Here’s three words that panic oil investors into hitting the sell button – ‘plugged and abandoned’.
So when the unholy trinity appeared in a drilling update from punters’ favourite Red Emperor Resources (LON:RMP) there was only one outcome: a precipitous fall in the share price.
Its Hawkeye-1 well, off the coast of the Philippines, had been targeting a structure estimated to contain over 100mln barrels of oil on the SC55 Block.
And while hydrocarbons were detected during drilling, they were of “variable quality”.
Red Emperor added the discovery “appears to be at the low end of expectations and not likely economic to develop”.
It went on: “Hawkeye-1 will now be plugged and abandoned with results from the well to be analysed with respect to other prospects, including Cinco, in the licence that potentially share the same charge source.”
The company was a 15% shareholder in the block with Australia’s Otto Energy the major investor.
Even with such a modest stake, positive drill results could have been transformational for the AIM listed junior.
Today’s outcome, a 63% fall in the share price, reveals the binary nature of exploration of this type.
That said, the stock looks oversold with company now valued at just £5.1mln.
For the cash it has left from its truncated drilling operation stands at £5.66mln, according to this morning’s update.
“The company remains focused on identifying new opportunities while continuing to efficiently manage the existing assets in its portfolio,” the company added.