San Leon set to stir

San Leon Energy only floated a year ago, but should soon launch an exploration and development programme that could quickly unlock substantial reserves from its diversified portfolio. Its assets are located in relatively stable countries - Morocco, Italy, Poland, Holland and the US - and include existing discoveries nearing first production, as well as exciting exploration prospects. The near-term focus is on Morocco and Poland, where several prospects each offer the potential to add 100m barrels of oil reserves.

The most exciting of these is the vast oil shale play in Tarfaya, Morocco - where the company has a 100 per cent interest. The multi-billion barrel scale of the Tarfaya oil shale was demonstrated by Shell, which drilled the licence from 1982 to 1986 but abandoned it when a $10 (£6) a barrel oil price rendered it uneconomic. San Leon aims to prove by next summer that it can extract oil commercially from the shale.

Shale is oil that hasn't been subjected to sufficient temperature and pressure to convert it fully into hydrocarbons. Commercial extraction, however, has so far proven to be challenging, with techniques tried to date having been both expensive and environmentally harmful. But San Leon plans to use so called in-situ vapor extraction (IVE) technology. That has been successfully used in a US heavy oil project, but hasn't yet been proven on a commercial scale with oil shale - so there are risks that IVE may not prove viable. But if it is, then IVE is relatively low cost and should be more environmentally friendly than alternative technologies.

San Leon has exclusive rights to use IVE in Europe, North Africa and the Middle East and intends to commission a trial plant at Tarfaya in 2010's second quarter. The successful large-scale application of IVE could be demonstrated by mid-2010, when the company would move directly to commercial production.

The company also has two large conventional hydrocarbon plays in Morocco - one of which is a 22.5 per cent interest in a licence also, in Tarfaya, where 13.7bn barrels of oil have been identified from 12 prospects. Although much less will ultimately be recovered, even in the best case. San Leon plans to drill an exploration well 2010's third quarter and, prior to that, it wants to drill its Zag licence in Morocco. The group has a 50 per cent interest in Zag and preliminary estimates indicate 10-20 trillion cubic feet of gas and 500-800m barrels of oil.

Poland could provide even earlier exploration success through the Szczecinek licence, which San Leon plans to drill early next year - targeting over 11m barrels. Other Polish licences add larger, but longer-term, potential while the Narciso oil field offshore of Sicily promises first production revenues from 2011, with existing proved and probable reserves of 7m barrels. An interest in the Amstel field, offshore of Holland, should also provide a small but attractive production royalty from next year.

Still, San Leon needs to raise finance to complete its programme, even after expected sales of interests in projects to incoming partners. Although the scalable nature of the shale oil technology, as well as the onshore nature of much of the planned exploration drilling, does limit that financing requirement.