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Morocco’s offshore oil find should provide encouragement

Published: 00:42 21 Oct 2014 AEDT

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Investors in offshore Morocco can be encouraged that oil has been found in the Sidi Moussa well even if operator says it’s premature for definitive conclusions to be made.

At best it will mark the would-be frontier’s first commercially viable discovery, and at worst it is tangible proof that oil exists within the highly prospective, under explored region.

San Leon Energy (LON:SLE), which has a 10% interest in the well, this morning said that the Sidi Moussa well had reached target depth and had “encountered oil”.

Shortly after Genel Energy (LON:GENL), the operator and 60% stakeholder, confirmed that oil had been found but said it is “premature at this stage” to make any definitive technical interpretation of the well’s findings

Testing is expected to get underway imminently to shed more light on the apparent discovery.

Genel, an operator, producer and exporter in Kurdistan, is well used to managing expectations amid uncertainty. 

Moreover, the size of its portfolio and its £1.7bn market value mean the outcome of any single well is less material compared to its AIM quoted exploration partners.

So it is natural that here, in Morocco - where all preceding offshore exploration wells have disappointed - the partners are sticking firmly to the ‘known-knowns’.

For investors, the only real known thus far is the well has found oil.

That previous wells mostly have not managed this much casts the find in a positive light.  

Upcoming testing will be the key in either revealing the well in the Sidi Moussa block as a commercially viable discovery or alternatively a technical discovery.

That Genel is suitably satisfied to go ahead with a US$22mln testing programme is a positive, according to oil stock expert Malcolm Graham Wood.

“Genel as operator is spending north of $20m on the testing so it must feel that it is at least worth the while doing it,” he said in a note. 

“Testing this will take 2-4 weeks and with a Capital Markets Day scheduled for the 13th of November, Genel has the perfect target for what might indeed be very good news.”

He adds: “All eyes have been on offshore Morocco for some time now and with a couple of dusters so far success here would be a boost for all the players in the area.”

Across the City views are naturally restrained, though Westhouse took the time to point out that Sidi Moussa has the potential to be transformational for San Leon.

That said, analyst Mark Henderson is holding back any changes to Westhouse’s rating and target price for the explorer, whilst the results of testing are awaited.

SP Angel, meanwhile, said: “Given the guarded nature of the text, we believe that while this will be a technical discovery, it will not be a commercial one. 

“It is important to remember that the threshold for commerciality is low, however, it is still located offshore and there is a significant amount of work that needs to be completed before any declaration can be made.”

Whatever the ultimate outcome, clearly attentions will remain fixed in the coming weeks for news from testing. And given the potential significance to the would-be oil province all those invested in offshore Morocco will be watching this space.

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