Kea Petroleum Gushes Higher As It Signs HoA For Puka Farm-Out
December 10, 2013
Shares in Kea Petroleum climbed almost 19 per cent after the New Zealand explorer said it had inked a Heads of Agreement to farm-out its Puka discovery. It's still early days – the HoA is non-
Kea made the oil strike in April 2012, bringing to some welcome relief to what has been a rather disappointing, and expensive, run of wells on its acreage in New Zealand. But despite the initial excitement, and relief, it has been difficult to get traction behind Puka and the decline rates demonstrated by the two test wells have weighed on the stock, down 75 per cent in the year to date, with initial production of 700 bpd from Puka-2 quickly dropping away. The two wells are now pumping around 150 bpd plus 1.2 million cubic feet of gas per day. The AIM-quoted company says this is a typical pattern for Mt Messenger reservoirs, of initial decline followed by a long period of level production.
Revenues from the test oil produced to date now tally US$3.2 million, a useful little amount, but far short of supporting a full appraisal and development of this complex field. 3D seismic suggests the current wells have been drilled into thin sands on the western edge of a substantial channel and that drilling into the thicker sands it expects to find in the main channel could yield production rates of over 2,000 bpd. Testing this hypothesis means drilling Puka-3 but this well has been pushed back to next year as the company, short of cash, sought farm-in partners, through a competitive process launched in September 2013, to help fund the next stage of work.
Kea will now enter an exclusive period of final due diligence and transaction documentation with a view to completing a transaction in early 2014. The aim is to land a staged farm-out that will see Kea funded, up to a cost cap, through one firm well and up to three further wells to fully appraise Puka, which it currently reckons holds 1-3 million barrels with potential P50 upside of 7-10 million barrels.
Chairman Ian Gowrie-Smith said the company was pleased with the response to the farm-out process and by the technical validation and endorsement of Puka by “a significant number of highly credible oil and gas companies”.
Zac Phillips, oil and gas analyst with SP Angel Corporate Finance, said “a deal would represent a significant derisking of the project”. Shares in the £14 million market cap company closed up 18.75 per cent at 2.38 pence.
