Hitting rewind just a few weeks puts into stark context the shock results from Independent Oil & Gas’s (LON:IOG) Skipper appraisal well.
Unfortunately for investors comments from chief executive Mark Routh in August - that “initial observations strongly suggest we have a better oil viscosity than the CPR estimates” – couldn’t be more different from this morning’s.
Today, an hour or so before IOG shares plummeted, the North Sea oil boss had to admit that: “The initial oil analysis results are incompatible with our observations, therefore we are now reviewing our strategy to establish the commerciality of Skipper.”
The analysis of samples reveal the oil at Skipper to be heavy, 11° API, and significantly more viscous than previously expected.
Heavy oil typically flows at a slower rate, and can need additional production equipment to be produced commercially.
Skipper was supposed to be a transformational well for IOG, which used Skipper as one of the main attractions when it sold a ‘rescue’ funding packing to strategic investors to lift the group from its debt problems in late 2015.
The near 50% drop in IOG’s share price on AIM on Friday isn’t the kind of transformation the company or its investors had in mind.
It may now take several months for the company to determine whether or not the field can be commercially viable, IOG said.
Brendan Long, analyst at WH Ireland, says the viscosity has put question marks on the commerciality of the field.
Oil companies expert Malcolm Graham Wood, meanwhile, in his daily blog described the company’s predicament as nightmare.
“The results from the recent Skipper well came back from the lab and were nothing like what was expected and then some,” Graham-Wood said.
“The oil is heavy but mobile and the joker in the pack is that it is only 11° API, significantly less than the 14-16° expected particularly after the samples were ‘flowed to jerrycan’ at the surface.”
He added: “I have spoken to the team and it would be fair to say that they genuinely dont understand it and they are as good a team of professionals in the industry.
“If it weren’t virtually impossible it would look like something may have happened to the sample, at least there are more to check but it’s a long shot.
Graham-Wood says it would ordinarily be time for investors to cut and run, but instead he urged them to “hang on in there” at least temporarily.
“It may not be quite as bad as at first it seems,” he concluded.