Much of the froth that was baked in leading up to the exploration results was lost
Companies: IOG PLC
Independent Oil and Gas (LSE: IOG) has announced that two exploration prospects beneath the Skipper discovery have been found to be empty and will now be plugged and abandoned. The announcement, accompanied an update regarding the primary objective of retrieving oil samples from the Skipper reservoir, and sent shares plummeting 20% in early trading as investors reacted to the news, taking out much of the froth that was baked in leading up to the exploration results.
IOG announced the completion of its first operated well on the Skipper discover in the North Sea. The well was drilled to a depth of 5578 feet and retrieved good quality oil samples from the reservoir to allow IOG to optimise the Skipper field development plan.
The well, which lies in Block 9/21a in licence P1609 in the Northern North Sea, is 100% owned and operated by the AIM-listed firm.
Speculation about two potential fields had driven the share price up in the past few weeks, but today's news saw a strong correction as the exploration potential came back out of the shares.
Writing on the announcement this morning, broker VSA Capital said:
"As previously stated we did not attribute any value to either of these prospects and any exploration success here would have represented upside to our valuation. Therefore, overall we view the well as a success as the early indications from the Skipper oil samples indicate the oil viscosity to be better than anticipated in the Competent Persons Report (CPR)."
VSA say that Skipper is a heavy oil development this means that should these results be confirmed by testing the oil will be more mobile in the reservoir and require fewer development wells thereby improving the project economics.
finnCap published an update on the announcement this morning, saying initial analysis suggests that the viscosity is better than expected:
"Analysis of the recovered oil samples is underway and results are expected in September. These results will guide how best to develop the field, and we assume that the CPR will also be updated."
Commenting on the unsuccessful explorations, finnCap said:
"The exploration phase was never critical as the key objectives related to the appraisal of the field. While additional upside would have been positive, the field is already economic in terms of what was originally discovered."
Mark Routh, CEO of IOG, said:
"We are extremely pleased to have achieved drilling success at the Skipper well, our first operated well. We are encouraged by the good quality oil samples retrieved, the well's primary objective. Initial observations strongly suggest we have a better oil viscosity than the CPR estimates. Whilst the exploration prospects did not encounter hydrocarbons, I am increasingly confident that the commerciality of the Skipper field has been confirmed now that we have the data we need to progress to the field development planning."