what is the potential?, page-7

World Oil Resources (WLR)

BHP Billiton is dealing as best as it can with the fact that since its $20 billion US shale gas splurge last year, gas prices have collapsed to 10-year lows and don't look like they will be recovering in a hurry. Such is the surplus of gas in the world's biggest energy market.

BHP has got deep pockets and can ride out the storm. But it is no different to the other shale gas players in the US in that it is now flat chat trying to offset gas price weakness by working up the oil potential of its massive shale leases.

Not all Australian companies active in the US onshore petroleum industry have the same problem. A little Melbourne thing that used to go by the name Eromanga Hydrocarbons but which now sports the new moniker, World Oil Resources, is a case in point. Its onshore US focus has always been on the new oil potential of old fields. It has been kicking some goals too, due mainly to its oil-focused land acquisitions coming ahead of the current land grab by shale gas producers intent on cranking up their oil exposure.

The last time we looked, WLR was trading at all of 2.8c a share, giving it a market capitalisation of about $12 million. It is producing some profitable oil from the Klick East oilfield in Oklahoma (40 per cent after royalties) but the real interest in the stock at the moment is found 225km away in neighbouring Kansas.

It is there that WLR and its partner, US group CMX, have assembled a 15,000 acre (6100ha) land package covering the Welch-Bornholdt Wherry oilfield in Rice and McPherson counties. The field was a producer in the 1950s and 1960s from traditional vertical wells drilled by "mum and dad" types.

The 50-50 WLR-CMX partnership has brought some modern-day drilling techniques to the field, namely horizontal drilling and acid fracturing, which has worked a treat in analogous fields elsewhere in Kansas and Oklahoma. WLR hasn't said anything since February 8 when it reported the first well, the Socrates 1H, had been drilled and that preparations were under way to "frac" and test the thing.

So it can't be long before the market gets to hear what sort of flow rates Socrates yields from sections along some 3800 feet (1160m) of what looks like potentially good reservoir.

It's fair enough that the market should be interested in that.

But it might be missing the bigger picture, which is the price effect the US onshore land grab for oil leases (and shale gas leases with an oil yield) has had on an old oilfield like Welch-Bornholdt Wherry.

WLR and its partner put the 15,000-acre land position together at a cost of about $US100 an acre.

The going rate today would probably be closer to $US8000 an acre -- thanks to oil going north and gas going south.

Needless to say, WLR's share of today's going rate for 15,000 acres is a multiple of its current market capitalisation