Energean Oil and Gas PLC (LON:ENOG) shares rose on Monday as the firm announced a significant gas discovery in the Karish North exploration well, which was designed to potentially extend the Karish field development project, leading Peel Hunt to raise its target price.
The new well was drilled to a target depth of 4,880 metres and it encountered some 249 metres of gross hydrocarbon column – a 27-metre core was also recovered for analysis – and the company described ‘high quality’ reservoirs in the B and C sands. Initial estimates see between 1 and 1.5 trillion cubic feet of gas in the discovery.
It is anticipated that Karish North will be commercialized via a tie-back into the Energean Power FPSO, located 5.4 kilometres away at the Karish field.
Importantly, the company revealed that today’s well result significantly increases the likelihood that a provisional gas sales deal agreed in December – for the supply of 5.5bn cubic feet of gas to I.P.M Beer Tuvia over the life of the contract – will be converted into a firm contract.
Including December’s deal, the company has contracted some 4.6bn cubic feet of gas sales per year from the Karish area, which means it has some 3.4bn cubic feet per year of spare FPSO capacity, should further discoveries emerge in future drilling.
“We are building the Energean Power FPSO with spare capacity, which will enable us to quickly, safely and economically develop both Karish North and future discoveries,” said Mathios Rigas, Energean chief executive.
He added: “We continue to see strong demand for our gas, which we believe will be supported by today's announcement."
Additional hydrocarbon potential
The company noted that it is now planned that the well will be deepened to test additional hydrocarbon potential, in the D4 horizon.
Once the Stena DrillMAX vessel has completed the Karish North drilling, it will return to the Karish field where three development wells are slated. Energean then has a further six drilling options in its contract with Stena Drilling.
In a note to clients, analysts at Peel Hunt said: “Success at Karish North is an important driver of value at Energean’s key Karish development as it can defer ~$600m of capex and increase production by 0.4bcm/a. Success also de-risks 6.2Tcf of prospective resource in similar prospects.”
They added: “Given the six spare drilling options in the rig contract, these may be further share price catalysts. We will update NAV once the well has been completed and we know the total discovered resource.”
The Peel Hunt analysts increased their target price for Energean to 900p from 850p and repeated a ‘buy’ recommendation on the stock.
In afternoon trading, Energean shares were 7.7% higher at 840p.
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