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Canadian Overseas Petroleum Limited: THE INVESTMENT CASE

Canadian Overseas Petroleum's Liberia well makes it a rarity

Only a select group of explorers have active drill programmes, but, those with high impact potential at little or no cost are even rarer still.
Canadian Overseas Petroleum's Liberia well makes it a rarity
COPL has a 17% stake in what it describes as a ‘low risk, high impact’ exploration opportunity.

Given the sparse exploration landscape being involved in any kind of active project puts a company in a pretty select group, but, those with bona fide high impact potential, at little or no cost are even rarer still.

But, that’s the position of London and Toronto listed Canadian Overseas Petroleum Limited (LON:COPL, CVE: XOP), which is partnered by ExxonMobil offshore Liberia.

Later this year - or early next - the company will come sharply into focus as Exxon finally begins drilling the Mesurado-1 exploration well.

It comes despite the extremely challenging backdrop of recent humanitarian crisis caused by Ebola in West Africa, and the economic shockwaves through the oil and gas industry following the collapse of crude prices.

COPL owns 17% of the exploration project, which it describes as a ‘low risk, high impact’ opportunity.

Whilst Liberia will be a key focus for investors, more recent opportunities in a separate joint venture also promise a value-adding future for the dual listed group.


Liberia’s long awaited ‘low risk, high impact’ exploration well


Whilst the oil major put significant portions of its exploration activities on ice - to reduce capital spending at the height of the oil price crisis - the long anticipated Liberia well remained on Exxon’s ‘to do’ list.

Exxon, in September 2015, confirmed the Mesurado-1 exploration would be scheduled for drilling in late 2016 or early 2017.

It had previously been anticipated in 2014, though the turmoil onshore due to West Africa’s Ebola crisis meant the project had to be deferred.

With Ebola and potentially the worst of the oil price collapse now behind it, the project promises to move forward in the coming months.

Mesurado’s primary goal is to prove commercial volumes of hydrocarbons.

It will be located in deep-water, and on trend with exploration successes in neighbouring countries such as Sierra Leone, Senegal, Cote D’Ivoire and Ghana.

The targeted area has been estimated to host between 1.78bn to 4.2bn of gross prospective recoverable oil resources, which would equate to between 305mln and 720mln barrels net for COPL’s interest in the project.

Exxon budgets the exploration at a cost of US$120mln, though COPL’s 17% interest in the project is ‘carried’ by the American group.

COPL won’t have to pay its share of costs until Exxon has spent US$120mln gross on drilling, which means that, based on more recent industry cost estimates in the wake of the oil price collapse, the exploration junior may in fact be ‘carried’ for more than one well.


Tie-up with Shoreline promises future production in Nigeria


Having teamed up with Shoreline Energy Group, last February, COPL has significantly diversified from being simple a one project or one well exploration company.

The new joint venture acquired a Nigerian oil block which hosts an un-appraised oil discovery in shallow-to-mid-depth water.

It is one of the first of several projects envisaged by the partners in their area of interest, which is rather loosely defined as ‘sub-Saharan Africa’.

To add some specificity, it has so far secured the option to buy OPL 226 in Nigeria, has acquired three blocks offshore Namibia and is in negotiations to secure a production sharing contract from the government of Equatorial Guinea.

Of these, Nigeria is by some distance the most advanced asset.

OPL 226 is located next door to the Anyala Field, in OML 83, and it was host to the Noa-1 discovery well which was drilled back in 2001. Noa-1 encountered several zones of gas, and an oil zone.

The ShoreCan - or Shoreline Canadian Overseas - joint venture vehicle, which is 50% owned by COPL, is working to an April 14 2016 deadline to complete the acquisition of OPL 226.

ShoreCan will manage the technical team to oversee and manage the forward operations in Nigeria.

Given the closing date, it would not be unreasonable for investors to expect further details about the plans in Nigeria in the coming weeks.


New equity funding leaves COPL financially secure


On March 30, COPL announced a new S$6mln share placing to support projects in West Africa.

A total of 85.7mln units are being sold to investors at a price of 7 cents per unit. Each unit comprises one common share and one share warrant, which can convert to one additional new share at 9.5 cents within 24 months.

Proceeds from the placing will be used to fund the company's obligations on its ongoing projects in West Africa.

Specifically, it will support the group through the drilling of the first exploration well offshore Liberia where the company is partnered with ExxonMobil. And it will also cover overhead costs for the oilfield appraisal and development project in Nigeria.

A day earlier, COPL’s financial results statement for 2015 revealed that at the end of December 31 the group had some US$2mln of cash.


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