The OXX announcement made on Friday has been shadowed by the euphoria surrounding Artemis and a potential farminee. OXX now has a 20% free carried interest in the first 2 wells drilled in one of their 4 permits under the OMV/ENI/OXX Joint Venture. We can be certain that OMV/ENI will be targeting the Gigantor prospect, which will be further defined after the 3D in 2010. The Gigantor lead can be likened in size to that of Artemis, with the upside being 17 TCF. The critical risk in oil and gas exploration is the migration routes. That is the paths through which oil and gas migrate from the source kitchen. RPS Energy has identified Gigantor as being Moderate to High Risk given the likely migration paths and proximity to the source kitchen. It is more favourably located to collect charge than the prospects that are further out and as a result is less risky than the leads further out. Thus the geological probability of success will stand at around 12% until the 3D data is acquired.
OMV is the operator for the geotechnical studies and exploration and ENI is the operator for appraisal and development of prospects. The 2D conducted over the permits was said to be of very high quality, which is supported by the clear fault imaging on the data and the commitment by OMV/ENI to drill a well. The structural closure of the Gigantor prospect is interpreted to be of low risk by RPS Energy. The risk is now interpreted to lie with the reservoir and the seal. The 3D will better help define all this and allow the drill location to be determined.
OXX could have walked away with US$16,000,000, but selected to maintain a 20% free-carried interest in the first two wells drilled in any one permit. I firmly believe the market has under-reacted to the announcement. OXX is considerably undervalued. We know that Shell paid OXX US$10,000,000 for each permit in the Exmouth Sub-Basin and provided them with rights to those permits. OMV/ENI will now be funding well in excess of US$16,000,000 to carry OXX through 3D and 2 wells estimated at US$50,000,000. This clearly outlines the value of OXX acreage. Not to mention that the other permits in the Dampier and Exmouth Sub-Basins already have extensive 3D coverage. The 3D over Winchester has cost OXX ~US$9,750,000 with a further $650,000 spent on the interpretation.
OXX Price at posting:
42.0¢ Sentiment: LT Buy Disclosure: Held
