Keep calm and carry on | FT Alphaville

Keep calm and carry on

The Falkland oilers fanclub aren’t giving up even though Desire Petroleum has suffered another setback.

On Tuesday, the company said it had been forced to plug and abandon the sidetrack well at the Rachel prospect because of technical issues.

From the statement:

Clean out of the sidetrack has not proved possible due to mechanical failure of the wellbore and it will therefore not be possible to obtain any wireline logging data from this well. However, the data acquired during drilling operations (from logging while drilling tools and geological data from cuttings) indicates that around 25 metres of sand with oil shows was encountered. However, in the absence of wireline logging data it is not possible to fully assess the significance of these results and, in particular, reservoir properties and the hydrocarbon saturations associated with these sands cannot be confirmed.

But there has been no panic selling. Everyone is keeping the faith.

Presumably the muted share price reaction can be explained by the fact that Desire has found some oily sand. But why anyone thinks that is positive is somewhat surprising, reckons Canaccord Genuity analyst Richard Slape.

Although the reservoir section encountered in this sidetrack is much thinner than that in the original vertical well, the fact that it contains oil shows is encouraging. However, due to the presence of a rich source rock in the area, we note that most of the wells drilled offshore the Falkland Islands have encountered oil and/or gas shows. Furthermore, reservoir quality is known to be an issue in the area, so we think it would be premature to draw any conclusions about Rachel at this stage.

Slape also makes the point that moving drilling to another location on the Rachel prospect is easier said than done:

This move to another location on the Rachel prospect is subject to obtaining all necessary regulatory and partner approvals in a short time frameIn the event these approvals are not rapidly forthcoming, the rig will instead move to drill the Dawn/Jacinta prospect and return to Rachel later in the drilling programme.

But others still believe. Here’s Nick Copeman of Oriel Securities:

Whilst not definitive, this result is encouraging and the potential for commercial discovery cannot yet be ruled out until the prospect is redrilled. With Sea Lion already discovered in close proximity, even modest discoveries of 50-100mmb could be commercialised as tie-back opportunities if Sea Lion is developed.

The only issue with that argument is Desire’s market capitalisation of £330m, which seems to be discounting a lot of good news from a company with a pretty dismal drilling record.

Related link:
Gusher! – FT Alphaville
Duster! – FT Alphaville