Smaller Company Tips: Desire - DES - Sector: Aim - Share Price: 23p - BUY
Investors Chronicle, June 1
Bull Points
- Prospects in the Falklands still very promising
- Drilling in Portugal to be completed next month
Bear Points
- Timing of Falkland drilling programme still unclear
- Highly speculative stock
Cautious investors will remember the buying frenzy after Desire began drilling on its North Falkland Basin acreages back in 1998. When the rig moved on after failing to find a significant resource the disappointment hit the share price hard, driving it down to levels from which it has never really recovered. Further disappointment came when the firm's gas play in Portugal yielded promising results but no possibility of extraction. Desire is revisiting both failures over the next 12-18 months, and, although the plays are the same, this time punters will be able to buy into the risk at a discounted price.
Desire's drilling programme in 1998 revealed the North Falkland Basin to be the second richest hydrocarbon system in the world, with an unrisked, recoverable reserve potential of 2bn barrels. It's down there, but exactly where remains to be seen. Depending on rig availability Desire should commence another round of drilling early next year but the company's cash balance of GBP870,000 is not enough to support the expensive operation that would be involved.
Currently, the group's directors are seeking farm-in partners - a typical deal would involve the farm-in company paying for the drilling costs for 50 per cent of the interest. But in the meantime drilling for gas in Portugal is back underway, with results expected some time next month.
Desire will always be a high-risk stock, but if it manages to recover even a small amount of the potential reserves it currently has under license, a very rewarding one. Bearing that in mind, renewed interest around the globe in finding new oil resources make the shares a buy. |
