CGX Energy (OYL-V) and Frontera Energy (FEC-T) finally gave investors an update on the progress of its Kawa-1 exploration well in Guyana.
The two of them arranged their Guyanese joint venture in 2018, but are only now drilling their first well. It is called Kawa-1 and is located on the offshore Corentyne block. Back in August, when the joint venturers spudded the well, they predicted that it would reach total depth in the first half of December. Antsy shareholders have been saying "any day now" for weeks.
Today, shareholders chose to focus on the bright side of a decidedly mixed update. The well is not quite at total depth after all, but CGX and Frontera reckoned that they have covered about 90 per cent of the distance. Unfortunately, the delay is causing cost overruns. The two of them are now projecting that the well will cost $115-million to $125-million, well above the previous budget (which they left unmentioned) of $80-million to $85-million.
CGX noted that it may "be required to seek additional financing." Investors generally do not like to hear such a thing barely a month after an equity financing that raised $73.6-million, in the process diluting CGX's share count to 334 million from 287 million. CGX said it is "assessing several strategic opportunities." In the past, its opportunities have frequently included Frontera, which backstopped last month's offering and loaned CGX $19-million (U.S.) a few months before that. Frontera is keeping mum on whether it plans to open its wallet again.
The good news is that if CGX needs to pitch another offering, it is doing so on encouraging -- if preliminary -- drill results. "Initial results suggest an active hydrocarbon system is present at the Kawa-1 location," cheered CGX today. It based this on LWD (logging while drilling) measurements and cuttings. Experienced energy investors will know that a driller can find an active hydrocarbon system and still end up with a duster of a well. This well has not even reached its main target yet. Of course, such obstacles are nothing to a capable promoter, ready to pop the champagne cork on even the thinnest of updates.
The promotional job at Kawa-1 is made easier by its eye-catching neighbours. To the north lies Exxon's Stabroek block, where the supermajor has made nearly two dozen discoveries since 2015. To the east is Apache's block 58 in Suriname, home to five discoveries, including the Maka Central-1 oil strike, which won Wood Mackenzie's "Discovery of the Year" award last year. That well is only about 10 miles from the Kawa area. Incidentally, when Apache released its first update on Maka Central in late 2019, its stock plunged by more than 10 per cent, because the company did not specify whether it found any signs of oil. Its circumspection led some analysts to predict 80-per-cent odds that the well was a bust. This was not the case, but it may explain CGX's quickness to toot its horn today, as well as investors' hopes that the Kawa-1 well will have a similarly happy ending.
By Business Reporter |
