It has been something of a feast-then-famine year in the exploration and production sector. But early indications suggest 2018 could be a busier time for investors.
The oil price is ending 2017 in relatively good health, with Brent holding above US$60 per barrel and the price-supportive sentiments at OPEC will hopefully mean there’s more macro-certainty than oil market investors have been used to in recent years.
Discipline will, however, likely remain a corporate buzzword. Nonetheless, there may well be many more exploration and development catalysts through the coming year.
Better oil prices equal bigger, more ambitious projects – and there are few things the AIM market likes more than an ambitious oiler with a decent story.
Speculative investors ought to look for the busier firms with active plans for 2018 (ideally plans that include well drilling with either exploration and/or appraisal targets).
Here’s a few worth watching:
Chariot Oil & Gas Plc (LON:CHAR): Two major wells in the schedule
Two significant wells could lift Chariot from its relative hibernation; success with either could be transformational from a value point of view.
Offshore Morocco, it is expected that a well will be drilled at the Rabat Deep prospect with a spud due in March.
It is a 768mln-barrel target, making it one of the largest in the schedule for the year. Importantly, success here could open up a regional play with significant follow-on potential seen in the area - there are six further leads in the same play which will all be de-risked by a discovery.
Elsewhere, in the Central blocks offshore Namibia, the schedule has yet to be finalised but it is anticipated that a well could be drilled in the second half of the year.
The target, Prospect S, is seen to have a possible 459mln barrels of crude. For Chariot, the plan is to partner up (the farm-out process is already underway).
With these two major projects in the schedule, plainly 2018 can be a real breakthrough year for Chariot.
Weald basin: UKOG, Alba Minerals and Angus Energy all in the spotlight
More wells are planned for the emerging onshore oil play in the Kimmeridge limestone zones through Southern England. Put simply, the goal is to prove that the successful 2016 tests at the Horse Hill site, near Gatwick airport, weren’t a fluke and that material oil business can be established.
In the best case scenario, investors will want to see wells drilled and testing, yielding oil flows somewhere between 1,000 and 2,000 bopd in testing.
Horse Hill will likely be in the spotlight – it is the most advanced of the project and was definitively proven in 2016’s well testing.
New production testing is now due.
In a recent series of stock market statements, the companies behind the project told investors that the new phase of work will get underway “in late winter 2017/18”.
The programme, which includes a 150-day production test and new drilling, is designed to confirm the commerciality of the Portland and Kimmeridge oil discoveries. It will also set up Horse Hill for the start of long-term production, targeted in early 2019.
Stephen Sanderson, executive chairman of UK Oil & Gas Investments PLC (LON:UKOG), the largest London-listed stakeholder in Horse Hill (with 32.4%), is targeting commercial production and cash flow by 2019.
“The programme, geared to provide data to support a declaration of commerciality, will benefit greatly from the many significant Kimmeridge and operational learnings gained at our Broadford Bridge discovery. “
Providence Resources PLC (LON:PVR): Barryroe is back!
This time last year, Providence was on the list of oil explorers to watch too, and, while the Drombeg well, drilled in September, didn’t work out, the group has another significant project in the books for 2018.
In the wake of the … disappointment, Providence is moving on to Plan B – which, if you’ve followed Providence for long enough, will sound an awful lot like what Plan A used to be.
Providence is returning to the undeveloped Barryroe field with a plan to further appraise the large discovery. The plan is to drill a new well and a side-track in either the second half of next year or the first half of 2019 (so perhaps Providence might still be 2018 Christmas feature too).
Barryroe 48/24-K, the new well, will be positioned some five kilometres away from the last well, on the east flank of the field.
Phase 1 drilling is targeting some 436mln barrels of oil in place, and it is expected to cost a total of US$25mln with Providence’s share at around US$20mln.
The company in October highlighted that the two planned well penetrations are designed to provide further "definition around structure, reservoir, fluid phase, connectivity and resource estimates", thereby materially moving the east flank of the Barryroe field towards development.
The Irish explorer’s valuation was a multiples of today’s levels the last time Barryroe was in play, and whilst the company will still need the now fabled farm-out partnership to actually develop the field, a successful well programme will move the project forward massively.
Hurricane Energy Plc (LON:HUR): No big bang, but a crucial year nonetheless
No new wells here, so single event, big bang catalysts are unlikely. Nonetheless, Hurricane is entering a crucial year as it is moving the Lancaster field towards targeted ‘first oil’ in the first half of 2019.
The coming months will be all about preparation and engineering.
Lancaster’s early production system (EPS) is due online in the first half of 2019 with this start-up phase forecast to deliver up to 17,000 barrels of oil per day. It is expected that the timeline up to the EPS reaching the 17,000 bopd target will be the main focus for investors.
In an interview at the Oil Council conference in London, chief executive Robert Trice explained that development work will be underway through 2018, likely starting around March or April, with the floating production storage and offloading (FPSO) vessel potentially arriving at the field from September onwards.
Echo Energy Plc (LON:ECHO): Moving fast in South America, lots of catalysts coming up
This reboot from the people who brought you Sound Energy has already moved quickly to secure new projects in South America, doing deals in Bolivia and Argentina.
Echo shares resumed trading on AIM just a week before Christmas following the release of an admission document on the proposed purchase of assets in Argentina.
In Argentina, Echo is acquiring 50% stakes in three concessions: Fracción C, Fracción D and Laguna De Los Capones, as well as 50% in the Tapi Aike exploration permit. Together this spans some 11,153 square kilometres in Argentina’s Santa Cruz province.
The asset base comprises producing assets as well as exploration and appraisal. It is expected to drill several wells in the coming year to advance and expand the project.
Investors have been very supportive of the company’s vision and expectations are high, with a busy schedule anticipated there should be plenty of reasons to follow the company through 2018.