The market reacted positively to news that Petroceltic International (PCI) is within reach of a "binding agreement" linked to the farm-out of an 18.375 stake in the Ain Tsila Gas field in Algeria. The agreement, which is "substantially complete", according to Petroceltic, will leave the group with a 38.25 per cent stake, although it is still subject to regulatory approvals and the consent of its existing partners in the venture: Enel (18.375 per cent) and Sonatrach (25 per cent).
Petroceltic had originally envisaged that the terms of the proposed farm-out would be announced at some point during the third quarter. Presumably the details will be announced ahead of time, but the approvals process could drag on for a few months. As ever, the principal focus will be on of the terms of the agreement as it will reflect the level of risk that is being priced into the completion of the project following BP's experiences at the hands of Islamist rebels in Algeria. In light of this development, Petroceltic has decided to postpone its move to the main board of the London Stock Exchange, as the process could interfere with the closing of the farm-out transaction.
Junior oil producers operating in frontier energy markets can generally expect to tap into higher-margin operations, although the risk/reward scenario could play out in the terms of the eventual farm-out agreement for Ain Tsila - the fact that it has apparently been agreed so readily provides a positive for Petroceltic.
Many shareholders will be frustrated by the share price performance in the wake of last year's merger with Melrose Resources, while some City institutions such as Peel Hunt are simply perplexed: "We struggle to think of many other similar-sized E&P companies with a comparably strong management team, as high-quality an asset base, and one which is as well funded to unlock the potential of its portfolio as Petroceltic".
