Fastnet Oil & Gas – not done offshore Morocco
“Financially, Fastnet is in great shape as we now have close on $30mln in the bank after the refund of our back costs from SK,” Friel explains.
Fastnet (LON:FAST) shares shed more than 40% after revealing that the FA-1 well, its first offshore Morocco, had failed to find commercial hydrocarbons.
The target had been estimated in the order of 360mln and a significant proportion of the exploration share’s value had been ascribed to the prospect.
It is clearly a disappointing result, though like the two previous wells in the ongoing exploration campaign in Moroccan waters it is not necessarily an abject failure.
Future efforts may yet benefit from the information garnered from the otherwise unsuccessful well.
Oil and gas shows were seen during drilling, and elements of a working petroleum system were observed.
Small cap speculators, for which AIM is famous, predictably see the findings in a more binary fashion. Today Fastnet shares are down 4.38p, 41.18%, trading at 6.25p.
The intraday deficit all but matches the level that City analysts have written down their valuations.
RFC Ambrian cut its net asset value estimate by 9.5p to 11.2p and downgraded its recommendation to ‘hold’ from ‘buy’, whilst Dublin based Davy called the result “disappointing” and said it accounted for 4p of its 11p pre FA-1 valuation of the Moroccan opportunity.
But, as the dust settles after this dry well, investors may yet be reminded that the small cap market can be fickle.
Given the venture is led by exploration specialist Kosmos Energy and it is also backed by BP (LON:BP) and Korean conglomerate SK, many Fastnet investors will be wondering what happens next and how much it’ll cost?
Thanks to the farm-out deal agreed with SK, late last year, Fastnet can still have another roll of the dice at little or no cost.
Like with FA-1, Fastnet’s drilling costs for a second well will be covered up to US$100mln.
And, according to Cathal Friel, Fastnet’s chairman, the drilling of a second well could come sooner than the market expects.
“We are all quite disappointed [with the FA-1 result], however the fact that they [Kosmos] found a working petroleum system has everyone in the partnership excited about the next well.
“BP, SK and Kosmos are all very eager to drill the well sooner rather than later, potentially even later this year and SK will pay our way up to USD$100m thus this well will not cost Fastnet a single dollar.”
Having shed around 40% today, much of the group’s remaining £22mln market capitalisation represents cash.
“Financially, Fastnet is in great shape as we now have close on $30mln in the bank after the refund of our back costs from SK,” Friel explains.
Fastnet’s Irish assets, in the Celtic Sea, off the south coast, may come into play soon as well, as a much anticipated farm-out deal is expected in the summer.
Such a deal would pave the way for fresh catalysts for the AIM shares and, according to Friel, could further boost Fastnet’s cash resources.
“We are increasingly optimistic we will get a minimum of $10m or potentially $20m of our Celtic Sea back costs when we farm out these assets over the summer, thus potentially having $40m to $50m in the bank by the end of the year.
“Just last week we had a Celtic Sea farm-out conference in Dublin which was jointly organised by the four Celtic Sea players, i.e. Fastnet, Providence, Lansdowne and Azeire when we had over 25 of the international oil and gas companies from around the world attend, including all of the well-known majors.
“Thus we are very confident of completing our Celtic Sea farmout now that our 3D is processed and available for sharing.” |
