Pan Orient Energy (POE-V) Investors seemed mildly pleased with the company's latest update on its AYU-1X exploration well at its 49-per-cent-owned East Jabung block in Indonesia. They must also have been pleased that for once, an update on the well arrived on time; in fact it was a bit earlier than expected. This well has been at the source of much of the hype about Pan Orient since the company farmed out a 51-per-cent interest in East Jabung to Repsol (then Talisman Energy) in 2015. In exchange for the interest, Repsol agreed, among other things, to pay the entire cost of the first exploration well (up to a cap of $10-million (U.S.)) and then, if the first well was successful, to carry Pan Orient for a second well (for the first $5-million (U.S.)). The first well was originally supposed to be drilled in early to mid-2016. That target got pushed back to the fourth quarter of 2016, then the first quarter of 2017, then April, 2017, then June, 2017, then July 5, 2017, and then July 20, 2017. The sixth revision was the charm, or close enough, and the well was finally spudded on July 29. Pan Orient estimated that the initial results would be available on or about Aug. 31. Today, three days before its deadline, Pan Orient managed to get some results in. It was a Monday morning miracle.
Less miraculous, at least at this stage, were the well's actual results. These are early stage but nonetheless raised some questions. For example, the well's total depth was given as 1,140 metres. Investors were expecting a much deeper well, given that Pan Orient told shareholders at its annual meeting in June that the top of the Batu Raja interval, the primary target of the well, would not be hit until 1,200 metres and thus the planned total depth would be around 1,550 metres. The change in plans casts a shadow on the accuracy of the companies' structural interpretation. The good news is that, within the Batu Gajah formation, preliminary analysis has shown roughly 5.5 metres of net oil pay. Although that is not a large number, the companies had not expected to find oil until farther down structure, as Pan Orient told investors in June. Meanwhile, in a different formation hit on the way to the Batu Raja interval, the companies have found "significant indications" of hydrocarbons, meaning oil shows and high gas readings. Pan Orient lauded the overall results as "encouraging" and said the companies will start drilling their second well immediately. This well, ELOK-1X, will be a sidetrack from the first well and will aim for the Lower Talang Akar sandstones, which were the secondary target of the first well. This second well should take another 30 days to drill. Its results will be important in determining whether the structure is commercially viable.
All in all, although Pan Orient has avoided what would have been a devastating outcome -- a dry hole at the first well -- the actual results of the well are less conclusive than investors would have liked. The long wait for good data from East Jabung continues.
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