In early June, the Shabeel North well in Puntland, Somalia was spudded with a targer depth of 2400 metres. The well is operated by Canadian listed Horn Petroleum (60% share) with AIM listed Red Emperor Resources holding a 20% interest and AIM/ASX listed Range Resources 20%.
The drill was planned to take around 60 days and yesterday, in the last hour of trading, the companies issued an update indicating the well had reached a depth of 1,967 metres with 50 metres of upper Jesomma sands with oil shows. An open hole drill stem test is currently underway to determine if this zone is oil or water bearing and should be finished by the end of the week.
Red Emperor in particular had an enormous swing in the share price during the day, hitting a low of 16p during early after noon before closing up 17% at 22p. Range Resources hit 5.5p in the morning before the bounce to close at 6.6p,a rise of 11%. I’m sure plenty of small investors got stopped out or scared out before the RNS – an expensive mistake.
The big questions for investors are whether the find to date is actually oil or water and what lies below 1,967 metres in the Jesomma area?
Earlier in the week, Range Resources held an investor Q&A where they indicated that they may well spin-off their Puntland operations into a separate company to realise additional share holder value if the well flowed at commercial rates.
As Desire Petroleum investors know to their cost, the analysis of the liquid is key to ensuring that hydrocarbons are actually present and Range/Red Emperor holders are only too familiar the spike and huge sell off before and after the last Puntland well results. Though there are “oil shows”, the extent of the find is completely unclear and for those picking up Red Emperor shares at yesterday’s lows, they are already showing a healthy profit. With AIM oil and gas, taking profits, not getting too greedy, is key. A recent example is Borders and Southern which was 120p+ in May, yesterday it was 15p with the Stebbing well disappointing! The rampers will try and talk the share price up, whilst selling. New investors should be particularly wary. Always err on the side of caution with wild cat wells!
Contrarian Investor UK