Some big wells out there IF they hit...
African exploration faces a “defining year” in the next 12 months with a large amount of high-profile wells being drilled, but increased offshore well costs are set to see smaller players struggle to go full cycle on some plays, according to a report.
Increased cost pressure is also a reason for smaller independents to monetise any offshore discoveries soon after the find, investment intelligence firm Edison argued in a recent report on pan-African drilling.
The report looked in detail at some of the wells to be drilled in or off Africa in the next 12 months in which a select group of small-cap exploration and production (E&P) players are involved. Those chosen companies – namely Canadian Overseas Petroleum, Chariot Oil & Gas, Far, Fastnet Oil & Gas, Hyperdynamics, Longreach Oil & gas, Pancontinental Oil & Gas, Pura Vida Energy, Sterling Energy, Taipan Resources, Tangiers Petroleum and Tower Resources – are together involved in wells targeting more than 27 billion barrels of oil equivalent in Africa in the next 12 months.
“The next year should be an important time for exploration drilling across the continent, with six wells being drilled in Morocco alone (by Kosmos Energy, Cairn Energy, Freeport McMoRan, GALP and Genel Energy),” Edison wrote.
“Elsewhere, important wells will be drilled in Guinea by Tullow Oil and in Namibia by Repsol, while the Sunbird well currently being drilled by BG in Kenya could open up new plays.
“Small-cap explorers will be participating in many of these wells and are clearly most leveraged to the upside in the success case.”
Edison highlighted Repsol’s Welwitschia-1 well off Namibia, to be drilled in the second quarter, as of particular interest, with Tower currently holding a 30% stake. However, with the well chasing gross resources of 9.9 billion barrels of oil equivalent, the London-listed junior is looking to farm out a 10% to pay for well costs, which are set to hit between $80 million and $100 million.
This sort of funding pressure is set to affect more of the small-sized independents going forward, Edison saying: “While most of the smaller independent E&Ps have secured well carries for their 2014 drilling activities, beyond the current programme there are significant funding questions for many.
“At Tullow’s recent 2013 results presentation, the company was at pains to highlight what the market is acutely aware of, namely that deep-water exploration is becoming increasingly expensive.
“If a company of the size and reputation of Tullow, with its opportunity set, is starting to prioritise onshore over offshore because of spiralling costs … the ability of smaller players to go full cycle is, in our view, bleak.”
Edison thinks all signs are pointing toward “early, flagged exits” from discoveries for the smaller players.
“We argue that any meaningful offshore discovery by the small caps should be monetised by managements relatively early as the best value creation strategy.”
The report added: “Investors are likely to reward companies that recognise when to get out of exploration plays as much as when to get into them.”
Some big wells out there IF they hit...
African exploration faces a “defining year” in the next 12 months with a large amount of high-profile wells being drilled, but increased offshore well costs are set to see smaller players struggle to go full cycle on some plays, according to a report.
Increased cost pressure is also a reason for smaller independents to monetise any offshore discoveries soon after the find, investment intelligence firm Edison argued in a recent report on pan-African drilling.
The report looked in detail at some of the wells to be drilled in or off Africa in the next 12 months in which a select group of small-cap exploration and production (E&P) players are involved. Those chosen companies – namely Canadian Overseas Petroleum, Chariot Oil & Gas, Far, Fastnet Oil & Gas, Hyperdynamics, Longreach Oil & gas, Pancontinental Oil & Gas, Pura Vida Energy, Sterling Energy, Taipan Resources, Tangiers Petroleum and Tower Resources – are together involved in wells targeting more than 27 billion barrels of oil equivalent in Africa in the next 12 months.
“The next year should be an important time for exploration drilling across the continent, with six wells being drilled in Morocco alone (by Kosmos Energy, Cairn Energy, Freeport McMoRan, GALP and Genel Energy),” Edison wrote.
“Elsewhere, important wells will be drilled in Guinea by Tullow Oil and in Namibia by Repsol, while the Sunbird well currently being drilled by BG in Kenya could open up new plays.
“Small-cap explorers will be participating in many of these wells and are clearly most leveraged to the upside in the success case.”
Edison highlighted Repsol’s Welwitschia-1 well off Namibia, to be drilled in the second quarter, as of particular interest, with Tower currently holding a 30% stake. However, with the well chasing gross resources of 9.9 billion barrels of oil equivalent, the London-listed junior is looking to farm out a 10% to pay for well costs, which are set to hit between $80 million and $100 million.
This sort of funding pressure is set to affect more of the small-sized independents going forward, Edison saying: “While most of the smaller independent E&Ps have secured well carries for their 2014 drilling activities, beyond the current programme there are significant funding questions for many.
“At Tullow’s recent 2013 results presentation, the company was at pains to highlight what the market is acutely aware of, namely that deep-water exploration is becoming increasingly expensive.
“If a company of the size and reputation of Tullow, with its opportunity set, is starting to prioritise onshore over offshore because of spiralling costs … the ability of smaller players to go full cycle is, in our view, bleak.”
Edison thinks all signs are pointing toward “early, flagged exits” from discoveries for the smaller players.
“We argue that any meaningful offshore discovery by the small caps should be monetised by managements relatively early as the best value creation strategy.”
The report added: “Investors are likely to reward companies that recognise when to get out of exploration plays as much as when to get into them.”
Some big wells out there IF they hit...
African exploration faces a “defining year” in the next 12 months with a large amount of high-profile wells being drilled, but increased offshore well costs are set to see smaller players struggle to go full cycle on some plays, according to a report.
Increased cost pressure is also a reason for smaller independents to monetise any offshore discoveries soon after the find, investment intelligence firm Edison argued in a recent report on pan-African drilling.
The report looked in detail at some of the wells to be drilled in or off Africa in the next 12 months in which a select group of small-cap exploration and production (E&P) players are involved. Those chosen companies – namely Canadian Overseas Petroleum, Chariot Oil & Gas, Far, Fastnet Oil & Gas, Hyperdynamics, Longreach Oil & gas, Pancontinental Oil & Gas, Pura Vida Energy, Sterling Energy, Taipan Resources, Tangiers Petroleum and Tower Resources – are together involved in wells targeting more than 27 billion barrels of oil equivalent in Africa in the next 12 months.
“The next year should be an important time for exploration drilling across the continent, with six wells being drilled in Morocco alone (by Kosmos Energy, Cairn Energy, Freeport McMoRan, GALP and Genel Energy),” Edison wrote.
“Elsewhere, important wells will be drilled in Guinea by Tullow Oil and in Namibia by Repsol, while the Sunbird well currently being drilled by BG in Kenya could open up new plays.
“Small-cap explorers will be participating in many of these wells and are clearly most leveraged to the upside in the success case.”
Edison highlighted Repsol’s Welwitschia-1 well off Namibia, to be drilled in the second quarter, as of particular interest, with Tower currently holding a 30% stake. However, with the well chasing gross resources of 9.9 billion barrels of oil equivalent, the London-listed junior is looking to farm out a 10% to pay for well costs, which are set to hit between $80 million and $100 million.
This sort of funding pressure is set to affect more of the small-sized independents going forward, Edison saying: “While most of the smaller independent E&Ps have secured well carries for their 2014 drilling activities, beyond the current programme there are significant funding questions for many.
“At Tullow’s recent 2013 results presentation, the company was at pains to highlight what the market is acutely aware of, namely that deep-water exploration is becoming increasingly expensive.
“If a company of the size and reputation of Tullow, with its opportunity set, is starting to prioritise onshore over offshore because of spiralling costs … the ability of smaller players to go full cycle is, in our view, bleak.”
Edison thinks all signs are pointing toward “early, flagged exits” from discoveries for the smaller players.
“We argue that any meaningful offshore discovery by the small caps should be monetised by managements relatively early as the best value creation strategy.”
The report added: “Investors are likely toreward companies that recognise when to get out of exploration plays as much as when to get into them.”
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