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Here's an interesting article that has been quoted in full on the Interactive Investor web site:
http://www.iii.co.uk/investment/detail?display=discussion&code=cotn:OEX.L

Enjoy.

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shares mag courtesy of alliance trust

Oilex to go with the flow

Test of well on flagship Cambay development could be a significant catalyst
Tom Sieber

A successful frack (7 Jul) on a key well on Oilex’s (OEX:AIM) flagship Cambay tight oil and gas field in India is the precursor to a near-term flow test which could drive a more concerted re-rating of the stock.

Year-to-date the shares have doubled from a low base after launching its latest attempt to prove up the potential of the field with the Cambay-77H well in India. If the upcoming test is successful the plan is to drill four further wells with the aim of getting the field into production next year.

The final well in this programme will also look to test deeper potential on Cambay. This will require further funding. House broker RFC Ambrian expects the group to be sitting on $1 million at the conclusion of the current well.

The field, located at the heart of India’s largest gas distribution network in Gujarat, contains so-called ‘tight’ oil and gas and requires fracking or fracture stimulation for these resources to be brought to the surface. An independent audit by industry consultant Netherland Sewell and Associates in 2011 identified contingent resources of 37 million barrels of oil and 222 billion cubic feet (bcf) of gas net to Oilex’s 45% interest. The Gujarat State Petroleum Corporation owns the remainder of the asset.

Shares says: "We see scope for considerable upside from 6.28p."

The company should benefit from a strong local gas market with the domestic price standing at around $8 per million cubic feet. Nevertheless risks are high given the group’s single-asset focus and previous drilling problems have led to extreme volatility in the share price.

The proof of concept Cambay-76H well drilled in 2011 involved the first frack ever carried out in India and encountered several problems. A piece of equipment became stuck down the hole and this complicated a flow rate test. The well was finally suspended in May 2012. It should have been drilled for less than $15 million in around 30 days but ultimately took 11 months with costs running to $25 million ($11.3 million net to Oilex).

RFC Ambrian has a risked net present value per share for Cambay of 7.6p which underpins the current 6.28p trading price. A positive flow test result would likely boost this valuation and could eventually see the shares recover to the 30p-plus levels seen prior to its previous drilling on Cambay.

It is also worth noting RFC Ambrian carries nothing for the group’s early stage unconventional assets in Australia’s Canning basin or the deeper prospective resources at Cambay (identified by Netherland Sewell) of 63 million barrels of oil and 421 bcf of gas.

Shares says: Buy Oilex