(USc) (DGO ID)
Secures rig for Tunisian appraisal project; drilling to commence between end 2012 and March 2013; free option in our 678p per valuation
16 July 2012
FACTS: Dragon Oil has announced that its partner, Cooper Energy, has contracted the GPS Jupiter jack-up rig to drill the Hammamet West-3 well, offshore Tunisia. The well is expected to spud between December 2012 and March 2013.
ANALYSIS: The well will appraise the Hammamet West structure located in shallow water in the Bargou exploration permit. The well plan consists of a pilot hole followed by a horizontal section to intersect the fractures within the Abiod formation. To date, two wells have been drilled on the Hammamet West structure. The second well hit a good section of the Abiod formation but flow was limited.
Dragon Oil is earning 55% of the Bargou exploration permit by paying 75% of the drilling costs associated with the Hammamet West-3 well where gross costs are capped at $26.6m. If gross costs exceed $26.6m, additional costs are shared pro rata between the drilling consortium.
DAVY VIEW: Tunisia has an established working oil and gas system but the geology can be complex. At the moment, our group valuation of 678p per share for Dragon Oil assumes a free option on Dragon's 55% interest in the Tunisian Bargou permit. Nonetheless, the best estimate for resources in the Abiod formation at Hammamet West is 100mmbbl. If drilling successfully proves commerciality, Dragon's 55% interest in the field would be material, representing 8.3% of its existing proven and probable liquid reserves.