Tuesday's AIM news: Oil and mining
News from AIM-listed oil, gas and mining companies was mixed on Tuesday, with Jubilant Energy striking oil, but Orosur Mining downgrading production estimates. See what they, and another eight companies, had to say to their investors.
Caza Oil & Gas
LSE:CAZA:Caza Oil and Gas has commenced drilling on the WC 35 State No. 1 well on the Sombrero prospect in Lea County, New Mexico.
Caza has a 20% working interest on the Sombrero prospect, which covers approximately 1,920 gross acres. The WC 35 State No. 1 well, which has a proposed total depth of approximately 11,600 feet, is the initial test well on this property.
"If successful, this property has good development potential and will add further value to the company through increased cash flows and oil and natural gas reserves," said chief executive W. Michael Ford.
Chariot Oil & Gas
Chariot Oil and Gas (CHAR) has signed a drilling rig contract with AP Moller Maersk for an ultra deepwater semi-submersible rig to be used on the Tapir South prospect, offshore Namibia.
The rig is expected to arrive on location at the end of March 2012, with drilling to commence "shortly thereafter". The exploration well is estimated to take approximately two months to drill and is the first well in Chariot's 2012/2013 exploration programme.
The prospect has a 25% chance of success, with a gross unrisked mean prospective resource of 604 million barrels of oil (mmbbl).
Sam Wahab, analyst at Seymour Pierce, believes the 25% success rate represented "too much up-front risk to investors at this stage, given the underexplored and gas-prone nature of the region". He had a 'sell' rating on the stock.
Broker FoxDavies Capital said: "This news, and subsequently proposed spudding date of the Tapir South well, starts the countdown on what could be a game changer for the company, and an interesting ride for the share price."
Continental Coal (COOL) has announced that Ntshovelo Mining Resources, the joint-venture entity that operates the Vlakvarkfontein Coal Mine, has executed a coal supply agreement with South Africa's state utility company, Eskom.
The agreement is for the supply of 720,000 tonnes per annum (tpa) of thermal coal of quality suitable for some of Eskom's power stations, over an initial three-year period commencing 1 March 2012.
A "significant zone of mineralisation" has been intersected at GGG Resources' (GGG) first phase of exploration drilling in Gibraltar.
Gibraltar, which is located approximately seven kilometres south east of the Bullabulling Trend, returned best results including 13 metres at 2.87 grams per tonne (g/t) gold, 7 metres at 3.12 g/t gold and five metres at 11.98 g/t gold.
Horizonte Minerals (HZM) has announced positive results from the preliminary metallurgical testwork at its Araguaia Nickel project.
Commercial grades of ferronickel were produced in laboratory smelting tests. Additionally, high nickel recoveries of between 94.4% and 96.1% were achieved.
"[The] Araguaia project could represent a world-class project potentially of interest to global majors," said Alison Turner, analyst at Panmure Gordon, adding that the test results represented a major technical milestone.
However, she stressed that the next step for the company was to demonstrate the economic viability of process options for Araguaia.
A preliminary economic assessment is set for release in the second quarter of this year, with Turner predicting that this would provide the market with an understanding of the capital and operating costs of the different process options and the economic attractiveness of Araguaia.
"We believe the release of that study will mark a major turning point for Horizonte as the project begins to move from exploration phase to development," commented Turner. She had a 'buy' recommendation on the stock.
Jubilant Energy's (JUB) fourth well in its phase III drilling campaign in the Kharsang field has successfully tested oil.
The well, which was spudded on 9 December 2011, was successfully drilled to the target depth of 1,127 metres measured depth (MD) on 5 January 2012. It has subsequently be put into production at an initial gross rate of 70 barrels of oil per day (bopd).
The company has also identified four shallow potential oil-bearing zones.
"With potentially one more well to drill and three to test, this [stock] is one for the watch list," said FoxDavies.
Orosur Mining (OMI) warned that production for the year to 31 May 2012 would be approximately 6,500 ounces, or 4%, lower than budgeted. Target cash costs per ounce have also been increased to a range of $930 to $950 (£590 to £603) per ounce.
The company cited the "delay in receiving the full production permit" and "a planned reduction in the rate of stope advance due to the need to complete additional infill drilling" as reasons for the downgrade.
Orosur has now been granted mining permits for exploitation of ore from the Arenal Deeps project, albeit a month later than anticipated. "Mining of open pit material will be accelerated and planned mill throughput increased to compensate for this shortfall," confirmed the company.
Chief executive David Flower called the marginally lower production and higher cash costs "disappointing".
However, he reminded investors that the "full permitting of the first mechanised underground mine in Uruguay, the completion of the new tailings dam facility which will ultimately provide capacity for more than seven years of mine life and the successful development of the Arenal Deeps mine" were all critical milestones that the company had achieved.
Sefton Resources (SER) on Tuesday warned investors that new wells drilled in December were not producing the volumes of oil "as quickly as expected".
"Production volumes at Tapia are rising but yet to reach targeted levels, which are expected in the coming months following continuing well stimulation, cyclic steaming and planned well work-over programme," the company said.
However, the company pointed out that its Kansas operations was expected to begin making a contribution by mid-2012. A permit for a fourth well at Tapia has been received and drilling was now planned for the third quarter of 2012. Additionally, up to four wells on the Hartje lease were scheduled for a work-over programme in the coming weeks. The company was confident that this would boost production from this part of the Tapia oil field.
Solo Oil (SOLO) confirmed that work on the pipeline between South Airport gas well and the Ausable process facility had been stopped due to the "extremely wet weather", with work expected to commence post better ground conditions.
Additionally, the company confirmed that the reversal of the Union Gas meter, which was tentatively scheduled for 27 February, had been delayed by Union Gas "due to its internal resource planning".
On the other hand, cementing of the surface casing of the North Airport well had been completed. A rig was now drilling to total depth estimated to be 608 metres.
"We believe good progress has been made on the field to achieve targeted production of 500 bopd by end 2012," commeted FoxDavies, adding that it would be following updates "closely".
Sound Oil (SOU) has provided investors with an update on its Italian operations.
At the Montemarciano Permit in Marche, the Casa Tiberi-1 well had been re-entered in order to undertake additional testing of the perforated zone at 571 to 581 metres.
"The objective of the operations is to provide additional stabilised flow rate data in relation to gas export options," said the company, with the data obtained enable a decision to be taken on the commerciality of the discovery and to apply for establishment of a production concession.
The Rapagnano Concession in Marche remained "on track" for final approval in the second quarter of 2012.
Finally, all geological and geophysical studies had been completed for the Badile Permit in Lombardia. The prospect is estimated to hold P50 prospective resources of between 170 and 226 billion standard cubic feet of gas (bscf) or between 18 and 23 mmbbl of oil. The project is on schedule for a drilling application to be submitted in the second quarter of 2012, with a view to drilling in 2013.
"Approval for Rapagnano and successful farm-out of Badile Permit will be the important catalysts in the near term," said FoxDavies.
Will investment in oil and gas continue to rise? George Godber of Matterley Asset Management shares his views on this and highlights regions that should show strength during the year in: Oil and gas investment outlook.