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Trap Oil & Valiant Petroleum: Orchid drilling kicks off exciting period of exploration

Last updated: 21:48 08 Mar 2012 AEDT, First published: 22:48 08 Mar 2012 AEDT

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Trap Oil (LON:TRAP) and Valiant Petroleum (LON:VPP) today announced the start of drilling the Orchid exploration well in the North Sea.

The plan is to drill the well to a total depth of 9,415 feet, a process which is expected to take 33 days.

Orchid has a gross prospective resource of 38 million barrels of oil.

The operator is Summit Petroleum, which has a 45 per cent stake in Orchid, while the other shareholders include Valiant, which has a 30 per cent stake and Trap has 15 per cent, 5 per cent of which is carried. Atlantic Petroleum has the remaining 10 per cent stake. 

For both AIM quoted firms, Orchid kicks off a significant phase of exploration drilling.

Through separate programmes the two junior explorers will participate in twelve North Sea wells in total.

Orchid is the only well the respective drill programmes have in common.

Trap has seven wells in the diary for 2012, including Orchid. And through the group’s partnership model, which includes a number of free carried interests, its share of the drilling cost will be just a little over £5 million.

In total, the seven wells will target an estimated 255 million barrels of oil (unrisked P50 resources), which equates to 14.3 million barrels net to Trap.

The gross upside resource estimates reach as high as 716 million barrels for the prospects.

Elsewhere, Valiant is planning to drill six wells including Orchid. 

The firm is more established compared to Trap. Its market value comes in around the £215 million mark and it already has some production in place. 

Last year it produced 7,500 barrels a day from the Don Field, and first oil is expected at the Causeway field in the third quarter of this year.

It is expecting net production of around 8,500 barrels a day by the end of this year. Valiant says 2012 is going to be the most active year in the group’s history.

Oriel Securities analyst Nick Copeman today highlighted Valiant’s busy schedule as he repeated a ‘buy’ recommendation on the stock. He says that while Valiant shares have performed well recently, they stand at a material discount to net asset value, which Oriel estimates at 675p.

Meanwhile Jack Allardyce over at N+1 Brewin, formally Brewin Dolphin, says Orchid is worth 59p a share to Valiant and he has a 582p price target for the stock.

Trap Oil joined the AIM market last year and raised £60 million. 

It uses what it calls a “research-led, knowledge-based approach” to identify promising exploration and appraisal opportunities. 

In doing this it has secured extensive long term access to CGG Veritas' state-of-the-art 3D seismic database over the majority of the Central North Sea area on negotiated terms. 

Access to this information has allowed the group to locate opportunities on both open and held acreage in the UK North Sea.

The firm looks for carried and working interests in exploration and appraisal ventures and, armed with its research, it aims to pick up new projects through the UK licensing rounds. 

Trap says the Department of Energy and Climate Change’s Fallow initiative, or ‘use it or lose it’ policy, helps it in this regard.

The initiative sees dormant projects stripped from explorers and developers if there has been no activity for a considerable amount of time.

The project acreage is then redistributed via subsequent licensing rounds.

Jersey Oil & Gas's Benitz: North Sea an exciting place to explore again

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on 26/4/18