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UK Prospects: Colter & Wick

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How can investors get exposure to Colter and Wick as Corallian secures key drilling consent?

Yesterday saw private oil and gas business Corallian Energy announce that it has received a key approval from the government for the drilling of its highly prospective offshore UK prospects Colter and Wick. Corallian may not trade on the stock market, but with Wick scheduled for drilling next month and Colter slated to follow shortly afterward, there remain several options for investors still seeking out exposure to the projects.

Exciting opportunities

Corallian is the operator of UK Continental Shelf licences P2235 and P1918, which contain the Colter oil discovery and Wick prospect respectively.

An offshore well drilled on the Colter discovery in 1986 recovered oil on test within the Triassic Sherwood Sandstone. This is the main reservoir at Wytch Farm, which lies immediately north of Colter and is Europe’s largest onshore oil field producing over 450MMbbls to date. For some time now, Corallian – which owns a 49pc interest in Colter- and its partners have planned to drill an appraisal well on the historic discovery to evaluate whether it is on the flank of a commercially-viable accumulation.

The gross unrisked mid-case oil contingent resources in the section proven up by the original offshore well at Colter are estimated to sit at around 4mmbbls. Predictions have put total unrisked mean-case prospective resources at 15MMbbls for the rest of the structure.

Meanwhile, the Wick prospect is a fault-bounded trap with Jurassic sandstone reservoirs lying up-dip of the spill point of the Lybster oilfield in the Inner Moray Firth Basin. Corallian, Wick’s 40pc owner, plans to drill an offshore well at the site to test for the presence of oil in a structural complex up-dip from an existing oilfield. The area is estimated to contain mean prospective resources of 26MMboe gross.

Milestone passed

Yesterday saw Corallian reveal that the Offshore Petroleum Regulator for Environment and Decommissioning has told the UK Oil and Gas Authority it has agreed in principle to issue consents for drilling Wick and Colter. The decision followed a review of the environmental statements, representations from consultees, and additional information provided by Corallian for the proposed wells.

Corallian highlighted the fact there remain several regulatory approvals and notifications left to pass before the consenting process completes. However, it added that once it has obtained these permits, the wells can be drilled as a back-to-back programme, starting with Wick in December 2018. Following the completion of Wick, a Jack-Up rig will be mobilised from the Moray Firth to the English Channel to drill Colter. Finally, the business added that it does not plan to make any further announcements until all of the approvals are in place and drilling has begun.

With numerous UK-listed oil and gas players owning direct or indirect stakes in both Wick and Colter, many investors in the market welcomed the update. Here we take a look at how all of the impacted companies reacted to the positive news:

Main players

Exploration and production investment firm Reabold Resources (LSE:RBD) indirectly owns significant stakes in both Wick and Colter through its 32.9pc equity position in Corallian Energy. The business, which also has assets in Romania and the United States, welcomed yesterday’s news, with co-chief executive Stephen Williams commenting:

‘We are very pleased to report this approval from OPRED, signalling impending activity at both Wick and Colter. Both prospects carry highly attractive economics with low development costs and fast payback in the event of success. Our investment in Corallian has given us significant exposure to both projects as well as additional opportunities within the Corallian asset base.’

Alluding to the business’s recent activity in California, where it has been growing production and carrying out extensive drilling activity, Williams added:

‘With Wick now planned in December 2018, and continued activity across the rest of our portfolio, Reabold shareholders can look forward to a very busy few months ahead as we seek to de-risk several high impact opportunities.’

Despite an initial rise in morning trading, Reabold’s shares finished the day down 1.4pc to 0.74p.

Baron Oil (LSE:BOIL), which holds a 15pc interest in Wick and a 5pc stake in Colter, fell 5.3pc to 0.45p throughout the day’s trading. The setback came despite Malcolm Butler, the firm’s chairman and chief executive, calling the news an ‘encouraging milestone’ in meeting the revised timetable for drilling the two sites. He added:

‘We are pleased with the decision by OPRED to advise the Oil and Gas Authority of its in-principle agreement to the issue of the relevant consents for the drilling of both the Colter and Wick wells […] We look forward to keeping the market apprised of developments in due course.’

Baron, which also owns a 100pc stake in an onshore exploration block in Peru, will contribute 20pc to the estimated £4.2m costs of drilling Wick. It will also pay 6.67pc towards the estimated £6.4m cost of drilling Colter.

Upstream oil and gas business Upland Resources (LSE:UPL) also welcomed the news, with shares trading up 2pc to 3.3p at the end of the day’s trading.  The firm agreed to farm-in to a 40pc interest in Wick last November. The deal was approved by the UK Oil and Gas Authority in May and was satisfied in May when Upland formally confirmed that it has enough cash to meet all of its funding obligations.

The agreements will see Upland, which also owns a stake in the Hardstoft oil field, pay 53.33pc of the £4.2m of costs related to the environment survey and first well at Wick. Any charges beyond this point will be funded pro rata to interests in the licence.

Oil and gas exploration and production business Andalas Energy and Power (LSE:ADL), which owns an 8pc stake in Colter, finished the day down 4.7pc at 0.9p. Andalas farmed into Colter in September and will fund 10.67pc of the cost of the well, up to a maximum of £8m, to earn its stake. After that, it will support 8pc of costs.

Andalas said the approval heralds in an ‘exciting period of drilling activity’ while it continues to work on completing its acquisition of the Bunga Mas production sharing contract in Indonesia. Simon Gorringe, chief executive of the company, which also has a stake in North Sea Badger licence through Eagle Gas Limited, added:

‘We are pleased with the continued progress of the operator towards the commencement of the proposed well, which follows today’s announcement and the recent announcement of the contracting of the Ensco-72 rig to execute the Wick and Colter drilling programme.’

Finally, exploration and development firm United Oil and Gas (LSE:UOG) advanced 3.4pc to 4.7p throughout the day’s trading. The business, which is run by a former Tullow Oil team, owns a 10pc holding in Colter.

It farmed-in to the licence in January when it also received an option to purchase an additional 10pc position. However, it does not appear to have exercised this. In a lengthy statement, the company’s chief executive Brian Larkin said:

With OPRED advising the OGA of its in-principle agreement to the issue of the relevant consents, a drilling unit secured and the rig site survey completed, the Colter appraisal well remains on course to be the second well in which United will have participated since our Readmission to London’s Main market in Q3 2017.  As with our first well, the successful Podere Maiar on the Podere Gallina licence onshore Italy, Colter has an excellent address, lying on the same play as Wytch Farm, and will appraise a historic discovery, which we believe could hold in aggregate up to 19mmbbls of gross contingent and prospective resources. With this in mind, I look forward to providing further updates on preparations to drill the Colter well in the coming weeks.’

The team discusses Wick & Colter, the latter sitting adjacent to the wych farm.