roc hopes to drill out of a hard place

Roc hopes to drill out of a hard place

Jamie Freed
November 7, 2007

ROC OIL is hoping that deeper drilling will pay off as it forges ahead with a major exploration program in Angola.

The Sydney company disappointed investors last week when it reported non-commercial oil discoveries from the second and third wells drilled in its onshore block in the African country.

However, the company's chief executive, John Doran, said the next wells drilled would target the deeper "pre-salt" section of the basin, from which 84 per cent of Angola's offshore oil is produced.

Of the unsuccessful wells, one hit the shallower "post-salt" and the other reached both sections. "From now the game begins because we are going to be drilling the pre-salt," Dr Doran said.

Roc has spent $US75 million evaluating and drilling the onshore Angola block since 2000. A big find in Angola would give the company a major boost.

"Roc's high level of equity in Angola [60 per cent] makes for potentially highly value-accretive prospects in the success case," a Goldman Sachs JBWere analyst, Anthony Bishop, said earlier this year.

In August, Roc reported a potentially commercial discovery of between 20 million and 30 million barrels of recoverable heavy oil from the first well drilled in Angola. Analysts said the find could be worth up to 50c a share. In mid-October, Roc caused excitement in the market when it announced it could not reveal the results of its second and third well drillings until it received the approval of the Angolan Government.

Investors who were banking on a big find savaged Roc's shares when the drilling results turned out to be the opposite.

Roc produced 862,454 barrels of oil from five fields around the world in the September quarter, making it Australia's fifth-largest oil producer. About 95 per cent of its production is oil, rather than gas, making it well-placed to benefit from near-record oil prices.

However, despite production gains, Roc has yet to produce consistent profits for its shareholders. The company has pinned a lot of hope on its deeper drilling campaign in Angola, where it has yet to drill three of its targets.

"We haven't found the big one yet," Dr Doran said. "We have worked hard to get to the starting line. We think we are about to get the game going."

In his view, a company is only successful when it pays dividends, but Dr Doran said Roc would be unable to do so until it was confident it would be profitable for the forseeable future.

Roc shares closed 2c lower at $3.14 yesterday, down from $3.90 before the disappointing Angola results were released last week.