The junior oil explorers were in demand today with Lansdowne Oil & Gas (LON:LOGP) and Bahamas Petroleum (LON:BPC) topping the small-cap leader-board as investors began to gain an understanding of the untapped potential of both companies.
In fact the focus was on the entire sector as City broker Northland looked at potential takeover candidates and suggested Northern Petroleum (LON:NOP) may be ripe for the picking.
“With the majors struggling to replace reserves, we believe we have entered a period of consolidation in the oil and gas industry, though this may be more at an asset than PLC level,” Northland’s Andrew McGeary said.
Demand for shares in Lansdowne was sparked not by takeover chatter, but a positive update on its operations in the Celtic Sea.
The stock shot up 3.5 pence, or 10 per cent to 36.5 pence after the group unveiled the findings of the latest competent person’s report (CPR).
This influential document was prepared independently by industry consultants RPS Energy.
And it estimated that Lansdowne’s assets contain a ‘technically recoverable’ 93.1 million barrels of oil and 331 billion cubic feet of gas.
RPS examined the company’s two existing oil discoveries and five exploration prospects for the CPR.
Interestingly it concluded that one of the discoveries, Helvick, located around 25 miles off the coast of southern Ireland, has the potential to produce commercially within two years of the project being sanctioned.
“Although Helvick contains a relatively small oil volume – 300,000 barrels net 2C contingent – the resources evaluation carried out by RPS supports the conclusion of previous work by Providence that, at current high oil prices, commercial production could be achieved, which could lead to first oil within two years of project sanction,” said David Hart, oil and gas analyst at Westhouse, in a note to clients.
Elsewhere in the sector it was Bahamas Petroleum that was taking the plaudits as its shares advanced 3.25 pence, or 17 per cent, to 22.5 pence on some fairly hefty volumes.
This time the stock was lifted by results of not one, but two independent surveys.
Compiled by Mark Rowan of Rowan Consulting and Paul Ozanisch of Lago Petroleum Consulting, the report provided evidence of ‘giant size structures’ in its southern licences off the coast of the Bahamas capable of holding several hundred million barrels of oil.
The data also reveals that the folds belt is considerably larger than first estimates used in the compilation of the company’s 2007 CPR.
Bahamas chief executive Paul Crevello said: “Rowan and Ozanich's reports are significant because they provide the first modern interpretation of seismic data and exploration potential of the Bahamas Offshore Petroleum licences from the Bahamian fold belt.
“These independent studies verify the extent and style of structural geometry of the large-scale folds which was not possible from the historical seismic data.
"Improved technology enabled exceptional resolution within the folds, allowing us to see for the first time the lateral continuity of potential reservoir and sealing strata.”
At the same time chairman Alan Burns confirmed that the group remains on course to drill a well within twelve months, once appropriate drilling and environmental regulations are in place.
City broker Northland, meanwhile, reckons the small and mid-cap explorations and production sector is ripe for consolidation.
It sees mid-tier players such as Ithaca and Faroe Petroleum as potential predators along with the larger players such as Tullow and of course the voracious majors, who are struggling to replace their reserves.
However Nortland’s analyst Andrew McGeary reckons acquirers may target assets rather than individual companies.
Meanwhile, the instability seen in resource rich Egypt and Tunisia, which appears to be spreading to Iran and Libya, means the predatory oil companies are obviously keen on assets in more politically benign regions of the world.
“In terms of the UK small cap E&P sector, these dynamics should provide value realisation opportunities from potential disposals or farm-ins, as well as helping underwrite the valuation of producing assets,” the Northland analyst explained.
He favours stocks with significant exploration programmes of interest to the majors such as Tower Resources (LON:TRP), Providence Resources (LON:PVR) and Northern Petroleum.
“Smaller producers may still be interesting on a case by case basis in a benign pricing environment but are unlikely to benefit from these dynamics,” McGeary added.
Separately, the oil and gas team at Shore Capital met with Northern Petroleum’s finance director Chris Foss and Sophie Hull, the head of corporate communications, on Thursday.
Onshore UK, the company expects testing of the Markwells Wood appraisal well to commence mid-year while onshore Italy, it is waiting for planning approval for the La Tosca exploration well, with an anticipated spud date in the second half of 2011, Shore analyst Craig Howie reported.
Offshore Italy, in the West Sicily Thrust Belt, Northern continues to expect a drilling decision from Shell by the end of the current quarter, when spudding of the Tullow-operated Zaedyus well offshore Guyane is also anticipated, Howie revealed in a note to clients. Meanwhile, Northern’s assets in the Netherlands are progressing to plan.
“Although we see scope for upgrades to our assumed Dutch gas price, we leave our forecasts unchanged for now,” the analyst said, repeating his hold advice and 125 pence a share price target.