I suspect that could turn out to be the case with Rose Petroleum (ROSE), a freshly rebranded, Aim-traded miner-turned-oil-explorer hoping to join the bonanza that is US shale oil and gas.
In March, Rose bought a 75 per cent interest in 230,000 acres of land prospective for shale oil and gas in Utah. It paid just $500,000 upfront to a private local company, with a further $1.5m due in instalments, on the condition that it will carry the partner on around $17m of drilling costs. Two months later, Rose published the findings of two studies suggesting the land could be worth upwards of $2.4bn.
The first was an independent reserves report compiled by Ryder Scott, one of the most widely used independent consultants in the US. The report suggests the acreage could contain some 1.7bn barrels of recoverable oil and condensates, as well as 4.8 trillion cubic feet of recoverable gas, in two separate formations: the Mancos shales and the Paradox clastics. To put that in perspective, that's more than three years of North Sea oil production and all of Britain's gas consumption for a year and a half.
The second report was from Christie Ward Schultz, the engineering manager of unsuccessful Polish shale gas explorer 3Legs Resources (3LEG) who also moonlights as an independent consultant. Using Ryder Scott's estimates, Ms Schultz calculated a net present value for the Mancos play of $941m and an net present value (NPV) of $1.5bn for the Paradox play. Taken together, the licences are potentially worth more than 30 times Rose's current market capitalisation of £43m.
The economics are so strong, the company contends, because the shales in the area have extraordinary qualities. In the Mancos play, for example, they boast relatively shallow production decline curves, even over a long timeframe. That's unlike most shale oil and gas wells, which have strong initial production rates immediately after fracking, but then decline quickly until reaching a much lower, steady state. The Mancos shales in this area are also much shallower than usual, so they should be cheaper and quicker to drill, says Rose.
The Paradox basin is even better. The formations are stacked, thicker than average and naturally fractured, so there is rarely a need for expensive fracking. It also means the company can drill cheap vertical wells instead of expensive horizontal ones.
Every rose has its thorn, however.
Rose's land is "largely untested", admits analyst Dougie Youngson of house broker finnCap. In the Paradox, American group Fidelity Exploration has enjoyed drilling success on its acreage some 12 to 27 miles south of Rose's licences, but that does not mean drilling on Rose's licences will be successful, too. Drilling to the south proved "less productive for reasons which are not yet fully understood", Mr Youngson wrote in his initiation note. In the Mancos, Rose will be the first company to really target the shale oil formations in the immediate vicinity, although the play is well understood elsewhere and plenty of conventional wells have been drilled nearby. Indeed, Canada's EnCana and America's WPX Energy are reportedly enjoying a lot of success drilling shale further south, while Anadarko controls 100,000 acres to the northwest.
Regardless, the early-stage nature of Rose's claims appears not to have dampened the enthusiasm of British investors for the play. Rose's share price has increased three-fold since May to 3.2p, with the company raising £6.5m ($11m) from some very happy investors who paid 1.5p a share last month. The company plans to use the money to shoot some 3D seismic this summer before drilling a horizontal well in the Mancos and testing an old, shut-in well in the Paradox in the autumn. More money will be needed sooner or later, however; the initial phase of activity is expected to cost roughly $20m to complete. Whether Rose's valuation will wilt or blossom before then remains to be seen.
