Verbier sidetrack is an encouraging reversal of fortune but a lot of work remains to establish commerciality
Companies: Equinor ASA, Jersey Oil & Gas PLC
There was a quick reversal of fortune this morning for Jersey Oil & Gas (LON: JOG) as its Verbier sidetrack struck black gold. Jersey holds an 18% WI in the discovery.
The exploration well, which is operated by Statoil, had come up with water when the Group drilled the primary objective a month ago. The decision to continue with a sidetrack to the original target has been vindicated with a discovery that is estimated at 25m to 130m barrels of oil:
"Initial Operator estimates of gross recoverable resources associated with the Verbier discovery are between 25 and 130 million barrels of oil equivalent, with a minimum proven recoverable volume in the immediate vicinity of the wellbore of 25 million barrels of oil equivalent"
The high end of that range will excite the market, but arguably a more important figure, for now, is the proven estimate of 25 million barrels around the wellbore. This lower end of the range wouldn't be particularly attractive but it does point towards an increased probability that there is a commercial discovery here.
The sidetrack was drilled up dip of the original water discovery, meaning the first well was drilled below the oil-water line, whereas this discovery shows there is an active kitchen in the area. Therefore not only does this discovery look encouraging in its own right, it also raises the prospect that other traps in the area might also be partially de-risked, and hence more attractive.
However, it is still very early days. There was no detail on the quality of the oil, its gravity (ie how heavy or light it is), waxiness, viscosity, nor therefore, how well it might flow. These questions will be answered with further testing of core samples, and perhaps a future flow test.
Statoil's Senior VP Exploration in Norway and UK, Jez Averty, strikes a cautiously optimistic tone in STL's announcement this morning:
"We have proven oil in good quality sands with good reservoir properties, but significant work remains, most likely including appraisal, to clarify the recoverable volumes and to refine this range"
Shares rallied sharply this morning, up 300%, with the market cap recovering from £5.5m to £22m, as investors priced in the discovery and the follow-on prospectivity. It certainly is early days, but JOG is also recovering from a low base.
The Group have around £2.5m of working capital so we wouldn't be surprised to see a placing coming soon, especially as it will be far less dilutive at these levels. However, it may be in Managment's best interest to wait for further progress and raise equity at a higher valuation if the business can fund itself up until that point.
