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Northern Petroleum’s outstanding oil flows send shares soaring

Published: 00:12 22 Oct 2014 AEDT

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Northern Petroleum (LON:NOP) shares jumped almost 20% on Tuesday due to outstanding flow rates from a well drilled in Canada.

The first of three new well drilled at the Keg River project has tested at a rate of 1,300 barrels of oil per day, the company revealed.

"The production capacity of the first well in this campaign is outstanding and it does not take many wells of this calibre to significantly increase the value of the whole project,” said chief executive Keith Bush.

“This well demonstrates the ability of the area to still produce high value production wells.”

Production from the well will be temporarily constrained, to 100 barrels per day, due to the flaring of gas from the well within parameters allowed by the local energy regulator.

It is anticipated that gas flows will be tied into nearby infrastructure by January, and thereafter the well’s output will rise to between 300 and 400 barrels of oil per day.

NOP has also completed the other two wells, with less positive results. These wells were deliberately located in varied positions to test reservoir development across the property.

Westhouse analyst Jamal Orazbayeva reckons the standout well result highlights the potential of the project.

“It is important to note that the management guided for an average initial production rate of 100b/d per well across the field,” she said in a note.

Moreover the analyst points out that his 110p per price target, which implies some % upside, is largely based upon that assumed production rate too. 

“While two other wells did not deliver as expected, the 102/15-23 well on its own can compensate for them as post tie-in production rate from this well alone is expected to be 300-400b/d,” the analyst added.

The second well of the programme was designed to test the “extreme edge” of the project, according to NOP, and it encountered poorly developed oil pay and it is expected to yield only moderate production. It also encountered gas which will be tested at a later date.

The third well, meanwhile, in a more central location, hit a water swept reservoir section and it will not be produced from.

NOP has now drilled five new wells at Keg River this year and it has re-completed a pre-existing well at the property.

The company said that constricted production from the initial three wells has totalled about 140 barrels per day, which is expected to rise to between 200 and 250 barrels per day once gas tie-in has taken place.

Production (post tie-in) is expected to increase to between 500 and 650 barrels per day with the inclusion of all new wells.

Also two more wells will be drilled in the first quarter of next year, NOP told investors.

“In less than a year, the company has built a production project which should put the business in a positive cash flow position and has the proven potential to significantly grow production and core value,” Bush added.

“Given the conditions and volatility of the current market and business environment, these are very important milestones to have reached."

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