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Caza Oil & Gas rally picks up pace after “another excellent result” from Bone Springs

Published: 07:08 29 May 2014 EDT

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The fast-paced rally in Caza Oil & Gas (LON:CAZA) shares continues after it revealed the latest well in Lea County, New Mexico, flowed at a rate of 1,602 barrels oil equivalent (boe) per day.

Changing hands at 20.5p per share, Caza is up more than 20% on the back of today’s news.

The AIM quoted oil firm has almost trebled in value thanks to recent well successes, and it said today’s was “another excellent result”.

Drilled on Caza’s 52.5% owned Gamma Ridge property, the well provides further encouragement in the emerging Bone Springs play.

“We are extremely pleased with the Gramma Ridge result,” chief executive Mike Ford said. “We are very happy to continue the trend of creating significant shareholder value with this exceptional result.”

The Gramma Ridge 27 #1H well was drilled to a depth of 15,496 feet and tested the 3rd Bone Springs interval.

Production has built steadily following fracking in mid-May, and rates peaked at 830 barrels of oil and 4.63mln cubic feet of gas per day – which equates to 1,602 boe. Oil is already being sold from the well, and gas sales are expected to start in the near future.

Oil and gas was also encountered in four other intervals in the Gramma Ridge well – in the Brushy Canyon, Avalon and 1st and 2nd Bone Spring sands. Additionally, Caza believes the deeper Wolfcamp formation is also prospective for oil and gas.

Ford added: “We have again been able to demonstrate the significant upside to be realized from stacked pay intervals in this play, as log and core data from the Gramma Ridge well suggest the 3rd Bone Spring Sand is only one of six potential pays present on this property for future development.”

Another well is currently planned at Gramma Ridge, offset to 27 #1H well.

The Gramma Ranch, Bone Springs success is “greatly encouraging”, says City broker Cenkos, which repeated a ‘buy’ recommendation and a 31p price target.

Cenkos analyst Ashley Kelty reckons Caza now has net production in the order of 1,400 barrels oil equivalent per day, and he expects the ongoing programme will see output expand further.

“With an active drilling programme over the coming months, we see scope for the growth in production continuing at the rate achieved over the last 12 months,” he said in a note.

As such, Kelty still sees plenty of upside for the Caza’s shares, even after the rally of recent weeks.

“The share price has rallied strongly in the past month, as we believe the market is beginning to recognise the potential offered across the portfolio.

“Whilst this is welcome, we still believe that Caza trades at a greater discount than most AIM peers.

He adds: “Caza offers a low cost entry point for investors seeking exposure to the prolific Bone Spring play – arguably one the ‘hottest’ onshore plays in the US.”

Similarly, stock market oil expert Malcolm Graham Wood today said Caza’s price is “at long last the stock price is starting to genuinely reflect the potential value the company is creating in the Bone Springs play.”

In his daily blog, he said: “Caza exhibits what can only be described as potentially massive upside potential with these Bone Springs plays and even at 21p the scope for the stock price is huge, my initial target of 50p a share+ is now looking decidedly parsimonious.”

Caza this morning also told investors that the next well on the West Copperline property, the 29 #4H well, is currently ahead of schedule and should reach total measured depth within ten days. It is also targeting the 3rd Bone Springs sands and will be fracked at the end of June.

It is a direct offset to the West Copperline 29 #3H well, which initially tested at rates up to 1,108 boe per day, and Caza expects a similar result.

The company has a 62.5% working interest in West Copperline.

Elsewhere, the third-party operated Jazzmaster well has reached its intended depth in the 2nd Bone Springs sands, and it will be fracked in the near future. Caza has a 25% working interest in the Jazzmaster property, which already hosts two wells.

At the Forehand Ranch property, in Eddy County, New Mexico, a development programme is now underway for the ‘shallow pool’ Cherry Canyon play. Drilling of the first of three vertical wells has begun. Caza has a 63% working interest.

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