Europa Oil & Gas (LON:EOG) could soon be set for a breakthrough with its Irish exploration venture, as operator Kosmos Energy is expected to make a drilling decision in the summer.
Kosmos has made quick progress with the venture with a 3D seismic acquisition programme undertaken off Ireland’s west coast last year.
If it chooses to take the venture further with exploration it is expected to pursue a two well programme, starting next year.
Chief executive Hugh Mackay tells Proactive Investors about the implications of this key milestone here.
Proactive: Can you tell us more about the progress with the Irish exploration venture?
HM: We expect that Kosmos, the operator, is going to deliver us the process seismic data this week and during the summer that they'll deliver a prospect inventory.
That's a very significant step, because that triggers two things: one, we’ll start paying for a small amount of overhead in the run-up to drilling, but also at that point Kosmos will make a decision about a) if they want to drill in Ireland – and hopefully they do and in one of our two exploration licences – and most importantly, when they want to drill in Ireland.
They haven't made a commitment yet, but they're happy for us to say to the market that this could be as early as 2015 for the first well.
Proactive: Should exploration go ahead, what would exploration success mean for the company?
HM: It would be a company-maker, the size of the prize.
For example, a 400 million barrel field, which was the size of field that we were suggesting with our indicative resources that we put out earlier in 2013 and 2012, a 15% equity in a 400 million barrel field would have an NPV10 of about $1 billion.
We've yet to confirm what the resources for these prospects are with the benefit of the new seismic data; as I said, the process data is being delivered now, so that process of confirming the prospects’ sizes and the resources with the new data is starting now.
I expect to have that information in the summer, so I expect that the numbers are going to change from the ones we put out in November 2012 and January 2013.
However, these are very large prospects; I expect the resources to be of the order of hundreds of millions of barrels. Exploration success will be hugely significant for us; we will have hit a home run if one of these wells comes in.
With the terms of the farm-out, it's a well on each licence, so there's potentially two wells in the overall programme, one in FEL213 and one in FEL313. The combined value of the cap is $200 million of drilling expenditure.
Proactive: You mentioned the word ‘potential’; are there any further onshore drilling candidates in the pipeline?
HM: Yes, we've got two firm wells in 2013; the first of these is the Wressle well, which is operated by Egdon, and I expect that Egdon will be providing an update to the market soon.
We expect that that well will spud in the first half of this year, so between now and the end of June. That's a 2.1 million barrel prospect, the risk is one in three, we've got a 33% equity in the project, and I'm hoping that we'll be spudding that soon.
That'll be the first well in our programme; the second well is operated by Europa, and that's at Kiln Lane in PEDL-181, and our intention is to drill this well in the second half of the year.
The fundraising that we did in January and December has provided us with funds to enable us to drill that well, together with our partners, Egdon and Celtique.
We're in the final throes of obtaining a lease for the drill site, we've commenced compilation of data for the planning application, and I hope that the planning application will go through in the summer, to enable us to drill in the second half of the year.
This is a 2.9 million barrel one in three conventional exploration prospect; it's a very exciting prospect.
It's in a part of the East Midlands Petroleum Province that has been overlooked and underexplored, and success at this well is a playmaker; if it comes in then there are other conventional prospects that will be enhanced by exploration success, so we're very excited about this project.
We’re operating it, we've got the funds, so we’re in the position where we can put pedal to the metal, as it were, and get this well drilled in 2014.