By Jamie Ashcroft
High impact wells will put Morocco on the map as a major new oil frontier and industry interest will surely build further.High impact wells will put Morocco on the map as a major new oil frontier and industry interest will surely build further.
BP’s (LON:BP.) move into the deep water exploration plays that lie offshore Morocco has put the spotlight on a region already red-hot with exploration fever.
Work will begin in a matter of weeks on Cairn (LON:CNE) and Genel’s (LON:GENL) respective drill programmes, the start of a phase of work that will see the drilling of around ten deep water wells by a number of companies and at a likely combined cost in excess of US$1bn.
Any material successes in these high impact wells will put Morocco on the map as a major new oil frontier and industry interest will surely build further.
Indeed, the fact that oil ‘super-major’ BP has made its move at this stage – when the promising prospects currently exist on paper only – highlights how keen the majors are not to miss out.
Through its deal with Kosmos, BP has pledged funding support for new wells: at least one on each of the three blocks it is farming into. It is taking a 45% interest in the Essaouira and Tarhazoute licence blocks, and a 26.3% stake in the Foum Assaka licence.
Not only will it pay all of Kosmos’s share of drilling costs in each, it has also agreed to pay some of Kosmos’s share on follow up wells – if they are warranted – and it is paying Kosmos a proportionate share of its past costs related to the assets.
A ‘delighted’ Kosmos chief Brian Maxted said in Tuesday’s statement that the addition of BP to the venture adds significant value to the planned operations, particularly given BP’s proven success in similar exploration ventures elsewhere.
AIM-quoted Fastnet (LON:FAST), a third party in the Foum Assaka licence, is also expecting a boost as it pursues its own farm-out process, in which it also intends to bring in a partner in return for a cover on its drilling spend.
Fastnet managing director Paul Griffiths says the Kosmos-BP deal endorses the potential of the licence area.
As such, it is expected to strengthen Fastnet’s hand in negotiations and underscores the value of its stake in the property.
Job Langbroek, analyst at Dublin based broker Davy, says the terms of theBP/Kosmos transaction set a benchmark for a Fastnet farm-out.
“The farm-in not only makes a statement about the quality of the acreage but it should also help Fastnet in its own farm-out process,” the analyst said in a note.
“The deal has a set a template for the terms of this farm-down process andBP’s presence should also ensure heightened interest.
“A well is scheduled to be drilled in the first half of 2014 and the BP farm-in arrangement suggests that, subject to concluding its own farm-out, Fastnet can at least expect to be fully carried for one well, partly carried for a second and also recover back costs equivalent to the new entrant’s interest.”
With the clock ticking towards Kosmos’s anticipated start of drilling in 2014, investors in Fastnet will keep a keen eye out for a deal.
In the meantime, Cairn and Genel’s imminent programmes are likely to whet the appetite and could provide catalysts for the whole sector.
For the larger firms – like BP, Kosmos, Cairn and Genel – a discovery will probably only move the needle by few pence (or cents) per share, but could prove to be company-making for the juniors that are carried on these expensive campaigns.
There are a several other small caps hoping for such an outcome; they include Tangiers Petroleum (LON:TPET), San Leon Energy (LON:SLE),Longreach Oil & Gas (CVE:LOI) and Pura Vida (ASX:PVD).
All these small caps are set to participate in – though not necessarily pay for – wells in the upcoming phase of drilling.
Unlike Fastnet, which is solely staked on ‘big bang’ offshore plays, the others also have separate projects onshore or in shallow water where smaller independent firm’s budgets stretch a lot further.
On dry land, explorers can move much more quickly and cheaply from discovery to production, albeit the returns may not match the successful longer term deep water plays.
The drill programme will be busy onshore too.
Gulfsands Petroleum (LON:GPX) acquired onshore Moroccan assets earlier this year and it is kicking off an initial five well programme this month.
The plan is to focus on shallow gas anomalies, at depths between 1,000 and 1,650 metres, which are similar to adjacent commercial discoveries.
All in all, it is clear that in the weeks and months ahead Morocco will be at the forefront of the oil investor’s mind and, assuming a reasonable level of success across the sector, more and more opportunities are likely to present themselves.
