Once again analyst coverage was largely dominated by oil and gas stocks, although Mariana Resources (LON:MARL) also got a look after the latest upbeat drilling results from the Calandria Sur prospect in Argentina.
But first, Daniel Stewart analyst Richard Nolan highlighted that Gulf Keystone Petroleun (LON:GKP) has successfully achieved its goal with the Shaikan-3 appraisal well.
This morning Gulf Keystone confirmed that the Shaikan-3 appraisal well, in the Kurdistan region of northern Iraq, had been completed as a production well. Importantly the well is designed to test the shallow Cretaceous intervals, which could not be properly tested in Shaikan-1.
To this end Shaikan-3 proved successful. The well defined the lower portion of these Cretaceous intervals - known as the Garagu resources – between 1,060 and 1,157 metres. Gulf Keystone puts the Garagu oil in place volumes between 220 million and 2.2 billion barrels (P50 – P10), following two separate flow test on Shaikan-3, and based on the previously gathered data.
“The P50 / P10 range provided today encompasses some earlier market estimates of near 500 million barrels,” Nolan said in a note to clients.
“Considering the proximity between Shaikan-1 and Shaikan-3 compared to the lateral extent of the Cretaceous we view the fact that they encountered significant volumes as positive and are optimistic about the volume estimate range and its potential upside.”
Meanwhile Evolution Securities oil analyst David Farrell stressed that the Garagu resources represent an incremental addition to the Shaikan discovery – although he has a more conservative view on the level Garagu’s recoverable resource.
The analyst also noted that he would have liked more information, relating to detail on the flow test rates, oil viscosity or quality (API).
“Our assumed P50 recoverable resource estimate of 66 million barrels for the Cretaceous Garagu formation is hardly transformational for the Shaikan story but is an incremental addition,” Farrell said.
Lionel Therond, oil and gas analyst at Fox-Davies, described it as a positive result that adds up to the existing resources estimates for Shaikan-1.
“A positive result that adds to the 4.2 billion barrel existing oil in place estimate based on the Shaikan-1 discovery well,” Therond said.
“However the P50 estimate of 220mmbbl is lower than our expectation of 600 million barrels of oil in place for the Cretaceous formation.”
He adds: “Obviously the upside is material and contingent on further appraisal drilling down the flank of the structure but conversely there is also a downside scenario towards the P10 estimate which has not been published by the company.”
The clear message that sticks out from analyst coverage is that the range of the P50-P10 estimate for Garagu is wide to say the least. Indeed GKP say as much in this morning’s statement.
According to Gulf Keystone, the large spread between the P50 and P10 volumes relates to the uncertainty regarding the exact nature of the Cretaceous reservoirs down dip, on the flanks of the Shaikan structure.
“If the Cretaceous is oil bearing near the flanks, then the P10 volumes become more likely and it is possible that the oil will also be less viscous and of higher API gravity,” the company said.
GKP, and its partners, will now formulate a development plan for the Garagu resources.
Lionel Therond, oil and gas analyst at Fox-Davies, reflected on Tuesday’s disappointing news from Desire Petroleum (LON:DES).
Yesterday, Desire confirmed that its latest well in the Falklands failed to locate oil or gas in the Dawn prospect, the well’s second target.
The 25/5-1 well was designed to test two targets - Dawn and Jacinta - in the North Falkland basin. Last week Desire told investors that the well did not find any hydrocarbons in the Jacinta prospect.
“This disappointment together with Rockhopper’s dry well at the Ernest prospect does not bode well for the prospectivity of the southern part of the North Falkland basin and we expect that Desire’s focus for the next exploration well will shift back to the prospects in Tranche C and D,” Therond said.
“We are currently reviewing our target price and recommendation and will provide an update once we have more information on the company’s near-term exploration work programme.”
Ambrian Capital analyst Werner Riding examined Providence Resources (LON:PVR) in light of its drilling success in southern England.
This morning the company confirmed that it has completed the new X8v lateral development well at the Singleton field.
Singleton is located within the Weald Basin – which spans southern England and parts of France. The well is the second well to be completed as part of a larger multi-well development program.
Petrophysical analysis of down-hole log data confirmed that X8v encountered 2,414 feet of gross hydrocarbon bearing intervals, with 2,316 feet of net pay. The company highlighted that the reservoir quality and hydrocarbon saturation are excellent within the pay zone.
“The successful completion of the X8v lateral development well we view as welcome progress in the ongoing effort to enhance the ultimate recoverable volume at Singleton,”
“Given the thickness and lateral extent of the reservoir section that was intercepted and the high quality nature of the oil-bearing Great Oolite formation; once the well has been prepared for production we would anticipate an incremental increase to gross field production in the order of several hundred barrels per day.”
Meanwhile in the mining and metals sector, Mariana Resources was one of the main stories.
This morning, the latest drilling results from the Calandria Sur prospect in Argentina confirmed it as a bulk tonnage silver and gold deposit.
The news prompted FinnCap, the company’s broker, to increase its price target on shares in the miner to 64 pence from 48 pence (current price 52 pence).
Analyst Joe Lunn said: “For us, the release of the second and final batch of assays from mostly infill holes at the Calandria Sur goldfield in Patagonia, increases our confidence that the preliminary resource, now due in the first or second quarter, will not disappoint.
“In anticipation that the majority of this forthcoming resource will be sufficiently de-risked to be classified as indicated, along with high gold prices, we increase our valuation.”
Lunn added: “We feel increasingly confident that our initial guidance on the resource size at Calandria Sur, at 500,000 ounces of gold, will prove to be a conservative estimate.
“However, we maintain this forecast, along with a nominal 100,000 ounces for Calandria Norte, resulting in a total potential resource of approximately 600,000 ounces of gold.”
Calandria Sur is just one part of the Las Calandrias Project in the Patagonia.