Carnarvon Petroleum (ASX:CVN) has tightened its start date for the highly anticipated spudding of the Roc-1 oil well in Australia’s North West Shelf region as a plan to capitalise on a bruised energy sector come into focus.
The latest developments at the drill site – which is part of the broader Phoenix project – include mobilisation of the drill rig to the region. The rig is expected to begin work at Roc-1 in early to mid-November, targeting a best-case estimate of 42 million barrels of oil.
This would represent a substantial portion of the larger Phoenix resource, estimated in a best-case scenario to total 104 million barrels of oil over only 5% of acreage held by Carnarvon.
About 45% of this acreage is expected to be explored using 3D data techniques before the end of the calendar year. This program is supported by $52 million in investment commitments and is aimed at identifying new targets for drilling over 2016 and 2017.
As a starting point to this wider development plan, Roc-1 is an exciting prospect with minimal investor risk attached.
Importantly, spudding of the well has been carried to US$70 million by JX Nippon and Quadrant Energy – a consortium between Brookfield Asset Management (NYSE:BAM) and Macquarie Capital (ASX:MQG).
The right time to build a company
Rollout of development plans at Phoenix have been strategically timed with the downturn in the oil sector, with crude prices now fluctuating in a range reflecting less than half the value of prices in recent years.
Carnarvon’s strategy for optimising this opportunity has included a focused business model with an in-house technical team solely focused on the North West Shelf.
This effort was highlighted earlier this year by the appointment of former Woodside Petroleum (ASX:WPL) senior executive Dr Peter Moore as a non-executive director. Moore led Woodside’s worldwide exploration and has extensive experience in exploration and production in Australia.
Carnarvon advantages in capturing growth opportunities during an oil lull are best illustrated in its A$100 of cash holdings and assets valued at about $120 million.
This increasingly strategic cash position is set to deliver an important competitive edge as it is believed recent oil industry shocks still remain to be fully realised.
Analysis
Carnarvon is in a strong financial position as the Roc-1 campaign gets underway, being debt free with $100 million in cash and developing plans for a future income stream.
Costs for the upcoming drilling at Roc-1 are free carried to US$70 million, resulting in minimum risk to investors.
With uncommon investment and development options for a junior operator in the struggling oil and gas space, Carnarvon is in a unique position realise rapid growth by exploiting market distress for operational expansion and value accretion.
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