Fastnet’s Moroccan adventure shows wild cat drilling not for the faint hearted

Back on 5^th April I wrote a piece called “Fastnet Oil and Gas investors keep their fingers crossed for FA-1 well on Foum Assaka licence offshore Morocco” http://www.financial-spread-betting.com/community/aim/fastnet-oil-and-gas-offshore-morocco.html The final paragraph in that article summed up the importance attached to the FA-1 well in Morocco: “Now the focus is now the FA-1 well on Foum Assaka licence offshore Morocco, with results due June after the spud in mid-March. A potential game changer if the drill bit strikes it lucky, but with these wild cat wells, there is unfortunately much more chance of a failure than success. With sentiment around African focused drillers like Chariot, Ophir Energy and Tullow pretty much rock bottom right now, investors are hoping that Kosmos Energy’s well delivers plenty of hydrocarbons.” On 6^th May Fastnet announced the results from the FA-1 well and unfortunately it was not to be for shareholders.

The RNS read: “In Morocco, the FA-1 well in the Foum Assaka Offshore block has reached a total depth of 3,830 meters and will be plugged and abandoned after failing to encounter commercial hydrocarbons. The well, which is the first in a series of play-opening wells designed to unlock the Agadir Basin, was drilled to test the salt diapir play concept targeting the Cretaceous interval in a combined structural-stratigraphic trap. This is one of several independent play types and fairways present in the Agadir Basin. Importantly, FA-1 encountered oil and gas shows while drilling and in sidewall cores suggesting the presence of a working petroleum system. The well has also provided key seismic calibration information and the well results will now be integrated into Kosmos’ ongoing petroleum system analysis; in particular, the assessment of charge and reservoir play risks, as well as the evaluation and ranking of trap types ahead of the next tests of this petroleum system in 2015 and beyond.”

The shares are down 44% over the last week to 6p. As highlighted back in April, wild cat drilling is risky and prone to failure. Fastnet has a 9.375% interest in Foum Assaka, alongside partners Kosmos Energy 29.925%, BP 26.325%, SK Innovation 9.375% and Morocco’s national oil firm ONHYM has the remaining 25%. Having farmed out its interest in the field, Fastnet’s share of drilling costs is covered. The costs of further wells will be covered by partners and it is hoped that a second well on the prospect may be drilled in late 2014 or early 2015. RFC Ambrian cut its net asset value estimate by 9.5p to 11.2p and downgraded its recommendation to ‘hold’ from ‘buy’, whilst Dublin based Davy called the result “disappointing” and said it accounted for 4p of its 11p pre FA-1 valuation of the Moroccan opportunity. The company now has a market cap of around £20 million after this latest drilling failure being valued at roughly the cash in the bank of $30 million. Investors are now firmly focused on whether the company can achieve a farm out for its Celtic Sea assets during this summer and are hoping for better news from Morocco in the future.

Contrarian Investor UK

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