Roxi Petroleum establishes world-class asset

Little has happened since Roxi Petroleum's stockmarket listing and subsequent collapse six years ago. But investors' patience has been rewarded and a discovery at the Kazakhstan-focused explorer's flagship BNG asset just keeps on giving.

A month ago, Roxi shares were trading at less than 4p each. Last week, it was almost 20p. That's because Well A5, the first deep well on the BNG contract area in which Roxi has 58.41% interest, had detected oil and gas shows at 4,332 metres. A first core sample over a 12 meter range was full of oil.

Now, we hear that a further 18 metres has been successfully taken and is "oil saturated over its full length." That makes the aggregate thickness of the gross oil-bearing interval at least 33 metres.

"Roxi intends to continue core sampling until the oil shows disappear," said the firm Monday. "The company is now working on taking a third core sample between depths of 4,365 and 4,383 meters. The flow rate of the well will be assessed once the core sampling is complete."

WH Ireland analyst Brendan D'Souza is excited. "We look forward to the results of third core sample tests, which could add to the already impressive 33 meters of oil bearing interval," he said on Monday. "Whilst today's core sample results are highly positive, we leave our target price unchanged at 20p/share (since 6 August), awaiting results of further core samples, which should be published over the next weeks."

It's obvious why this discovery is creating such a buzz. BNG is located just 25 miles from Chevron's giant Tengiz oil field which currently produces 600,000 barrels of oil per day, and boasts 26 billion barrels of oil in place and about 7.5 billion barrels recoverable crude oil (more than double the oil reserves of the entire UK). That makes it the biggest producing oil field in Kazakhstan and one of the largest on earth.

WH Ireland reckons a reserve and resource upgrade is on the cards for the fourth quarter of 2014, given that the last audited reserve report was published in June 2011. "We believe this report is outdated and grossly understates the robust progress made across the company's key assets: BNG and Galaz, since mid-2011," says D'Souza.

He reckons it will reflect a far higher level of 2P reserves and 2C resources than the current 2.5 million barrels and 7.4 million barrels, respectively. That potential upgrade is not reflected in WH Ireland's new 20p price target.

Remember, too, there's a prospective resource (undiscovered) of 528 million barrels, and that WH Ireland bases its target on a risked net asset value (core) scenario. Its un-risked (blue sky) valuation scenario implies a price of 74p.

Expect the usual share price volatility that comes with a discovery of this sort, but the excitement around Roxi certainly looks set to continue for some time yet.

Note: 2P is proven and probable reserves; 2C is best estimate of contingent resources

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.