The junior oil firm’s valuation collapsed in August after news that the Statoil’s Verbier exploration well had been a failure – JOG had 18% of the well which found its target to contain water rather than oil.
JOG, at that time told investors that an extension to the programme, to drill a side-track well, was a possible but unlikely next step a Verbier.
Statoil, nonetheless, decided shortly thereafter that it would, in fact, drill out the side-track to test a separate exploration target, up-dip from the initial Verbier location.
On Monday, it was revealed that Statoil’s perseverance has been rewarded with a potentially significant oil discovery.
Statoil drilled the well within budget to a depth of 3,811 metres and it had hit an oil accumulation in good quality sands. The well results are now being evaluated alongside 3D seismic data to assess what the find means for the rest of the nearby acreage.
The initial estimate of the discovery is set 25mln and 130mln barrels of oil, and Statoil said there is a minimum of 25mln barrels proven recoverable oil in the immediate vicinity of the well bore.
It was the right decision
"The results show that we made the right decision to sidetrack the well and this discovery proves that there could be significant remaining potential in this mature basin,” said Jenny Morris, vice president for exploration for Statoil UK.
“We are convinced of the remaining, high-value potential on the UK continental shelf and the Verbier result certainly gives us the confidence and determination to continue our exploration efforts."
Andrew Benitz, Jersey chief executive, meanwhile, added: “We are delighted by the positive outcome of the Verbier sidetrack.
“The well has achieved its objective by encountering good quality, hydrocarbon-bearing sands, up dip from the initial well with the results exceeding pre drill expectations for the sidetrack."
Stockbroker SP Angel, in a note, said: “while there is a way to go yet before the discovery can be declared commercial, this is an important first step.”
It remains early days for this new Verbier discovery, and further analysis will be required. At the same time potential follow on exploration plans for the untested Cortina and Meribel prospects will also now be evaluated in a more positive light.
Investors were understandably delighted, with JOG shares racing to rise more than 200% in Monday’s early deals.
JOG started out with a production focussed acquisition strategy
In last month’s interim results statement, released whilst Statoil was in the middle of the side-track programme, JOG talked up its own strategy – which from the outset has been about production based growth rather than high risk exploration.
The company, when it was rebooted out of the remains of Trap Oil, had intended to acquire and build a portfolio of producing assets and in September the company said it remained in a strong position to pursue its original strategy regardless of the Verbier outcome.
It highlighted that it would have a cash position of around £1.8mln once Statoil completes sidetrack drilling.
“JOG has a strong vision for growth across the North Sea and with this support, we can achieve our stated objectives,” Benitz said in September.
Whilst it remains to be seen how exactly JOG intends to utilise the new found success at Verbier, plainly holding a material in a potentially significant discovery transforms the proposition for investors and most likely opens up valuable optionality for the group’s acquisition plans going forward.