The great thing about oil and gas exploration is that once a prospect is drilled, you know almost immediately whether or not the company has found hydrocarbons in potentially commercial quantities.
This can have a dramatic effect on exploration companies' share prices, alternately heaping rewards or wreaking havoc on investors' portfolios - but, it has to be said, more often than not it's the latter (what with the geologic chances of success typically being so slim).
At the beginning of each month, starting with November, we will profile the most exciting, high-impact exploration wells being drilled where results are expected to be released in the next 30 days. We will also compile a list of other, lower-impact wells with results expected during the month.
As the speed of drilling and data analysis is often hard for companies to accurately predict, there is always the risk of slippage into the following period. Moreover, with nearly 200 oil and gas explorers listed in London, our list does not claim to be entirely comprehensive - but rather will hopefully steer interested investors with an affinity for high-risk speculation toward the better prospects.
Fledgling explorer New World Oil & Gas began drilling its Blue Creek #2 well on 27 September, targeting the large B Crest prospect onshore Belize (near Guatemala). This is the company's first well on the licence and it certainly meets the criteria of a wildcat exploration well: independent consultant RPS Energy estimates B Crest could hold 92m barrels of oil worth around $2.4bn (£1.5bn) unrisked. But there's a catch: the estimated chance of success is only about one in five.
New World is earning up to a 100-per-cent interest in the field and recently announced that the well is on course to reach total depth of about 7,000 feet in early to mid-November, with the primary objective of the well lying at 5,700 feet in mid-Cretaceous rocks.
The company says B Crest is structurally similar to the only producing oil and gas field in Belize, Spanish Lookout, located 28km to the northwest in the Petén Basin. It began production in 2005 and is now flowing at approximately 4,000 barrels of oil equivalent per day.
IC view: With Belize not exactly the most prospective or attractive oil and gas jurisdiction, this play is definitely a long-shot. Nevertheless, it would result in huge gains should the company discover a significant oil accumulation. New World is also fully funded to drill a further two wells on similar prospects nearby, so failure with the drill bit the first time round shouldn't prove completely catastrophic. One to watch.
The deep-water Atlantic Margin area west of Shetland is where a number of major oil companies are exploring at the moment, attracted by the area's huge prospective targets. But because of the high costs of drilling there, smaller players typically farm down their interests in return for a financial carry on a portion of the well costs. And that's exactly what Faroe Petroleum has done with the North Uist prospect, in which it now holds a 6.25 per cent interest (BP controls a 47.5 interest while Nexen Petroleum owns 35 per cent).
BP, as operator, began drilling the well in March targeting 200m barrels of oil in the upper Jurassic and Palaeocene reservoir objectives. But technical problems with drilling earlier in the year caused a three-month delay, with results now expected anytime before the year-end. Of note, the North Uist prospect is close to a number of other oil-bearing reservoirs on the Atlantic Margin Corona Ridge, such as Chevron's 240m barrel Rosebank discovery from 2004.
IC view: While Faroe only has a small stake in the well, broker finnCap estimates it could add as much as 29.1p a share to the company's share price in the event of a significant discovery. The broker also notes that after six disappointing well results in 2012, shares in the company have fallen 16 per cent from their May highs and are now trading below fair value. As a result, with an exciting line up of exploration projects for the new year, the shares now rate a buy.
It's tough to beat the risk-reward profile of Leyshon Resources' ZJS5 well in central China's Ordos Basin. The company is spending $5m on an onshore, three-well drill program targeting a large unconventional gas reservoir, which independent consultant RISC estimates could hold between 1 trillion and 3.8 trillion cubic feet of tight gas. So while upside is high, downside is limited because the company is currently trading for less than cash. Even after the drill program, Leyshon could have as much as A$43m (£28m) in its treasury, compared with its current market capitalisation of £27.6m.
Moreover, Leyshon's 100-per-cent-owned licence lies in a major gas producing region with advanced infrastructure less than a dozen kilometres away, and several multi-trillion-cubic-feet gas discoveries in adjacent blocks.
An experienced drilling team from PetroChina is currently drilling the first well, expected to be completed by the end of November.
IC view: With all the right ingredients in place to capitalise on a potential discovery, Leyshon is a low-risk bet on unconventional exploration and China's growing energy demand. True, the geologic chance of success is about one in six, but the company's strong cash backing means this is a no-brainer. Speculative buy.
The Zaedyus-1 frontier exploration well in 2011 opened up a whole new oil province offshore Guyane, otherwise known as French Guiana. The $250m well, a joint venture between Tullow Oil, Shell, Total and Northpet Investments, found an estimated 840m barrels of oil equivalent in two turbidite fan systems.
Northern Petroleum and Wessex Exploration each own 50 per cent of Northpet Investments, which in turn controls a mere 2.5 per cent stake in the Zaedyus licences. Yet that small stake has proved to be extremely valuable, with Total bidding €90m (£72m) for Wessex in June (Wessex declined the offer).
In July, the partners spudded the GM-ES-2 appraisal well to follow up on the initial discovery, targeting around 400m barrels of oil equivalent. Drilling was only planned to take three months, so the results should be out shortly.
IC view: With GM-ES-2 the first of a four-well drilling program planned by the partners, there is considerable upside for both Northern Petroleum and Wessex should the relatively low-risk appraisal well find oil. Broker finnCap currently values the prospect at 19.8p a share for Northern Petroleum - risked at 50 per cent - but this could be conservative given the potential of the wider acreage position. We recommend Northern Petroleum over Wessex given the company's other core holdings and the lack of speculation in the stock during the run-up to the drill results announcement.
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