Today’s news from Dragon Oil (LON:DGO), which has completed and tested its latest development well in the Caspian Sea offshore Turkmenistan, was met with a positive response in the markets. The initial test result from the well was 3,081 barrels of oil per day.
The stock climbed on the news, but it still has a long way to go to match analyst estimates of the value of the company’s assets.
Analyst Job Langbroek called this a good result, noting that it was achieved from a single completion. He also highlighted that the outcome of the well mirrors that of other wells in the more western parts of the LAM field, which have encountered good reservoir and produced some of the better initial production rates seen in recent years.
“The result picks up our thoughts that the less developed western part of the LAM field is returning results that contribute towards the increase in production guidance to 20 percent from 10-15 percent before,” said Langbroek.
Davy has estimated that the exit production rate in the first quarter was 60,000 barrels of oil per day and that due to the contribution from western wells, the average decline rate across the field is improving.
Based on these factors, along with the surging price of oil, Davy has recently changed its recommendation for the stock to “outperform” and hiked the net asset value (NAV) per share estimate to 603 pence.
Shares in Dragon Oil climbed 2.5 percent to 530 pence on the news this morning, which is still significantly below Davy’s estimate.
The oil producer is currently expanding its operations in the Cheleken contract area offshore Turkmenistan, with a major three year drill programme that is expected to cost as much as US$700 million.