Today's announcement was disappointing but did not justify a drop to £2.77. No doubt many small investors had stop losses in place or simply panicked and sold on the news, despite the fact that the 14/10-3 is the first of several wells with 14/10-4 considered much more likely to have a good sized hydrocarbon reservoir. It was interesting that even with the 14/10-3 being 5 miles from Sea Lion, oil was discovered but not commercial on a standalone basis. But it is quite possible that this hydrocarbon find may be the edge of the Sea Lion reservoir and that it why additional analysis is needed before any conclusions can be reached. 14/10-3 was not a "duster", live oil was recovered, it was just too small.
Rockhopper looks very undervalued now on the basis that of the Ocean Guardian rig activity planned for the rest of 2011 it would be expected that oil additional to the 200-240 million barrels will be encountered, on the balance of probabilities. With £200 million in the bank and Sea Lion, I am surprised that this share has fallen quite so far on this news. The positions I have been acquiring over the last couple of days are down, but from a fundamental not "share holder panic" point of view, I am confident that by holding we are likely to see a return over £3.50 in the not too distant future (possibly within weeks). A disappointing well result like 14/10-3 tests the investor when the "sheep investors" panic and sell out driving the price down to excessively cheap levels. This is the time a contrarian investor makes his or her money - as Buffett said "when others are fearful be greedy!". It is time now for clear heads, not panic and just a little patience for 14/10-4.
The rumours of a big strike were ultimately wrong, and the gradual fall in the share price before the announcement, shows that those in the market who are really in the know tend to dictate the direction of the price. Maybe rumours were just misinterpreted since oil was encountered, just not enough of it. This was not the case with the Sea Lion discovery, where the price fell heavily before the discovery , then sprung up like a coiled spring on positive news. But the Falkland oil companies seem to emanate leaks with great regularity.
RNS Number : 1130B
Rockhopper Exploration plc
11 February 2011
For immediate release: 11 February 2011
Rockhopper Exploration plc
("Rockhopper" or the "Company")
Results of 14/10-3 Exploration Well
Highlights:
· 64m good quality gross reservoir encountered
· 7.3m net pay with low oil saturation
· Live oil recovered to surface from MDT
· Well, on a stand-alone basis, considered to be uncommercial
· Results considered technically encouraging for reservoir development within Sea Lion
Rockhopper Exploration plc (AIM: RKH), the North Falkland Basin oil and gas exploration company, announces that exploration well 14/10-3 located in licence PL032, 8 km to the north west of the Sea Lion oil discovery was drilled to a total depth (TD) of 2,830m. The well was designed to explore the northern lobe of the sea lion fan feature and is the first well to be drilled in that area.
The well encountered good quality reservoir from 2,425m to 2,535m in a sequence of 4 main sandstone intervals. Within these 4 main sand intervals 64m of gross reservoir sand was encountered with net sand of 54m (a net to gross ratio of 84%).
Wireline log interpretation was carried out using Rw taken directly from downhole MDT water samples from each sand. Logs indicate that three of the sands encountered (Sands 1, 2 and 4) have high water saturations with hydrocarbon shows during drilling and in cores. Logging indicates that one sand (Sand 3) has net pay of 7.3m using a cut off of 70% Sw.
The reservoir is located beneath a thick regional shale seal. The sands which came in, as prognosed by the Company, are of good quality with average porosity of 18-20% and peaks of up to 25%.
Depth | Average Porosity | MDT Sample | Sw | |
Sand 1 | 2,425m - 2,446m | 18% | Water | >90% |
Sand 2 | 2,452m - 2,469m | 20% | Water | >90% |
Sand 3 | 2,473m - 2,481m | 18% | 20% live oil | 63% |
Sand 4 | 2,517m - 2,535m | 20% | Water | >90% |
The Company believes that Sands 1, 2 and 3 are likely to be related to part of the main Sea Lion feature, while Sand 4 could be related to the S2 feature.
Oil and gas shows were detected throughout the reservoir intervals. Four conventional cores were cut through the reservoir totalling 101 metres and both the bleeding of live oil and oil staining were observed throughout. However, MDT samples on Sands 1, 2 and 4 returned water.
A number of live oil samples were recovered from Sand 3 using a standard MDT tool, samples were approximately 20% live oil and are indicated to be medium gravity.
The Company then performed a mini Drill Stem Test ("DST") on Sand 3 by using a dual packer MDT tool downhole. During the test, water was produced into the well. Further technical work is required to understand why the mini DST produced water while the standard MDT recovered 20% live oil from the same sand interval.
MDT pressure readings taken over Sand 3 indicate that it appears to be lying on the same oil pressure gradient as the main Sea Lion fan in well 14/10-2, indicating the potential for good lateral communication. Further wells and technical work will be required to determine if this is the case.
Log interpretation has proven to be complex and the Company believes that further work is required to fully understand what has been encountered in the well and its implications.
The Company believes that the lowest sand (Sand 4) could form the downdip, distal part of the S2 feature and will now undertake further analysis to determine the likelihood of oil being present updip in the S2 lobe. Despite the high levels of water saturation in Sand 4, oil staining was observed in the core.
Further technical work will also now be undertaken to determine the likelihood of oil being present elsewhere in the northern Sea Lion lobe and the likely contribution, if any, of this well to any commercial oil development on the Sea Lion feature.
As the regional overlying seal appears to be intact and effective at the well location, reservoir quality is good, oil shows and moveable live oil are present, the main technical risk associated with the northern Sea Lion lobe remains the effectiveness of the seal at the location of the feeder channel and the risk of effective charge from the south if there is discontinuity within the reservoir.
Following completion of all logging operations the Company currently intends to plug and abandon the well in line with the originally intended drilling programme.
The Ocean Guardian drilling unit will then drill appraisal well 14/10-4, which is located 2.3 km north west of the 14-10-2 Sea Lion discovery well. A further announcement will be issued on the spudding of 14/10-4.
Sam Moody, Chief Executive of Rockhopper, commented:
"This well, which was the first to be drilled in this area, 8 km to the north west of the Sea Lion discovery, was encouraging. The results of the well are complex and will take some time for us to interpret fully. The quality sands encountered confirm our understanding of the depositional system within the basin. We are particularly pleased to have encountered a thick sequence of reservoir as we prognosed and obtained a number of samples of live oil. The results are indicative of significant upside potential elsewhere across the Sea Lion and S2 features.
This well is the first of a number we plan to drill during 2011, focusing largely on delineating the extent and size of the Sea Lion discovery, as well as testing additional exploration upside."
NOTES
MDT: Modular Formation Dynamics Tester
Rw = Resistivity of formation water
Sw = water saturation
