It probably shouldn’t come as much of a surprise that Europa Oil & Gas Holdings PLC’s (LON:EOG) management has mixed feelings as 2018 draws to a close.
Undoubtedly, it was a good year for the group’s Irish exploration projects, which are easily the most exciting part of the portfolio, but in England, the group’s efforts to establish new productive and cash generative operations were stymied in local planning disputes.
At the proven but undeveloped Wressle field, in Lincolnshire, there is - on paper - the opportunity to double group production to above 200 bopd, meanwhile, the Holmwood exploration venture in the South East has promise as a possible ‘lookalike’ of the breakthrough Horse Hill discovery (where testing shows aggregate oil flows above 1,000 bopd).
Both projects stalled in the planning process this past year, and, neither can go ahead at present.
It is perhaps obvious, then, that focus is on Ireland and also a possible new venture in North Africa.
Ireland is the priority ahead of 2019 well programme
In Ireland, Europa racked up project milestones during 2018 for its ‘pre-drill’ offshore projects.
Desktop studies and analysis of technical data have helped de-risk the group’s catalogue of exploration prospects, leading the company to estimate the resource potential at some 5.7bn barrels of oil and 2.5trn cubic feet.
Significantly, Europa prioritised the Inishkea gas exploration area as its ‘flagship’ project.
Inishkea is located in the vicinity of the Corrib field – Ireland’s primary source of domestic gas – which means there’s an opportunity to accelerate any would-be project towards commerciality (if exploration activities are first a success).
Proximity to existing infrastructure and a tangible proof of hydrocarbons next door, understandably, make the Inishkea assets a natural starting point for practical exploration activities.
That the targets are also found in shallower and somewhat more hospitable waters, compared to the group’s other Atlantic prospects means they should (in theory) also be cheaper to test.
Europa reckons there could be some 2.54trn cubic feet of gas across six prospects in the Inishkea area.
The plan is to drill an exploration well, in either 2019 or 2020, though to fund the programme, Europa will need to bring in a partner via a ‘farm-out’ transaction (which would see project equity swapped for either funding commitments or hard cash).
“Our farmout process commenced in July 2018 and the target market of supermajors, majors and large independents are in the virtual and physical data rooms,” Europa chief executive Hugh Mackay said, in October.
“We are looking to drill as early as 2019, subject to industry or financial partnering and we have been sufficiently encouraged by the positive results to commence both the well planning and site survey preparation necessary for a 2019 spud.
“With the Corrib gas field going into decline and Ireland’s demand for both gas and electricity forecast to increase in response to its vibrant economy we believe there is a window of opportunity for gas that we must seize at Inishkea.”
Europa recently confirmed that it is now in talks with a major international oil and gas company regarding a potential farm-out and partnership deal.
Such a deal would likely be a significant catalyst for Europa’s shares, as would any successes elsewhere in Ireland’s offshore exploration frontier.
Eyeing opportunities in Morocco
At the same time, Europa is now looking to new opportunities in new territories – with a project in Morocco currently under consideration.
“Our experience onshore UK during 2018 has vindicated the board’s decision to add a third territory to our portfolio,” chairman Simon Oddie said in a statement ahead of December’s AGM.
“Over the course of the year, we have evaluated a number of potential projects in several new jurisdictions and, as announced on 20 November 2018, we are pursuing a new venture opportunity in Morocco to further diversify our asset base.
Oddie added: “By next year’s AGM Statement, I am confident Europa will not only have a clear line of sight towards the drilling of at least one potentially transformational well offshore Ireland, but also have a portfolio of assets in at least three jurisdictions, all at various stages of development and all contributing to our growing pipeline of opportunities offering significant re-rating potential.”
Investors will wait over the next weeks for further Morocco news.
Whatever Brexit holds in store for the UK more broadly, the uncertainties affecting Europa’s British business were in local politics.
Although existing producing assets were supported by better oil prices, growth projects stalled.
“While major milestones were chalked up across our Irish portfolio in 2018, the same cannot be said for our UK onshore assets,” Simon Oddie said.
“We are constantly looking to maximise our existing production, and we have a number of initiatives underway focused on achieving just that.
“However, efforts to scale up output both by bringing the Wressle oil discovery in North Lincolnshire on line and by drilling the conventional Holmwood prospect in the Weald Basin, proved fruitless following unfavourable decisions at the council and governmental levels respectively.
“We remain optimistic that Wressle will eventually be brought into production at a gross rate of 500 bopd, even after the disappointing decision by the council’s planning committee to refuse permission despite a recommendation from its own professional planning officer.
He added: “However, following the decision by the Secretary of State for Environment, Food and Rural Affairs not to renew the lease for the drill site at Bury Hill Wood, we took the decision to withdraw our application to extend planning permission to drill Holmwood.”
Evidently, Europa is not giving up on what remain attractive English assets – nonetheless, both the company and its investors will need to be patient on the planning front.
English frustrations aside, the company is expected to have plenty going on in Ireland and Morocco to keep the market engaged.