Guyane Block attracts majors, but real winners could be Northern and Wessex

The Guyane Maritime Block looks likely to excite interest this year with plans to begin drilling in waters off the French overseas region in the first quarter.

Operator Tullow (LON:TLW), which has a 27.5 per cent interest in the licence, has contracted the ENSCO 8503 semi-submersible rig and will target the Zaedyus prospect.

Shell (LON:RDSA), with 45 per cent, and French major Total (EPA:FP), with 25 per cent, lend massive weight to the project and serve to underline its potential.

At the moment it is difficult to really gauge the size and quality of Guyane, although the recent update by Tullow gives some tantalising hints.

Having spent late 2009 and early 2010 compiling 3D seismic data it said “a portfolio of upper cretaceous Jubilee-type prospects and leads has been identified”.

Those people who follow Tullow closely will know the comments refer to the company’s Jubilee Field in Ghana, a major find with upside reserves of 700 million barrels of oil.

Forgotten in all of this are two small companies – Northern Petroleum (LON:NOP)  and Wessex Exploration (PLUS:WX).

Each owns a 1.25 per cent stake in the Guyane block, and success here could have a major impact on the prospects of both companies. 

Today Graham Heard, Northern’s exploration and technical director, said: "It is encouraging that Tullow has recognised prospects that have similarities to their operated Jubilee Field in Ghana which has reported mid case reserves of 370 million barrels of oil. 

“The Zaedyus prospect has, as estimated by the operator, P10 gross upside reserves of 700 million barrels of oil and is an exciting prospect in this untested basin with significant follow up exploration potential."

With so many moving parts it’s hard to label Northern Petroleum. To date its strategy has focused on acquiring interests in prospective early-stage licenses before proving them up so it can either sell them on or bring in a major development partner.

Over the years it has acquired a vast array of assets relatively cheaply. It currently has interests in more than 60 licenses, including current applications, and is active in the Netherlands, United Kingdom, Italy, Spain and of course Guyane.

This is only part of the picture as Northern has also sold certain oil and gas interests, netting a tidy profit along the way.

So you see there is plenty going on, possibly too much, making it difficult for the average investor to properly appreciate the value creation strategy of managing director Derek Musgrove and his team.  

This may explain why last year the group embarked on a broad review of its operations, emerging with a more streamlined focus.

In its simplest form Northern’s strategy takes a two pronged approach, with the priority firmly on the Netherlands and Italy.

Northern plans to progressively expand its gas production in the Netherlands. 

These cash generative assets will fuel the gas fields’ continual development but crucially they will also support the company as it pursues high impact opportunities in Italy.

It is rare in AIM, particularly in the natural resources sector, to see a company funding its own expansion plans in this way. Usually a junior explorer will lean heavily (sometimes too heavily) on its investors. And it’s this independent spirit that makes Northern unique.

Wessex, meanwhile, is preparing to move its listing to AIM. It has an interesting and diverse mix of assets including 70 percent of the Juan de Nova Est permit in the Mozambique Channel, northwest of the island of Madagascar, while here in the UK it is one of a growing band of explorers looking for oil and gas onshore.

It is targeting the Wessex and Weald Basins of southern England and has interests in licences near Bournemouth, Lymington in Hampshire and the Isle of Wight.

The shares were originally listed on PLUS at the end of 2009 at 1.75 pence each and are now worth 3.258 pence, valuing the company at around £10 million.

Last autumn the firm received a £1.8 million cash injection via an over-subscribed placing and open offer. The AIM listing presents the ideal opportunity to top up the coffers, though we won’t know just how much the company plans to raise until the pathfinder prospectus is published in a couple of weeks.

“We are having a competent persons report completed,” chairman David Bramhill told Proactive Investors recently. 

“That will give us a value for all the assets from Guyane to Southern England.  We will then be able to gauge what valuation we can go to the market with and how much we’ll actually raise.”