--UPDATE, ADDS BROKER COMMENT--
Oil explorers Rockhopper and Falkland Oil & Gas rallied sharply on Monday morning after confirming a new oil discovery.
The AIM oil stocks, which are due to merge, gained 13% and 9% respectively.
It comes as the latest Falklands well has confirmed a significant discovery for the Isobel/Elaine project.
The new 14/20-2 well was a ‘re-drill’ of the prior Isobel Deep well which had to be abandoned prematurely due to operational issues despite encountering oil.
Now, the new well has confirmed Isobel Deep as a discovery and it also hit additional oil bearing fans within the Isobel/Elaine complex although the others were at the edges of the formations.
A total of five oil bearing fans were encountered in the well. It is anticipated that for the additional fans, better quality reservoirs can be found within the main bodies. Net pay for the Isobel Deep, Isobel and Emily reservoirs amounted to 27 metres.
Rockhopper, which is acquiring up to 64% of the new discovery, said the results indicate that the total oil column established by the second well is likely to be in excess of 480 metres.
And it added that, as an initial view, it believes it is highly likely that the Isobel / Elaine complex contains commercially viable quantities of recoverable oil.
Samuel Moody, Rockhopper chief executive, described it as “an outstanding result” and said it hugely increases the likelihood that the Isobel/Elaine complex can be another phase of development in the North Falkland basin.
“The success is of course even more pleasing following the announced merger with Falkland Oil & Gas which will shortly complete seeing our interest in the licence significantly increase to 64 percent," he said.
Rockhopper is increasing its stake in the asset to 64% from 24% via its merger with Falkland Oil & Gas (LON:FOGL).
In a separate statement, FOGL chief executive Tim Bushell said: "The merger with Rockhopper is now the natural next step for the company and should see the realisation of shareholder value via the progression of Sea Lion to first oil, the development of surrounding oil discoveries including Isobel/Elaine and further exploration of a number of material untested prospects.”
Premier Oil (LON:PMO), the controlling stakeholder in Rockhopper’s Sea Lion field development, owns the other 36% of the asset.
Robin Allan, Premier Oil exploration director, said: “This successful re-drill of the Isobel Deep oil sand along with the additional discovery of new oil-bearing sandstones, is extremely encouraging for the prospectivity of the area with a proven petroleum system and a number of prospects established."
Liberum Capital analyst Andrew Whittock, in a note, said: “We noted earlier that the second well on the Isobel/Elaine complex represents a good chance to increase significantly the volume of proven oil in the North Falklands basin including in a number of further fan bodies in the Isobel area, which have never previously been drilled.”
Elsewhere, SP Angel described the result as good news and said it de-risks a potential 500mln barrel oil resource.
“While testing will have to be undertaken before commerciality can be assessed, we believe that this is good news, and with sea lion already a commercial discovery, we believe that the barriers to commerciality are lower than they would otherwise have been,” the broker said.
Oil company expert Malcom Graham Wood, in his daily blog, meanwhile, said the new discovery meant the North Falkland Basin play was “very much here to stay”.
“Whilst nothing can be certain until appraisal but this discovery should make real the third phase of development in the North Falkland Basin and get closer to proving the ‘billion barrel basin’ that the partners have always believed it would be,” he said.
On AIM, Rockhopper shares were up 3.25p or 13.4% trading at 27.5p each, while FOGL was up 9.5% at 8p.