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Epic & Msn data

Epic	NOP
Time:	16:11:56
Mid Price:	76.50
Change Today:	4.50
Change % Today:	6.25
Fifty Two Week High:	162.50
Fifty Two Week Low:	53.00
Market Capital:	54.55

Period & price data

Period	Price
Now:	76.50
3 Months ago:	78.00
6 Months ago:
1 Year ago:

Additional information

Additional	Information
Market:	AIM
Sector:	Energy
Epic:	NOP
News:	Latest news
Web Site:	Northern Petroleum
Other Articles:	05-12-200804-12-200810-11-2008

Northern Petroleum – Slow but surefooted

by Stuart Watson

Patience is a virtue. When you’re an oil company working in Italy and the Netherlands it’s absolutely vital. The glacial progress of the authorities in these countries has often been a source of frustration for shareholders in Northern Petroleum. However, as a counter to this, both these countries have favourable fiscal regimes.

If you’re the patient type, Northern Petroleum certainly looks attractive at today’s depressed prices. For a market cap of around £60m, you get in excess of £30m in cash, 2P reserves of 76 million barrels of oil equivalent, a major stake in several Italian prospects with estimated resources in excess of a billion barrels apiece plus an array of other enticing projects. There are many cheap oil companies at the moment but arguably very few offer this much potential value.

In building its cash pile, Northern Petroleum has shown itself to be a shrewd deal maker. It sold a 25% interest in its Netherlands projects to Dyas last year for a total €41 million consideration, €32 million in cash. This summer a stake in a storage facility fetched a further £7million in cash and a contingent €3 million to come.  Northern also has access to a sizable financing facility to develop six fields in the Netherlands.

Despite the abundance of cash, it may not be enough to appraise Northern Petroleum’s billion-barrel targets, which all lie offshore. So it was intriguing to see that a couple of weeks ago, when a farm in was announced for three lesser targets in Italy, that Northern’s managing director Derek Musgrove said “this marks the completion of the first of several deals under discussion which I believe will demonstrate the prospectivity of the Group's Italian licences”.

Netherlands

While Italy has the most potential, production is already underway in the Netherlands where 2P reserves currently stand at 45.5 million barrels of oil equivalent.

Onshore at Waalwijk, Northern Petroleum had net production of 0.5 billion cubic feet in 2007. It also has a 23% interest in P12, an offshore licence operated by Wintershall, which contributed a net 0.4 billion cubic feet in 2007. Together with some sundry income, these two help Northern achieve revenues of £4.1m in 2007 and £2.2m in the first half of 2008.

Preparations are underway to develop two oil and four gas fields that will take Northern Petroleums’s net production from an estimated 1,000 barrels of oil equivalent a day in 2009 to 6,000 in 2013. Subsurface preparations were due to start this month for five wells and Schlumberger has been contracted to provide hydraulic fracture services to further enhance production levels.

In addition to this, a 3-well contract has been signed with a new rig. As anyone who has worked in The Netherlands oil and gas industry will tell, obtaining the right rig to drill with the current  activity levels is not easy. Northern has negotiated a deal to allow a new Dutch company to provide drilling services using a proven rig design. This will drill two exploration targets followed by a development well. The two exploration targets are Nieuwendijk, estimated to have 56 million barrels of oil, and Tiendeveen, which could contain 67 billion cubic feet of gas. It is hoped both these wells can be drilled in the first half of 2009 but two other targets have been prepared in case planning approvals are delayed. Northern’s interest is 22.5% in these two targets.

Italy

In Italy up until recently Northern had a 50% interest in a number of licence areas covering some 13,000 sq km. The remaining 50% was held by PLUS-quoted ATI Oil, in which Northern owns a 37% holding and also shares a couple of directors. ATI is cash-strapped though, which has contributed to delays in appraising these targets, and has a loan from Northern due to be repaid by the end of this year.

As mentioned earlier, there are now signs of progress. Avobone, a subsidiary of the Indofin investment group, has taken a 20% interest in three of Northern’s licences in the Po Valley. Northern plans to drill a well on each of these areas in 2009. First up will be Savio, targeting 232 billion cubic feet of gas down to 3,720m. The two other wells will be shallower and target around 40 billion cubic feet each.

But what of the large prospects? In the southern Adriatic Sea, Northern has an interest in five blocks. These contain the Rovesti and Giove oil fields, which contain 2P reserves of 26.7 million barrels net to Northern. In March of this year, Blackwatch produced a report on six other prospects in the area concluding P50 oil in place was 2.2 billion barrels. Northern, using its own calculations and previous work done by Enterprise Oil, reckons there could be 3.5 billion barrels in these prospects. It has since been preliminarily awarded adjoining licence areas which contain further targets not included in these figures.

Off the west and south coasts of Sicily, Northern Petroleum has several more blocks. No independent report has been produced yet but Northern can lay claim to multiple prospects with over a billion barrels of oil in place. Further 2D seismic acquisition is planned this winter, followed by 3D next year and potentially two wells by the close of 2009. If Northern does have more farm in partners up its sleeve, as it recently alluded to, then these plans could obviously change.

UK

Northern Petroleum also has some UK assets near Portsmouth and the Isle of Wight between the Weald and Wessex Basins. Here current 2P reserves are a net 4.5 million barrels for the Horndean field. An exploration well targeting a 27.5 million barrel extension to Horndean at Markells Wood is planned for early 2009, followed by another at Hedge End in an adjacent block. Northern has a 10% interest in Horndean but 50% at Markells Wood and Hedge End.

Production is also expected to start by the end of the year at the Avington field. In an extended test last year, this flowed at 250 barrels per day prior to pump installation. Northern’s interest is 5%.

Guyane

Rounding off Northern Petroleum’s impressive portfolio are small interests of 1.25% in Guyane in South America and in Spain.

Guyane is most interesting of the two. The Matamata prospect lies a couple of hundred kilometres offshore and could hold in excess of a billion barrels. Tullow is the operator of this licence and hopes to drill an exploratory well in 2009. There is also the  potential for channel fan complexes similar to Tullow’s discoveries in Ghana.

Although Northern Petroleum is yet to drill its largest prospects, its cash pile is a great comfort given current conditions. If it can deliver on its Dutch developments and close the further farm outs being discussed for Italy, its shareholders should be amply rewarded for their patience.

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