Range Resources' Puntland chances look much better after drill...

Range Resources' Puntland chances look much better after drill update, says broker

Range Resources' (LON:RRL) chances of a big oil find in Puntland, Somalia increased significantly with yesterday’s drilling update, according to broker Panmure Gordon.

The news was encouraging given the frontier nature of the exploration, added the broker, which has adjusted its estimate of the chance of success to 40% from 12%.

“This newsflow de-risks somewhat this frontier play and we have upped our chance of success to 40%. We have accordingly adjusted our target price to 18p. We retain our Buy recommendation,” it said.

Range owns a 20 per cent stake in the Dharoor and Nugaal blocks in Puntland.

Operator Horn Petroleum said yesterday that the Shabeel-1 well had reached a depth of 2002 metres against a target depth of 3800 metres.

The well is currently drilling a 400 metre section composed of interbedded sandstones and shales believed to be Upper Cretaceous in age, Horn added.

Panmure said the well is proceeding as scheduled and while it is premature to determine the quality and prospectivity of the prospect, oil and gas shows have been noted and a regional seal inferred.

The drilling and evaluation period for Shabeel-1 is estimated to be 90 days and be complete by mid April 2012.
The upper 1,600m of the drilled section included a thick section of Tertiary limestones and shales.

Panmure said this appears to be a regional seal, as no oil or gas shows were encountered above this depth.

Oil and gas shows observed in the 400m section confirmed the existence of a working petroleum system though the quality of the reservoir and prospectivity of any potential oil bearing intervals can only be determined once the downhole electric logs and formation tests are completed.

The Dharoor and Nugaal Blocks are estimated to contain 1bn unrisked and undiscovered oil prospective resources, with P50 gross 300 million barrels (net 60 mmbbl) and 375 mmbbl (net 75 mmbbl) recoverable oil at the Shabeel-1 and Shabeel- North prospects.

The source rocks are expected to be rich Jurassic Kimmeridgian shales in the deep portion of the rift, immediately down dip from the Shabeel prospect, according to the broker.

Reservoirs are expected to be sandstones and carbonates of the Cretaceous and Jurassic systems, analogous to Yemen.
On confirmation of a commercial oil reservoir, Panmure said that the valuation multiple for these prospects is likely to re-rate to more than US$3/bbl.

This would translate to a valuation of £113m/5p for Shabeel-1 and £141m/7p for Shabeel North, which translates to an implied share price of 24p.

As well as Puntland, Range Resources has interests in the Republic of Georgia and in Texas and Trinidad.
Red Emperor Resources (LON:RMP) also owns a 20 per cent stake in the Dharoor and Nugaal blocks in Puntland.
Broker Fox Davies, commenting on Red Emperor, also said the latest drilling results from Puntland significantly reduced one of the key risks for the prospect.

"Reflecting this result we have adjusted our risking and raised our target price [for Red Emperor] to 65p," it added.

http://www.proactiveinvestors.co.uk/companies/news/39978/range-resources-puntland-chances-look-much-better-after-drill-update-says-broker-39978.html