Wessex Exploration - A Play On Tullow's Guyane Exploration Well?

24th Mar '11 by p3dr036

19 comments 14141 reads

Wessex Exploration (LON:WSX) could be an interesting "punt" on Tullow Oil’s first exploration well in the vast EEL Exploration Licence] offshore in Guyane. South America. Tullow Oil (LON:TLW) has a 27.5% interest In this licence and is operator, Shell London [RDSB] has 45% and Total [TOT] has 25%. The remaining 2.5% interest is shared 1.25% each between Northern Petroleum [NOP] and Wessex Exploration [WSP] and is held in the NOP subsidiary Northpet Investments. [source for the percentage holdings - Proactive Investors article on WSX dated Monday 23rd March]

Wessex shares closed at 3.5p on 23rd March after their move to AIM. If the present drilling project is even moderately successful, one feels that the effect on the Wessex share price could be surprising. The prospect of this micro company having even a small interest in a potential mega oil/gas field could be transformational. As a result the upside in the short to medium term could perhaps be a doubling or perhaps more of the present price.

On the other hand, if the exploration well is not a success, the downside from the present 3.5p share price one feels could be limited, perhaps to 50% or so.

However time will tell. The drilling is ongoing and I feel that a result should emerge in the next six months. For shareholders in Wessex Exploration the next few months could be very interesting indeed!

Tullow regards the potential of Guyane to be significant as they have stated that geology of the licence area to be similar to that in offshore Ghana, where they have made recent discoveries.

Tullow acquired the EEL Licence in 2007 from the original licensee, Hardman Resources. Since then there has been a great deal of work carried out by Tullow in the licence area and drilling is now under way. Tullow commenced drilling the Zaedyus Prospect in March 2011 with the first exploration well GM-ES-1 well on the Guyane Maritime Permit.Quote from the Wessex website "Tullow believes the well has the potential to open up a major new oil province in French Guyane, with a significant number of further prospects and leads identified. Tullow has stated that the Zaedyus prospect has an estimated P10 prospective resource of up to 700 million barrels of oil and is geologically analogous to its Jubilee field, located…

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tony9i9i9i

25th Mar '11

Good post but out of interest p3dr, what would you value 1.25% of "P10 prospective resource of up to 700 million barrels of oil" at? How does the value stake up against he Wesses market cap? What else do they have going for them, if anything?

Tony.

doverbeach

Then of course there is one not so small drawback:

I've got some Tullow. And some Northern. I think I'll pass on putting more money Mr Bramhill's way ...

p3dr036

tony - I have made no attempt to quantify a possible valuation for "P10 prospective resource of up to 700 million barrels of oil". But whatever it might be it would surely be a multiple of the current Wessex market value, always provided the the present drilling is a success..

But your comment made me think and just as an exercsise with the caclulator we have:

WSX with a market value of £15,579,356.78 based on the current price of 3.25p
[479,364,824 shares at issue X 3.25P]

WSX with an interest of 1.5% in the EEL.

Possible "value" of P10 prospective resource of 700 million barrels of oil
Assume an oil price of $110 per barrel
Potential "value" of this "oil in the ground" could be regarded as $77,000,000,000 i.e 77 billion US dollars!
Assume a "value" of 5% of that to Tullow and its partners = $3,85 billion US Dollars.
WSX's share of that figure of 1.5% = $57.750,000 or £36,093,750 at a $:£ exchange rate of $1.6 = £1.
This would be a doubling of the present WSX price.

But these of course are "nonsense" figures plucked out of thin air!. I have no idea if a figure of 5% as a "potential" value is anything llike correct. I intend them merely to indicate a "possible" future to WSX. We are weeks/months away from knowing the outcome. But one point to make is that if the outcome is negatve then I do not see that WSX share price diving down much.

My decision to buy WSX when it listed on ther AIM market was a pure punt on the success of the current drilling.

WSX do have other interests and details are on http://www.wessexexploration.com/index.html. But my focus is on the Guyane Project solely.

Peter

Although I am aware of his CV as laid out on the Wessex website, I have no "previous" with David Bramhill. Therefore my decision to buy the shares was made on what I saw as a possible short/medium term profit and not on him.

I have held shares in Northern Petroleum who also have a 1.5% interest in the Guyane Project. I could have used the money to buy NOP shares but decided upon WSX instead, Mty reasoning is that the effect of success on WSX shares will be far greater than the effect on the price of NOP's shares simply because of the realtive sizes of the two companies.

P3

wistman

Hello all,

Here's another angle re. valuation:

From the "plus" prospectus 2009. Sorry, the formatting hasn't worked, but you get the idea-risked value over the whole block about $28M , npv IF REALLY SUCCESSFUL on the fan & Matamata $200m +.

Valuing Wessex’s interest in the Guyane Maritime licence
Wessex’s principal asset is its interest in the Guyane Maritime licence. We have used the following information to value the company’s interest:
1. The attention of Tullow, the operator, is now focused on the Jubilee analogue leads on the south-east of the licence.
2. The gross prospective resources of the Jubilee field are stated by Tullow at between 600 million barrels and 1.8 billion barrels.
Accordingly, we have assumed that Tullow identifies two Jubilee type prospects of one billion barrels prospective resources gross and drills them first. We have risked these prospects at one in six (16.7%). We have also assumed that, including the Matamata prospect, there are 3 billion barrels gross of other leads and prospects to be drilled later. We have risked the Matamata prospect and the other leads at one in twelve (8.3%). The results of our analysis are shown below:
                                                                         Jubilee analogue leads      Matamata prospect and other leads
Prospective Resources                                      2bn barrels                                       3bn barrels
Net to Wessex (1.25%)                                      25m barrels                                     37.5m barrels
Implied Value of undeveloped oil                       $5/barrel                                           $3.25/barrel
NPV on success                                                      $125m                                           $121.87m
Geological and commercial chance of success 16.7%                                                   8.3%
Risked value                                                         $20.87m                                            $10.12m
Cost of two wells                                                      $2.50m                                                        0
EMV                                                                            $18.37m                                                 $10.12m
Source: Westhouse Securities
Hope this helps. Like Doverbeach, I do not regard Mr Bramhill as a plus factor-my experience with Cambridge Mineral Resources made me avoid NightHawk. But, heck, he's a non-exec and he's good at whipping up a bit of excitement. Come on David, make me some money-you know you can do it!

(My main reason for a small punt is my high esteem for Tullow's geologists-Wessex does offer a rather nicely geared play on success)

Rowie62

26th Mar '11

P3 - The competent person's report associated with the AIM listing contains a description and a valuation of the Wessex assets. It's downloadable from the "Aim Rule 26" portion of the Wessex Website, or you could follow this link
http://www.wessexexploration.com/High_res_Wesses_Expl_IPO_WEB_HR.pdf

It's 23 Mb, so probably not a sound move to try it from a mobile phone.

xxnjr

As far as I'm concerned, and for my own analysis, I've assumed WSX's "other" assets are worthless. Matamata may also be worthless, as there's uncertainty as to whether it's received any charge. That leaves Zaedyus + follow up. This would then have to be about a 400mmbo confirmed oil discovery just to justify the current SP [based on Npv $6 $1.60]. On those assumptions it's clearly overvalued now, as they haven't even drilled the damn thing yet.....

..... but call me bonkers, I've bought some. Why? Just a bit of fun with a tiny % of my TLW profits over the years. TLW seem to feel FG could potentially rival or even be bigger than Ghana. If they are successful I'll be laughing, and if not, no worries.

xx

xxnjr -I totally agree with you.
You perfectly summarised my own reasons for having a small-ish punt on WSX when you wrote:
"Just a bit of fun ..."
and
"If they are successful I'll be laughing, and if not, no worries."

Cheers!
p3

ohisay

26th May '11

I bought a few of these today for nothing more than a punt on the Tullow drill.

I've discovered a very good UBS Broker note on the Oilbarrel website dated 11th February which has a excellent overview of the Guyane prospects..

http://www.oilbarrel.com/investors_economy/brokers_notes.html

11th February 2011 - European Oil & Gas - UBS Investment Research

Thers a Tullow NAV thrown in too .

1st Aug '11

We should be getting near to some sort of announcement regarding the success or otherwise of the Tullow Guyane exploratio well. The drilling started in March and I believe was expected to take 120 days. So we could well [!] hear something during August.

Fingers crossed!

p3

2nd Aug '11

Somewhat off topic but I've also recently been buying the tsx stock CGX energy who are involved in the nearby Jaguar prospect later this month.
They also have the Corentyne prospect in the area to look forward too .
Recent broker note here.

http://cgxenergy.ca/documents/CanaccordGenuity-Jun02-11.pdf

Clearly leveraged to any half decent result at Zaedyus .Well off their recent highs too.

Another small punt for me.

17th Aug '11

Was expecting news early next month.Hey ho fingers crossed.

http://www.ft.com/cms/s/0/5e153d00-c8ef-11e0-aed8-00144feabdc0.html#axzz1VJau0927

Wessex Exploration , up 13.7 per cent to 2.9p, also rose on talk of a positive drilling update from the Zaedyus prospect in French Guyane.

Wessex holds a small stake in the wider Guyane Maritime Permit project, which is being led by the FTSE 100’s Tullow Oil.

JPGH

Tight hole status assigned to this well so might be something in today's afternoon rise. If there is more of same tomorrow then the gun has "smoked" twice so probably a good sign.
JPGH- small position in Wessex.

18th Aug '11

Up again a little this morning.

Fingers, legs and eyes crossed!

djpreston

2nd Sep '11

Hmmm quite a rise in WSX over the past few sessions (from last Thursday) 2.65p to 4.675p as I speak.

Volumes rising and sumours reported in the press of a success..... Leaky or just PI buying hoping for a big payoff?

Looks more like informed buying to me but then again, no real feed through on NOP as yet..... As an aside, rumours also of Chinese bids for TLW in the offing...

Well its nice to have somethign interesting on a Friday at least.

I can't recall many (if any come to that ) of Tullows wells being leaky.

As someone with a small holding in WSX I'm more inclined to see it as a typical muppet attack- dont see many of those these days do we?

If there was anything to it I'd expect to see some positive movement in TLW - after all it would derisk and underpin their view of the area as being a kind of Jubilee analog.

Have still got my eyes, fingers and legs crossed. Hopefully I won't have to wait much longer.

WSX is up by 15% or so today and was up over 20% at one time. But is the rise due to band waggon jumpers coming in [too late???] or informed buying - who can tell?

We'll know soon I feel!

Good point about Tullow, ohisay. They are slightly down today
p3dr036

My query is probably answered.

There was a bullish [or did I spell that correctly???] piece about Wessex on This is Money which includes the coment "Tullow Oil. Shares of the London-based oil and gas producer gushed 34p to 1109p on expectations that a re-rating of the stock should follow upbeat drilling results from its high impact Zaedyus and Montserrado wells in French Guiana and Africa respectively"

see:
http://www.thisismoney.co.uk/money/markets/article-2032782/MARKET-REPORT-Tullow-Oil-tipped-strike-rich.html#ixzz1Wm5ohxwt

And Tullow's share price has risen steadily over the past week by around 3% or so each day!

10th Sep '11

Well I am pleased!! That "punt" came off OK. Though I admit to selling 50% of my holding a little while before the TLW announcement at the Zaedyus well was a DISCOVERY [I do like that word!!]

But my remaining shares are now tucked away awaiting further development of the TLW oil field.

However I think that this could take a while as the rig that is currently working, is, as far as I am aware, only contracted for this one well. It was only available to TLW because of the ban on drilling in the Gulf of Mexico following the BP disaster there. So, assuming that the ENSCO rig will close down and move once this well is finished, iIt could be quite a few months before we see more drilling activity there.

Watch this space!!

Wessex Exploration - a play on Tullow's Guyane Exploration Well?

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