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AIM listed oil darling Falklands Oil & Gas (LSE:FOGL) has announced the results of its Loligo well and it is bad news for both the company and for others operating in the region such as Borders & Southern (BOR). Reaction from BB and penny share punters has been mixed – some are in love and cannot see or choose not to see the truth. Others write the area off altogether. As ever the truth lies somewhere in between.
I refer, as ever to twitter, to see what the punters say. And so one fellow writes
#BOR came in, #FOGL came in – with more to come from the #Falklands Southern Basin. For all those who held, Nice One !!
And another counters:
Loligo fogl is uncommercial TIGHT SAND so was LIZ a bloody disaster get out while you can I did warn fellow twitter this was not good.
As they say it takes two to make a market.
The actual statement says:
Gas bearing zones were encountered over a 1,300 metre vertical interval from 2,420 to 3,720 metres. Petrophysical analysis of the T1 to T3 intervals inclusive (2,420 to 2,885 metres) indicates porosities ranging from 18% to 35% in the gas bearing zones. Due to the thin bedded nature of these sediments it is difficult to assess precisely both hydrocarbon saturation and the total net hydrocarbon bearing reservoir. Preliminary estimates however, suggest hydrocarbon saturations ranging from 40% to 60% and net hydrocarbon bearing reservoir of between 10 and 20 metres.
Within the T5 target two main hydrocarbon bearing zones were encountered (3,462 to 3,558 metres and 3,608 to 3,705 metres). The net hydrocarbon bearing reservoir in these two zones was 46 and 59 metres respectively. Porosities ranged between 23% and 30%, averaging 24% and hydrocarbon saturations between 40% and 75%.
Attempts were made to obtain pressure data and collect fluid samples. This was unsuccessful, probably due to the fine grained nature of sediments in the gas bearing zone and also, not having access to the specialised test equipment appropriate for this type of formation.
Looking back on a presentation given by Falklands at its May AGM it talked of Loligo having the potential to hold 4.7 billion barrels, in another slide it talks of 4.7 billion barrels of oil equivalent. An earlier presentation from November talks of the maths if this well has oil but stresses that there is a “strong commercial case” if it is gas.
So it is not necessarily a write off or uncommercial as some folks say. But the well is now being plugged and abandoned and further analysis done back in the UK. The company states that this is a “positive result.” That is a lie. How can it say that when we do not know if it has a commercial find or not. In a more honest assessment it goes on to say “A work programme will be undertaken to achieve this, assess the resource potential and commercial viability of this discovery.” In other words it cannot say what this field holds and if it is commercial.
For a gas field in an area with no infrastructure to be commercial it has to be pretty big so do not bank on this one coming in.
Implications?
Falklands has enough cash and farm in deals to shoot more seismic and drill another well but not until 2014. But if that is a duster and Loligo is not commercial it is game over. At 69.5p the company is still valued at £220 million odd. That is a hell of an expensive “shit or glory play”. Meanwhile I sense that without any more drilling news, ennui will set in during the next 18 months and that will drive selling not buying.
Borders is now at 24.5p. It needs positive news from Loligo if it is to attract a farm in partner to its small (probably not commercial) gas find at Darwin. It has not got that news.
I suggested that Falklands was unattractive at 67.5p on 19th July (read it HERE), after today I shall go further and say that the shares are now a sell – the risk reward trade off just got far worse. I suggested that Borders was a sell at 32.5p on August 27th (read it HERE) – it is even more of a sell today.
Now put on tin hat. BB abuse on the way.
Tom,
I think you have missed one VERY IMPORTANT point
FOGL are still planning to drill the Scotia prospect in 2012, as per their original plan.
Even after Scotia has been drilled in 2012, they will still have cash reserves of over US $ 200million.
They will not be returning to drill another prospect until 2014. –
To be fair, this was not explained very well in todays’ RNS.