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02.03.2006

Elixir Petroleum Suffers As The Jaguar Wildcat Fails To Roar


Investors savaged Elixir Petroleum on Tuesday when its Jaguar wildcat in the North Sea proved to be the runt of the litter. The company saw its AIM-traded shares lose more than 40 per cent of their value as the stock dropped to 26.25 pence after the main target reservoir was found to be dry. There is still some hope that something may be salvaged from the project as operator DNO has decided to deepen the well, in block 211/22b, to evaluate the potential of the Brent formation.


“Unfortunately drilling higher reward plays invariably means higher risk,” said managing director Russell Langusch. “DNO are however drilling on a bit further as the underlying Brent formation does have some prospectivity, although we rate it only an outside chance.”


It had been hoped this well could unlock the geology of Upper Jurassic stratigraphic trap plays in this part of the North Sea, a play which has received little attention on the UK side of the border but has been successfully exploited by the Norwegians. There were pre-drill hopes of a possible 450 million barrel reserve base although Langusch always acknowledged this would be a high risk project.


There is some comfort for investors. Although Elixir has a 40 per cent working interest in the Jaguar licence it will only contribute 7.5 per cent of the well costs following a farm-out agreement with Norwegian operator DNO.


Even so, the Jaguar duster has removed a lot of the near-term excitement from the Elixir portfolio and will downgrade the prospectivity of the Leopard and Panther structures. Leopard lies in block 211/18b and there is a pre-drill reserve estimate of 350 million barrels on the structure. It lies updip of Jaguar and shares many geological similarities – investors should approach with caution.


Panther lies in block 211/8b and could hold 130 million barrels of oil. Langusch says it is a “different animal” from Jaguar. Elixir holds 80 percent of both blocks with 20 per cent partner Sosina, a wholly-owned subsidiary of Danish technology group Odegaard, and the companies are looking for farm-in partners before proceeding to drilling.


The investor reaction was compounded by the fact Jaguar followed hot on the heels of the Muness and Marquis dusters. Muness, in block 21/4b, was drilled at the backend of 2005 and found only minor gas shows. Elixir, which has a 7 per cent interest after agreeing to contribute around £1 million to the costs of the well, is now evaluating the prospectivity of the block, a process which may lead to the block being relinquished.


The Marquis well was drilled last summer and was plugged and abandoned after encountering water-bearing reservoir sands. A full technical review is now underway to determine the future of that licence.


Despite these disappointments, it is worth pointing out that Elixir can boast interests in 18 North Sea blocks and a variety of different play types. Investors, shaken after a three-in-three failure rate, will want to see progress on the Leopard and Panther farm-out programme to provide some third-party reassurance on their prospectivity plus news on the marketing of its 22nd licensing round blocks. The company says there has been a good response to the marketing drive and several offers are under consideration. It hopes to conclude agreements over the coming months with a view to progressing to drilling on these licences in 2007.