Good news in a generally bad market means Europa Oil & Gas’s (LON:EOG) valuation is something of a moving target.
Even a cursory analysis, however, suggests the group should probably be worth a multiple or two more than the current market price suggests.
A look back over the start of 2015 tells a similar story to much of the junior oil sector in the wake of crude’s decline.
And should they look back to last November - when the exploration company's shares rose above 10p, from about 6p, before returning as low as 4.88p by February - investors may well wonder what might have been had appetite for oil stocks not disappeared overnight.
Nevertheless, operational successes have now put Europa’s shares back on the front foot.
Production testing at Wressle, a new discovery in Lincolnshire, and Europa’s progress towards high impact exploration offshore Ireland are now the primary catalysts.
The scale of the opportunity was highlighted this week by a third party estimate valuing Europa’s 15% share in three un-drilled prospects offshore Ireland at US$1.6bn.
It is of course important to stress that, as impressive as they are, the figures put forward by contractor ERC Equipoise are subject to drilling and are somewhat binary (i.e. all or nothing). This huge prize still remains some way away.
At around 9p presently Europa’s AIM listing values the company at just under £19mln.
Almost all of that could be accounted for by Europa’s existing UK production, its stake in the Wressle discovery and the cash in the bank, according to finnCap analyst Dougie Youngson.
Youngson’s valuation, which heavily discounts the Irish prospects until a drilling decision is made, puts the business’s core valuation at around £90mln which equates to 44.3p per share.
Wressle is worth around £9mln to Europa, in the finnCap model, and it is this project that is likely to drive the share price in the near term.
The new onshore discovery was estimated pre-drill to contain just over 2.1mln barrels, though the results from the well exceeded expectations.
Europa has a 33% stake in Wressle – which is operated by Egdon Resources (LON:EDR), with 25%, alongside fellow partners Celtique (33%) and Union Jack Oil (LON:UJO) (8.3%).
The well hit a number of separate oil and gas bearing intervals, and each of them flowed hydrocarbons to surface.
Initial test rates amounted to 710 barrels oil equivalent per day, in aggregate, and extended production testing will in coming months assess the project’s longer term economics.
The programme is due to start imminently.
“It is very exciting, and we are looking forward to seeing what pumped production may deliver,” Mackay said of Wressle in a recent interview.
Elsewhere in the UK there is Holmwood, another exciting exploration prospect in the neighbourhood of the much publicised Horse Hill discovery. This project does, however, remains uncertain due to an ongoing planning dispute; a planning enquiry is currently underway.
Elsewhere Europa’s French assets remain something of a dormant opportunity, though progress here will have to be driven by farm-out deals.
Naturally, the Irish project commands a great deal of the recent investor attention particularly now that the initial work has been franked by ERC Equipoise, a blue-chip industry consultant.
What happens next will largely be in the hands of super-explorer Kosmos which intends to bring in a new partner ahead of any drilling.
The process is slightly more convoluted due to the Irish government’s pending offshore licensing round, which is expected to see up to 256,700 square kilometres of prospective areas handed over to oil companies.
Put simply, neither Kosmos nor Europa want to share the technical details they’ve recently unearthed in the run-up to what is expected to be a competitive auction process.
It is anticipated that a farm-out process will be carried out by Kosmos after the books have closed on the licensing - the Irish government’s deadline is September 16 - and any drill planning would likely follow thereafter.
Kosmos, as part of the 2013 partnership deal, has already agreed in principle to pay all drilling costs, up to US$100mln for the first well, though Kosmos’s new farm-out and/or confirmation of a firm drill schedule would likely be the next major catalyst for the Irish venture.
In the meantime Europa, with its heavily discounted share price, remains one of AIM’s stocks to watch.