Bowleven (LON:BLVN) shares advanced around 13 percent in early trading as the latest update provided a shot in the arm for the Sapele oil discovery offshore Cameroon.
This morning it revealed that the Sapele-2 well in Cameroon hit a 35 metre column of hydrocarbons.
The presence of oil was detected in both the Lower Omicron and Deep Omicron horizons, and according to chief executive Kevin Hart the Sapele-2 results have so far indicated potentially the highest level of net oil pay encountered on any of the wells on the block.
Due to borehole conditions it was not feasible to recover reservoir fluid samples at this stage, the company said.
Hart said: “The Sapele-2 well location was selected as a substantial step-out from the original Sapele-1 motherbore and consequently highlights the potential for significant volumes to be contained in the surrounding area.
“It is an exciting time for the company and the results to date are extremely promising in the context of both Sapele and the Douala Basin as a whole."
The AIM-listed oil firm struck oil in the Sapele-1 exploration well in the Douala basin last November.
The initial discovery propelled the stock to surge over 130 percent by the end of 2010, from around 170 to almost 400 pence a share. However recent technical set-backs and results from a subsequent sidetrack in Sapele-1 saw the shares pull back in recent weeks.
The lead up to the Sapele-2 result helped spur a comeback, from the recent lows of about 250 pence, for the AIM-listed shares and this positive result has provided a further boost.
At 11:30 Bowleven shares were up 36.75 pence, or 12.9 percent, and they last changed hands at 321.5 pence each.
In a note to clients Evolution Securities oil analyst David Farrell emphasised the renewed optimism around the Sapele discovery.
“After the market’s disappointment at the relatively low risk Sapele-1 side track result the fear, we think, was that the Sapele discovery would whimper away,” the analyst said. “To that end, the positive indications so far from the more aggressive Sapele-2 appraisal well should see a reversal of sentiment towards the field and we expect the shares to perform well today.”
Farrell repeated a ‘buy’ recommendation that targets 400 pence a share.
The analyst stressed that while is keeping current estimates of Sapele’s size, until Bowleven has completed the testing of the Sapele-1 sidetrack and Sapele-2, there is potential for the field to double in size to about 120 million barrels of oil.
Similarly Matrix Capital oil analyst Charlie Sharp said: “This result is a step in the right direction for Bowleven, hopefully confirming the immediate Sapele area as a c.100 million barrel discovery.
“There is still plenty to do ... but we see this result as stabilising and then improving the share price following the recent uncertainties.”
Sharp highlighted the Bowleven will need to follow up the Sapele-2 success with a good oil test result, a demonstration of ‘reservoir communication’, further appraisal and an independent reserve determination.
Meanwhile Guardian Stockbrokers’ Atif Latif said the update was good news and still sees investor sentiment staying positive given the substantial potential from progressing resources into reserves and by adding more oil resources through exploration.
“(Bowleven is) still a takeover target as it has been for a year and this (result) makes it a more interesting play in the E&P sector,” Latif said.
Another AIM-listed firm Victoria Oil & Gas (LON:VOG) has also been making excellent progress in the Douala basin.
On dry land, VOG is set to begin commercial gas production from the Logbaba gas field on the outskirts of the Douala City – Cameroon’s most populated city – after the government granted the project an exploitation licence last week.