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UPDATE - Cairn Energy makes significant oil discovery offshore Senegal

Published: 09:32 07 Oct 2014 EDT

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--ADDS BROKER COMMENT--

Cairn Energy (LON:CNE) has discovered large volumes of oil in the deep waters offshore Senegal.

The company’s 40%-owned FAN-1 exploration well has found between 250mln and 2.5bn barrels of in-place oil, according to initial estimates.

FAN-1 targeted a stacked fan system and it hit a total of 29 metres of oil bearing reservoir in the Cretaceous, and encountered more than 500 metres of gross oil bearing intervals.

Chief executive Simon Thomson described the discovery as an important event for both Senegal and the exploration partners.

In a statement he said: “We have encountered a very substantial oil bearing interval which may have significant potential as a standalone discovery.

“Furthermore, this result materially upgrades the prospectivity of the block with a proven petroleum system and a number of deep fan and shelf prospects established.”

Cairn and its partners are now working on plans to follow up the FAN discovery next year.

The London listed oil firm is the operator of the exploration venture and it has 40% of the project. Its partners include ConoccoPhilips with 35%, Aussie-listed FAR with 15% and the Senegalese national oil firm Petrosen which has 10%.

JP Morgan describes the discovery as a “basin opening” result, whilst pointing out that its own 180p per share valuation for Cairn gives no account of exploration assets. 

“Recovery factors are as yet unknown, and the prospect will require flow testing to ascertain flow potential of the reservoirs,” JP analyst James Thompson said. “Nevertheless, on paper this appears to be a sizeable initial discovery, with significant follow-on potential along the shelf edge.”

“In our view the source and migration elements of the hydrocarbon system have been de-risked, although the trap configuration and reservoir quality remain unproven.”

SP Angel, meanwhile, agrees that testing will be needed but it says the balance of probability is skewed towards commerciality.

“These results mark the first significant exploration success for the company since it restarted its exploration programme following the receipt of the Cairn India money,” SP Angel said.

“While this will be welcome, the wider question turns to the reproducibility of the results, and whether this is the start of a run of success.”

RBC analyst Nathan Piper told investors that with 300mln barrels ‘mid-case’ recoverable there is indeed commercial potential.

“This is a very positive drilling result that should open up follow-on potential and derisks source for the second well that is scheduled to be restart shortly and completed before the end of the year.”

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