Oil and gas news summary: Petroceltic, Melrose Resources, Victoria Oil & Gas, Dragon Oil, Premier Oil, Max Petroleum, Desire Petroleum, Caza

Petroceltic International (LON:PCI) this week revealed it has struck a deal to expand through a merger with Melrose Resources (LON:MRS).

The enlarged group will have a strong regional position spanning North Africa, Mediterranean and Black Sea. It will have 84 million barrels of oil equivalent reserves, 357 million oil equivalent barrels of 2C resources and 1.3 billion barrels of oil equivalent resources.

From Petroceltic’s point of view the deal adds production operations, currently forecast at 28,000 barrels of oil equivalent per day for 2012, and it strengthens it position ahead of the large Ain Tsila gas field development in Algeria. 

The companies said the enlarged group will be well capitalised and it will have a US$300 million loan facility, being provided by HSBC.

"A combination with Melrose is a compelling opportunity to create a regionally focused company, balanced between production, development and exploration,” said Brian O’Cathain, chief executive.

“The benefits extend beyond the improved risk profile to the combined entity's enhanced strategic and funding options allowing the potential value of the assets of both companies to be realised for their shareholders."

Brian O’Cathain will retain the CEO position in the enlarged group, and Petroceltic corporate development director Tom Hickey will take the CFO role, while Melrose chief David Thomas will become chief operating officer. 

And Melrose chairman Robert Adair, who owns 50 per cent of Melrose, is expected to become the enlarged group’s non-executive chairman.

Sector peer Victoria Oil & Gas (LON:VOG) predicted this week that its Logbaba gas project in Cameroon’s second city, Douala, will be cashflow positive in October, while the group as a whole will reach this financial position a month later. 

VOG ships gas from the project to industry in the area via a pipeline, which is being developed in three phases, with the first of those already complete.

So far VOG has continuous production of 1 million standard cubic feet a day and expects that figure to rise to 5 million by the year-end, which represents a downgrade from the previously forecast 8 million standard cubic feet.

However this appears simply to be a timing issue as chairman Kevin Foo is confident of reaching the next landmark of 20 million cubic feet of gas by the end of 2013.

The company will focus on plugging users into the existing pipeline before then moving into the second and third expansion phases, Foo said in a letter to investors.

Certainly, demand seems to be there. The company reported it has signed 17 thermal gas agreements and 13 proposals for onsite power generation have also been made, which would use the equivalent of 5.5 million cubic feet of gas a day. Two letters of intent have been signed for power generation 2012.

In the meantime, cash rich Dragon Oil (LON:DGO) says it still sees plenty of acquisition opportunities in Africa and Central Asia. 

And in a call this week chief executive Dr Abdul Jaleel Al Khalifa told City analysts that he hopes to have some positive news on in this regard in the second half of the year.

“There are opportunities available. Though sometimes the sellers are electing to go through a (formal) sale process and this takes longer than is needed,” he said.

“This also makes (the bidding) quite competitive as well, even in today’s market. But we are currently working on many fronts, in different areas and at (projects that are in) different stages.”

Dragon has been scouting for new assets for some time. With a growing cash-pot it has a strong bargaining position. But it has so far shown a prudent and patient approach.

In this week’s interim results the growing oil producer revealed that its operations generated US$404.2 million in operating profit and it has US$1.66 billion on deposit.

The results also confirmed a record high production tally. And a rate of 70,017 barrels a day being reached last week. This comes after the firm’s operations team had to overcome issues relating to sand ingression into a number of wells.

These problems are now ‘under control’, according to the Dragon Oil chief.

In other news in the oil and gas sector, Premier Oil (LON:PMO) has plugged and abandoned the Chim Sao North West appraisal well, CS-3X, in Vietnam Block 12W, while Max Petroleum (LON:MXP) has kicked off drilling the BCHW-1 exploration well on the Baichonas West prospect on Block E.

The Chim Sao North West appraisal well was drilled to determine whether the Chim Sao North West discovery extended into a separate fault segment to the north.

While 135 metres of sandstone reservoir were penetrated in the Upper Dua interval there was no indication of hydrocarbons.

In the Middle Dua interval 165 metres of sands were drilled, but only oil shows were encountered.

Before drilling the appraisal well, Premier drilled the CS-N17XP well to produce from the North West extension to the Chim Sao field.

That well was brought on-stream earlier this month with initial extended production test rates averaging 4,000 barrels of oil per day from four Upper Dua reservoirs.

Max Petroleum said the CHW-1 exploration well would reach a depth of around 1,400 metres.

The Baichonas West prospect, which is a four-way anticline targeting unrisked mean resources totalling 10 million barrels of oil in Jurassic and Triassic reservoirs, will be drilled by Zhanros.

A deal was announced with the contractor last week that would see it fund up to US$7 million of drilling and workover services in return for shares in the company.

“We believe they are some of the best shallow prospects we have generated and it is crucial for Max Petroleum and our shareholders that we test them before the exploration period of our licence expires in March next year,” said Max Petroleum’s president and chief financial officer Michael Young last week.

Caza Oil & Gas (LON:CAZA) has also spudded a well this week.

The US focused firm announced that drilling has begun on the Copperline prospect, within the Bone Springs play in Lea County, New Mexico.

The horizontal well, tagged ‘Caza Ridge 14 State 3H’, is the first well to test Copperline. And it will be drilled to a vertical depth of 11,500 feet, with total drilling of 15,730 feet.

It will primarily target the Third Bone Springs sand at an estimated vertical depth of 11,315 feet. And it has a number of possible secondary targets - the Delaware, Lower Brushy Canyon, Avalon Shale, and 1st and 2nd Bone Spring Sands.

“This is our first operated Bone Spring project and affirms management's commitment toward oil and liquids-rich projects and our focus on increasing our oil versus gas production ratio,” said chief executive Michael Ford.

“Drilling and completion costs have come down significantly in the Bone Spring play due largely to competition amongst contractors for drilling and fracture stimulation contracts, which is good news for Caza.  

“Positive drilling and production reports continue to come from other companies focused on this play, which has Caza's management increasingly enthusiastic about drilling the Bone Spring projects in the company inventory.”

Elsewhere, Desire Petroleum (LON:DES) said it would seek industry partners to participate in the further exploration of the North Falkland basin as its prospect inventory continues to mature.

This week the Falkland explorer told investors that a new competent persons report has assessed two additional prospects, called Ellaine and Isobel, which between them has added 312 million barrels of prospective recoverable oil resources to the inventory.

Desire says that the Elaine and Isobel prospects are part of a basal sequence in the southeast part of the basin, and it believes they are similar to the Sea Lion fans further north. It also says the total prospect area could be comparable in size to the Sea Lion, and the prospects have a 30 per cent chance of success.

"We are delighted that our prospect inventory continues to strengthen and that some of the best remaining potential in the North Falkland Basin is within licence PL004 in which Desire has a strong equity position,” said chairman Stephen Phipps.

“The Elaine and Isobel prospects are very attractive drilling targets, particularly as the basin moves into a new phase of activity.  

“The planned development of the Sea Lion discovery demonstrates the commerciality of major discoveries in the basin and we are optimistic that the Elaine and Isobel prospects can deliver significant value for our investors.  

“As our prospect inventory matures, we will be seeking industry partners to participate in further exploration of our licences and the quality of prospects like Elaine and Isobel provides a strong platform for success."

Meanwhile, Europa Oil & Gas (LON:EOG) this week revealed that it has delivered on its production targets with a 19 per cent increase in output in the year ended July 31 2012.

The small cap oil producer said that revenues were up 34 per cent to £5.1 million. This improvement is the result of increased output, with a total 72,360 barrels being produced, and a 10 per cent rise in oil sales prices to an average of US$110 per barrel.

"I am delighted with the full year performance of our UK producing assets which, having produced an average of 200 boepd, has hit our production target,” said chief executive Hugh Mackay.

“The 19% increase in full year volumes to 72,360 barrels is partly a result of the WF-9 well at West Firsby coming on stream. In addition, our operations team has implemented a series of initiatives aimed at improving operational efficiency that have contributed to a reduction in downtime and in turn, a significant increase in the number of barrels recovered during the year.”

Finally, Roxi Petroleum (LON:RXP) reported oil flow rates from the NK8 well on the Galaz field in Kazakhstan.

The NK8 well has reached its total depth and has been tested, flowing at a rate of 161 barrels of oil per day (bopd) using a 5mm choke, 197 bopd on a 6mm choke and 251 bopd on a 7mm choke.

The company now plans to test a different interval.

Roxi noted that it has previously announced ongoing production of 156 bopd from the NK6 well and test production range to up to 620 bopd from the NK7 well using a 7mm choke.

NK7 is currently producing 180-190 bopd using a 5mm choke.

Aggregate gross production from the three wells is expected to reach around 500 bopd.

“The results from NK8 when taken together with test production from NK6 and NK7 will mean production from Galaz at around the 500 bopd level,” said chairman of Roxi Clive Carver.