Analyst Barney Gray, in a note, says the failed exploration well offshore Liberia - for which all costs were covered by US oil major Exxon – was a disappointing setback for the company but also “very much part and parcel of high risk / high impact oil and gas exploration”.
As Gray highlights the company still has exposure to an 80% interest in the OPL 226, host to the offshore Noa discovery, via the ShoeCan joint venture.
He says that this project offers exciting exposure to Noa’s near-term cash generation potential, which can be unlocked by drilling an early appraisal/production well.
“ShoreCan’s technical team has identified several locations to test both the Noa-1 discovery with a low-risk appraisal well, potentially near the end of 2017,” the analyst said.
“A successful result here could be put on early production via an FPSO and start generating cash for the JV as early as 2018.
“In combination with this plan for an early production system, ShoreCan is also evaluating a full-scale development plan for Noa-1 and adjacent prospects. Such a project could consist of 29 producing wells targeting over 250 mmbbls of oil drilled over 12 years with full production phased in over a ten year period.”
According to Gray, the Noa project would require substantial funding or a farm-out of ShoreCan’s stake.
The cost of starting an early production project is estimated by Gray at as little as US$40mln, which he believes could be covered by debt financing secured on the field’s initial production.
“Although Mersurado-1 represented a setback for COPL, dry wells are a fundamental element of the junior E&P sector,” the analyst added.
“More importantly, COPL has negligible financial exposure to Liberia and now has the opportunity to focus management time on Nigeria.
“Given that Noa-1 represents an early production project with cash flow generation potential, we believe that COPL, through ShoreCan, will seek appropriate funding solutions in the current year in order to accelerate its renewed strategy.”