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Europa Oil & Gas (Holdings) Plc: THE INVESTMENT CASE

Farm-out focus: Mixed news flow on Ireland and UK, but 2017 looks to be an exciting year for Europa Oil & Gas

Europa’s CEO, Hugh Mackay said: “The remainder of 2017 will see Europa participate in high impact development and exploration projects for which our share of the costs is now funded”
Oil rig
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At the start of March, Europa announced the signing of a farm-out agreement offshore Ireland with FTSE 250-listed player Cairn Energy

Europa Oil & Gas Holdings PLC (LON:EOG) has seen a mixed news flow since the end of a busy first-half, with a planning permission blow to its onshore UK operations at Wressle, countered by a big farm-out deal for offshore Ireland.

But 2017 still looks to be an exciting year for the group, with further farm-out deals expected offshore Ireland, and strong potential from its onshore UK assets.

In a statement with its interim results today, Europa’s CEO, Hugh Mackay said: “Since the beginning of the financial year, a number of farm-outs and sales have been signed across our licence base raising non-dilutive capital for Europa.

“The remainder of 2017 will see Europa participate in high impact development and exploration projects for which our share of the costs is now funded.”

WATCH: Europa boss "confident" of closing further farm-out deals ...

READ: Europa O&G has busy fiscal first-half …

At the start of March, Europa announced  the signing of a farm-out agreement FTSE 250-listed player Cairn Energy PLC (LON:CNE) which will now partner the AIM-listed group in an early stage exploration project offshore Ireland.

Together Cairn and Europa will shoot 3D seismic in an under-explored area in the Atlantic margin off the west coast of Ireland.

Cairn is covering the costs of the US$6mln exploration programme and in return it will earn 70% of the project.

Farm-out focus …

At the same time, Europa said it was continuing to seek further farm-out deals for its other Irish assets - it has seven offshore licences comprising 20 prospects, estimated in excess of 4bn barrels of oil and 1.5 trillion cubic feet of gas.

With the first-half results, Mackay said: "We have landed one farm-out in Ireland and I am confident we will close out more in our other six licences offshore Ireland, as we look to maintain the momentum behind our strategy to monetise our asset base, manage risk and generate value for our shareholders.”

WATCH: Europa boss hails farm-out deal …

Aside from the Irish farm-out opportunities, Europa also recently agreed a farm-out deal with Angus Energy Plc (LON:ANGS) for the Holmwood project, onshore UK.

In February, the firm said Angus is to acquire a 12.5% stake in Holmwood which will be host to the next well to test the kimmeridge limestones in the UK’s Weald basin – following on the group’s apparent success at the nearby Brockham well.

To acquire the stake in Holmwood, Angus has agreed to pay 25% of the costs of the upcoming well (up to a gross cost of £3.2mln) and will cover 12.5% of the costs above that cap.

Europa will retain a 20% stake in Holmwood and its participation will now be fully covered - assuming the well is with the £3.2mln budget.

Europa’s CEO said the group has “carried on a potentially transformational well targeting the conventional Holmwood prospect, which neighbours the Horse Hill discovery and Brockham oil field in the Weald Basin.

“With a 20% interest, we are materially exposed to considerable upside without having to put any of the Company’s capital at risk drilling the well.”

Bit of a Wressle …

The firm has also been farming out some of its holdings in the Wressle field in Lincolnshire, although its efforts took a blow after North Lincolnshire Council threw out planning application for the well in January.

Europa told investors in February that the Wressle partners intend to file a new application including more detailed information to address the specific concerns outlined in the negative planning decision.

READ: Europa extends Wressle Upland deadline ...

Last November, the firm completed the sale of a 3.34% stake in the Wressle field to its partner Union Jack Oil PLC (LON:UJO) for £600,000, and in the same month also agreed to sell a 10% stake in the asset to Upland Resources Ltd (LON:UPL) in return for £1.85mln - with an initial £1.3mln coming in cash and £600,000 in Upland shares.

However, the deadline for completion of the Upland deal has been extended until the end of September 2017 leaving Europa with a 30% stake in Wressle.

Mackay said today that “subject to planning consent being granted, we expect our existing production to almost double to around 220 bopd if the Wressle discovery is brought online following our planning appeal.”

Losses narrow …

On the financial side, Europa saw its pretax loss narrow to £0.2mln in the six months to January 31, down from a £0.6mln loss at the same stage in 2016, as revenue rose to £0.8mln from £0.6mln.

Europa’s net cash used in operating activities was reduced to £0.3mln, down from £0.5mln a year earlier, with its administrative expenses cut to £218,000 from £355,000.

At the period-end, the firm had a cash balance of £1.4mln, against £1.7mln as at July 31 2016.

Europa shares initially responded well to the results, up 4.5% to 5.225p, taking its gain in the year to date to 10%, although on a one year view the stock is down over 14%.

In a note to clients published after the numbers, Dougie Youngson, analyst at ‘house’ broker FinnCap, said: “2017 will be a pivotal year for the company with Wressle coming onstream, which will reset the company’s breakeven oil price to US$35/bbl and the potential for more farm outs in Ireland driving that part of the portfolio forward.”



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