www.elixirpetroleum.com
Elixir Petroleum is an international exploration and production company listed on the Australian Stock Exchange (ASX:EXR). Elixir holds interests in producing gas and condensate fields located in the Gulf of Mexico and has extensive interests in exploration and appraisal licences in the UK North Sea. Elixir has recently acquired interests in two producing fields in the Gulf of Mexico which provide the group with cashflow from sales of gas and condensate. The company is focused on increasing its presence on the shallow water shelf of the Gulf of Mexico and continues to examine new projects in which to participate. Such projects typically display discovered reserves, nearby infrastructure and short cycle times to first production and cashflow.
Elixir Petroleum is down but not out
Every executive of an oil exploration company knows what it is like when you hit a dry hole.
After months or possibly years of raising funds, studying seismic, finding partners and securing a drill rig, the anticipation up to the moment of truth can be pretty intense, only to have all your hopes and dreams quashed in a flash.
have always been fascinated by the way oil exploration companies? share price tends to rise as the drill gets closer and closer to its target. Go on to a bulletin board of a oil company nearly at depth and the testosterone levels are through the roof. No doubt the company is feeling the same emotions. The very nature of how oil companies look for pockets of black goo in the ground really does encapsulate the imagination of truly frontier exploration. To some degree this phenomenon seems to have more to do with the ticking countdown to either discovery or disaster rather than the underlying target. A very little known Canadian exploration play, Stikine (TSX.V:SKY) last year attempted to drill into the side of a mountain to find the sister deposit of what was once one of Canada?s most famous mines.
The target was primarily zinc, but the technique and manner in which the company went about its way was very similar to a oil play. Stikine raised enough money to drill one hole over 2 miles down and it was a make or break attempt to find another mammoth ore body. As the company inched toward the targeted anomaly, the share price crept higher and higher. When the day of reckoning came, the company announced that it had found massive sulphides?.but only 1 metre thick?. In response the shares plunged from 40c to 10c overnight.
Is there something in our nature which attracts investors to companies taking a shot in the dark in the hope of finding a company making play?
Sure there is. We all dream of the company that will make us 1000% overnight and change our life forever. Unfortunately, the chances of having the right position in the right company at the right time to pull off this coup is very, very slim. So slim that it is more or less pointless even attempting to risk your money on trying to do it. Instead, investors must spread money around and try to protect what we have made and limit our losses in the future.
So what on earth has all of this got to do with Elixir Petroleum, the North Sea exploration company?
Well Elixir had the unfortunate luck of hitting a dry well recently on a high risk target in the northern part of the north sea. As per usual, the share price crept up in anticipation of a big find that was not to be. The shares duly plunged by 50% on the bad news. And this was very high risk stuff. Elixir?s target was in the Upper Jurassic zone, which to non oil heads means pretty darn deep (4000 metres) and ever more darn risky as the vast majority of North Sea Oil comes from shallower targets, for example, in the Tertiary or Cretaceous zones. Elixir was hoping to strike oil formations similar to those found in the Upper Jurassic zone on the Norwegian side of the North Sea. The drill hole wasn?t a complete failure though, as the well did show find evidence of hydrocarbons, just not in commercial quantities. Elixir isn?t the only company hitting dry holes in the North Sea lately.
The North Sea is a very established and depleting oil producing area. The majors moved in decades ago and have already cleaned out most of the big oil finds. With the remaining finds being are smaller and harder to locate, the junior and mid-tier players have moved in hoping to find deposits overlooked by their bigger counterparts.
Fortunately for Elixir and it?s shareholders, the company has stakes in a range of other licences in the North Sea and still has £4.3 million in cash which will allow it to continue drilling for another 12-18 months without needing to raise capital. The next most likely targets to be drilled will be in the central north sea region which are somewhat shallower (>2000m), slightly less risky and definitely less costly.
The licences are held with Granby Oil, and Elixir are hoping to find farm-in partner(s) to take on the roll as operator. With any luck 2 or possibly 3 wells will be drilled in the second half of 2006, and because the targets are much shallower, the time to drill to depth will be days to weeks rather than months.
The company also has plans to target two other Jurassic plays in the northern North Sea, named Panther and Leopard, but this is unlikely to happen until 2007. In the meantime the company is busy finding partners for this years program and also considering areas available in the 24th round of licensing for North Sea exploration permits, which began yesterday.
When Stikine came up with zilch after drilling miles into a mountain side, the company struggled to move on because it was a one trick pony. Elixir on the other hand, has stakes in more than 15 other licences in the North Sea and has the funds to keep it going for at least another year - the only real commonality between the companies is their willingness to tackle high risk / high reward targets that most wouldn?t?
