Mosman Oil & Gas ( LON:MSMN) has the potential to deliver a “meaningful proven reserve base and material growth in value per share”.
That’s the opinion of Progressive Equity Research, which initiated coverage of the Australia and New Zealand exploration group based on a potentially high impact, low cost drilling programme.
Earlier Thursday recently-listed Mosman said it had recruited Drill Force to carry out work on the Petroleum Creek project in New Zealand starting June.
The programme will include the Crestal-1 and Crossroads-1 wells, as well as two contingent wells.
Forty kilometres from the town of Greymouth, Petroleum Creek is on the South Island and covers 144 square-kilometres.
A report compiled by the internationally respected consultants SRK points to mean unrisked recoverable prospective resource of 26mln barrels of oil. The P90 estimate is 4.8mln barrels, while the P10 is 59.2mln barrels.
The figures were arrived at using historic seismic data unearthed by the current team as well as information already compiled on Petroleum Creek. Oil was first discovered by railway workers in 1897.
Oil seeps at surface demonstrate oil generation from the coal source at 4,000-5,000 metres and migration paths to surface.
The last deep wells were drilled in 1980s, with one shallow well drilled in 2010, which intercepted oil from 21 metres (m) to the bottom of the well at 90m below surface.
Seismic shows the oil seeps are on the crest of a deeper lying structure. In fact the SRK report identifies 22 prospects, largely off this crest.
From June, Mosman’s team will sink its maiden hole very close to the abandoned 2010 well.
It will take five days to complete and is expected be one of “three or four” drilled this year.
In a recent interview with Proactive Investors, Mosman chairman John Barr rated the firm’s chance of success very highly.
The initial vertical well will be drilled to a minimum depth of 250 metres, with the basement estimated to be at around 400 metres.
The cost of the entire programme (three to four wells) is put at A$1mln – which wouldn’t even cover the clean-up costs of a fracked horizontal well.
The wells may require pumps to get the oil to surface. Even so, it will be a game changer when the light waxy crude starts flowing at commercial rates.
A discovery means the company’s resource then becomes a contingent reserve, which should lead to a major valuation lift.
More importantly, the existing road and rail infrastructure means development can be quick and low cost.
The use of funds includes A$900,000 2D seismic survey planned to finalise drilling locations on the 22 S prospects and leads identified by SRK.
Meanwhile, the cash flow from the drilled wells will be reinvested in the ground as the group increases the number of wells.
“While it is currently entirely an exploration business , Mosman could, within months, have a meaningful proven reserve base and deliver a fast track oil development and material growth in value per share,” said Progressive analyst Tony Alves.
The management team behind Mosman merits mention.
Entrepreneur Barr is one of the original directors behind Aquarius Platinum, TNG and Thor Mining, and he’s teamed up with Andy Carroll, an engineer with over three decades' experience in oil and gas including BP and InterOil.
“Mosman’s management team combines a proven track record in identifying and successfully developing early stage projects in the resources sectors with a depth of technical and operational expertise in, among other areas, Australia, Papua New Guinea and New Zealand,” said Mosman’s Alves.
At 2pm the shares were up 27% at 12.99p, valuing Mosman at just under £8mln. |
