--ADDS MANAGEMENT & BROKER COMMENT--
Europa Oil & Gas (LON:EOG) chief executive Hugh Mackay believes investors ought to be confident over the new prospective resource estimates for its exploration project in the waters off Ireland’s west coast.
A new competent person's report (CPR), by ERC Equipoise, estimates the potential for about 1.5bn barrels of oil across the three ‘drillable’ targets.
It prompted a major upgrade from City broker FinnCap, which upped the target price to around 44p from 16p (current market price 7p).
Mackay sees the new CPR as a strong endorsement of the offshore exploration project and he said it represents the culmination of substantial work by very experienced technical teams.
“In just one block we’ve got mean unrisked resources of 1.5bn barrels,” he said.
“These are huge numbers, but this isn’t some penny dreadful promoting oil company talking nonsense. These numbers have been produced by ERC, it is a blue-chip CPR.
“It is completely defensible and would stand up to scrutiny from whoever might be looking at running the numbers on Europa.
“There’s no smoke and mirrors here.”
Europa has a 15% stake in the acreage alongside major partner Kosmos, which owns the other 85%.
Kosmos is currently reviewing its drilling plans. If the American firm decides to move ahead with a programme, Europa will be carried for a substantial proportion of the costs thanks to a farm-out deal agreed back in 2013.
The CPR assessed three prospects – Wilde, Beckett and Shaw – that are all considered by Europa to be drillable. In total the estimated prospect inventory totals 1.49bn barrels (the mean), which would be 225mln barrels net to Europa.
Beckett is the largest of the three prospects with a mean prospective resource of 749mln barrels, with estimates ranging from 109mln in the ‘low case’ to 1.6bn for the ‘high case’.
Wilde is seen at 428mln barrels (mean), with a range of 61 in the ‘low case’ to 952mln barrels in the ‘high case’, while Shaw was estimated between 57mln and 681mln barrels with mean prospective resources stated at 315mln barrels.
“This CPR provides a strong endorsement to our long held view that the Porcupine Basin has the potential to become a major new North Atlantic hydrocarbon province," Mackay added.
Kosmos has suggested to Europa that an exploration well could be drilled during 2017.
The American E&P also intends to bring in a new partner, through its own farm-out process, though this would take place after the upcoming Irish licensing round (which closes for applications in September).
In the stock market Europa investors reacted positively, send the AIM share almost 10% higher to trade at over 7p by Tuesday afternoon.
Elsewhere in the City, finnCap massively upgraded its target price for Europa today as the broker included the Irish project into its valuation for the first time.
Analyst Dougie Youngson lifted his already bullish target from 16.2p up to 44.3p. To put into perspective further the Irish project’s ‘high impact’ potential the analyst values the asset at £230mln, compared with Europa’s current market value of about £14mln.
Before this apparently vast valuation gap is plugged investors await news of Kosmos’s drill plans.
“Now the CPR is complete, Europa’s work on the licence is done,” Youngson said in a note.
“What remains to be done is for Kosmos to make a decision relating to committing to drilling a well in 2017.
“Kosmos is one of the few oil companies to increase its capex in 2015, and given that rig rates and utilisation are low, we would therefore expect it to take advantage of this cost deflation.”