Company Q&A: Europa Oil & Gas MD Paul Barrett on the important year ahead

Europa Oil & Gas (LON:EOG) has hit the ground running in 2011, with shares rising almost 60 per cent since the start of the year.

Last week the oil and gas junior completed the vertical section of a new horizontal production well at the West Firsby oilfield in Lincolnshire, onshore UK.

It is now poised to enter the reservoir at 80 degrees in order to unlock up to 2,000 feet of gross measured reservoir.

West Firsby has around 1.4 million barrels of remaining P50 reserves from total oil-in-place volumes of 20.6 million barrels.

The news was then followed a day later by an upbeat write-up from City broker finnCap.

FinnCap highlighted that Europa is entering a period of significant growth as it seeks to boost reserves and production with up to five wells slated for 2011.

Proactive Investors caught up with Europa’s managing director Paul Barrett to get his assessment of the company's prospects.

Proactive: 2011 is shaping up to be an important year for Europa, can you give us a rundown of what’s ahead?

Barrett: Currently we are drilling a production well at West Firsby and hope this will materially impact cashflows going forward.  

Additionally, we are looking at ways to improve Crosby Warren production, likely to be through ‘frac’ technology.  

We are working on a number of other projects for 2011;

We have a possible re-entry of the Barchiz oil discovery in Romania to sidetrack to what is thought to be an up-dip oil column. Also in Romania there will be appraisal drilling at the Voitinel gas discovery.

We will put plans in place to drill the ultra-high impact Berenx gas well in 2012.  

We also plan to develop further new venture opportunities, principally for high impact exploration, in the European region.

Proactive: Can you walk us through your main objectives in each of your territories (UK, Romania, France and Western Sahara).

Barrett: In the UK, our primary driver is oil production revenue.  With oil currently hovering around $100 a barrel, our oil revenue stream is extremely valuable to us.  

There are other drivers in the UK - exploration and unconventionals, but these are taking a back seat for the next six months while we concentrate on production.  UK exploration is important to us additionally as it is tax-efficient. 

Western Sahara licences are being held until such time there is a resolution allowing exploration to start in these highly prospective areas.

Proactive: Specifically, what do you hope to achieve with the next round of drilling on the Barchiz and Voitinel-Solca discoveries?

Barrett: We hope that we can reach an up-dip oil column with Barchiz-1Z.  A good flow test will allow us to move to pilot production and in addition look more closely at the handful of lookalike leads already identified on-block for the next phase of exploration.  

At Voitinel, we need to demonstrate that the gas-bearing sands which tested dry gas at Voitinel-2 are present across the whole of the large underlying structural closure and if not, to calibrate the seismic with the geology such that we can target 'sweet spots' for drilling in the development.

Proactive: Clearly the West Firsby field has been a key point of interest for investors recently, what are you expectations for the coming months?

Barrett: There is no denying that West Firsby struggled to cope with the extreme cold in December and production levels were down all across the region.  

However, we are now back on track and the well currently being drilled is hoped to bring total corporate production levels up to the 500bopd target that has eluded us for some time.  

Clearly, it is a good time to get there with the current oil price.

Proactive: Onshore UK E&P is often overlooked but how do you see the landscape at the moment, particularly in light of recent discoveries and breakthroughs?

Barrett: There is, as elsewhere in Europe, an interest unconventionals, notably shale-gas but also underground coal gasification.  

With regards to shale gas, Europa's current acreage position is well placed to take advantage of any developments though primarily we continue to focus on conventional oil prospects.  The forthcoming 14th round of onshore licensing I believe will be the most competitive ever.

Proactive: What do you think will be the main catalysts for Europa’s investors?

Barrett: Two fold in the near-medium term: appraisal success leading to booking reserves and development drilling success leading to revenue growth.  

In the case of Berenx, this is ultra-high impact, with an unrisked NAV estimate of $1.6 billion (Europa 100%).  

Longer term, high impact exploration will figure in the activity schedule from 2012 onwards.

Proactive: Meanwhile what are the challenges facing Europa?

Barrett: Drilling always carries risks and the Berenx well is at the challenging end of the scale - with a well cost of up to €30 million, it will require partnership/funding to achieve in 2012.  

Proactive: A recent piece of research highlighted Europa shares discount to NAV (c80 pct), what your view on the stock’s current valuation?

Barrett: There has historically been a drag on the price, being a legacy of being a tightly held company with limited liquidity.  

Recent placings have more or less removed these constraints and I believe the re-rating suggested in the piece you refer to has already begun.

Proactive: To what degree are you financed for the work ahead, is there enough in the coffers to match your ambitions?

Barrett: Following the recent placing and subject to production and oil price performance, we are funded for West Firsby-9, Crosby Warren work, 2 wells on Voitinel and a sidetrack at Barchiz - in other words all our firm items for 2011.