee field, which it pioneered alongside Kosmos.
Tullow, owning 36% in the venture, is targeting over 300mln barrels in the main prospect, but Fregate represent only part of a larger overlapping system which is estimated at around 880mln barrels.
Experts say the chance of success is typically low for this kind of frontier exploration, at between 10 to 20%.
Falklands – Premier Oil, Rockhopper, FOGL and Argos
This one is more than likely to be revisited around the Easter – or perhaps even the August bank holiday – as the actual drill schedule is not yet confirmed, but it is anticipated that exploration drilling could again resume in the waters around the islands in the South Atlantic.
With attention focussing on the North basin, which hosts the Sea Lion discovery, it is more than likely that partners Premier Oil (LON:PMO) and Rockhopper Exploration (LON:RKH) would take the lead in the initial part of the programme.
Investors in Argos Resources (LON:ARG) will, however, be hoping to finally see some action coming from the drill bit too, whilst Falkland Oil & Gas (LON:FOGL) – which just merged with Desire – is also likely to figure in the programme with the new financial backing that the enlarged company now brings.
If racy, high impact, win or bust drilling isn’t for you …
Several North America focussed firms in 2014 offer small cap investors the opportunity for a more measured approach to drill.
Companies like Caza (LON:CAZA), Magnolia (LON:MAGP), Northcote (LON:NCT), Empyrean (LON:EME), Edge Resources(LON:EDG), Nostra Terra (LON:NTOG) and Nighthawk (LON:HAWK) are all in a phase of onshore development drilling. In each case these junior companies are investing on a smaller scale, paying less for each well, though each well delivers valuable incremental production growth.
Each of the aforementioned juniors have busy drill schedules for the coming year, and well updates for investors are likely to be a regular feature throughout 2014.
Article by Proactive Investors.co.uk