Range reassures investors over
By Darshini Shah
Users of Interactive Investor took the opportunity of share price weakness to pile into Range Resources (RRL) as the company published an open briefing interview that gave more colour to Thursday's announcement.
On Thursday, the company informed the market that drilling on the Shabeel-1 well in Puntland, Somalia had been suspended for future testing. On Friday, it was confirmed that based on Range's internal technical team's review of the net pay zone and results to date, a successful flow test could result in between 70 million barrels (mmbbls) and 130 mmbbls of recoverable oil from the well, of which between 14 and 26 mmbbls would be attributable to Range.
Investors were reminded that globally, the average discovery rate was between one in five and one in 10 for a 'wildcat' well such as Shabeel-1.
"Hence we consider the well successful to date with both the net pay and the confirmation of an active petroleum system," said managing director Peter Landau.
He added: "Whilst the market and short-term traders may have been anticipating further success in the deeper sections of the well, what we have discovered is extremely significant and the chances of a commercial hydrocarbon operation in Puntland are far greater now than when the well was spudded."
Landau clarified that the commercial flow test could not occur immediately before moving to Shabeel North because timing and logistics would mean that the rig and crew would be idle for four to six weeks "at what are expensive day rates in the region". The Shabeel North well is scheduled to spud in early June. Internal technical estimates suggested recoverable oil of between 100 to 150 mmbbls from a successful discovery in the Jessoma formation, of which between 20 and 30 mmbbls would be attributable to Range.
Range Resources and Red Emperor Resources (RMP) each have a 20% interest in the Shabeel-1 well, while Horn Petroleum owns the remaining 60% interest.
Following falls of about 16% and 40% on Thursday, Range Resources and Red Emperor declined another 6% and 8% respectively on Friday.
On Range, Panmure Gordon maintained its 'buy' recommendation, saying that despite the disappointment of Shabeel-1, Trinidad still anchored core value.
"With a doubling of oil production to about 700 barrels per day (bpd) since its acquisition and a 2012 exit production volume, which is likely to exceed 1,000 bpd, Trinidad provides a core value anchor to group cash flows. It provides the platform for a step change in production volumes which may be further enhanced as the company successfully taps into the deeper Herrera formation with a well planned before year-end."
On Red Emperor, FoxDavies stressed that the Shabeel-1 well test raised the prospectivity of the region, especially as one of the key risks had been whether there were any hydrocarbons.
"While the news that the deeper horizons were not considered a suitable candidate for further appraisal is disappointing, the decision to take the next step towards testing the Upper Cretaceous is positive, not only for Shabeel, but also the region as a whole," it stated.
It also reminded investors that following the recent capital raising, Red Emperor was now sufficiently well funded to meet its near to medium-term obligations, including wells in Puntland and Georgia, with the company's revised Georgian programme offering the investor an interesting offset to the exploration risk elsewhere in its portfolio.
Source: Interactive Investor