New World plunges on Belize abandonment
New World Oil and Gas (NEW) has plugged and abandoned a well in the Petén Basin in north-west Belize after finding insufficient hydrocarbons to merit running casing and well-testing operations.
Shares in the firm lost 44% on Monday morning to make it the heaviest faller on AIM. Interactive Investor users were trading the stock heavily, with twice as many choosing to sell as buy.
The Blue Creek #2A ST well was drilled to a measured depth of 11,650 feet on 27 January and logs and core samples were independently analysed, as well as mud logs and all other available data. It was determined that an active hydrocarbon system existed, and live oil shows were measured in the Y3 and Hillbank formations.
But after analysis and in consultation with New World's partners, Blue Creek Exploration and the government of Belize, it was determined that insufficient commercial quantities of moveable hydrocarbons were present.
The company believes the targeted trap was likely breached as a result of tectonic activity, and extensive residual oil was present along with high saturations of formation water.
New World said the significant amount of technical data produced by the Blue Creek #2 and #2A ST wells demonstrates that the company's acreage has received a petroleum charge and contains productive reservoirs. This data will also play a role during the drilling of the explorer's next well, Rio Bravo Well #1, in West Gallon Jug, for which New World is fully funded.
The location is drill ready, with a drilling pad, access road, base camp, water well and other infrastructure all in place. It is anticipated that the drilling of the well will commence in the first quarter of 2013.
Chief executive William Kelleher said, "We remain highly confident that the elements required for a working hydrocarbon system are in place in north-west Belize.
"I remain confident that we are on course to build a significant oil and gas exploration and production company and in the process create value for all shareholders."
Analysts at Fox Davies commented: "Today's announcement from New World is disappointing, but unfortunately is a reflection of the risks associated with exploration, more so in frontier regions.
"Investors, however, should take some comfort that the drilling proved a working hydrocarbon system, and that the lack of success in this instance is more closely associated with localised issues, opposed to wider basinal issues, which would have killed any further prospectivity.
"Given that [New World] has sufficient funds drill the next well, we remain upbeat about the company's near-term outlook."
Interactive Investor view
Investors were shocked at Friday's news, with updates as recent as 22 January striking a positive note. Drilling is always a gamble, but a lot was riding on a positive outcome from this well.
The less risk averse will see Friday's massive discount as an opportunity to buy into the stock, or at least not to sell. The company has proved through the drilling that it has a working hydrocarbon system.
This is on top of other projects in Denmark, and some positive news from any of these could send shares back the other way. But of course another dry well could spark another drop and if funds start running low the share price could be further eroded.
There was positive seismic data from the Danica Jutland Project in Denmark in September, and New World announced in January that the prospect is drill ready, but investors may have to wait for spudding, with no dates set for commencement.
It is at least positive that the further drilling at Blue Creek is fully funded and it seems that the company is keen to get on with it as soon as possible in the hope of generating some positive news flow.
The Interactive Investor discussion boards were heavy with disappointment, with 'Wrighty' commenting: "I think Wiliam Kelleher has damaged his credibility on this drill. Yes he has to talk the talk and be positive but I am surprised given this was their first drill and that they were operator.
"Will anyone ever believe an RNS of his again? Right to the last they were 'targeting a potentially significant trap' in these 'sections of interest'."
But 'Celtic Heart' was more moderate in reaction: "In my view you have two choices, join the lemmings jumping over the cliff or realise that we still have a working hydrocarbon system and wait it out.
"We did not find the oil on this occasion but the data gathered makes it a lot more likely we will on the next drill. What is the point of taking a huge hit? This is what oil exploration is all about."
Belize-focused New World Oil and Gas (LON:NEW) has decided its Blue Creek well will not be commercially viable.
The Blue Creek #2A well was located in the Petén Basin in northwest Belize and was drilled to a depth of 11,650 feet by 27 January. However, after what the company has called 'careful analysis' the decision has been made to plug and abandon the well after it was deemed to hold 'insufficient commercial quantities' of oil.
The Blue Creek #2A well had been a sidetrack well drilled following the vertical well had reached its target depth.
The news will come as a disappointment after previous updates had determined that an active hydrocarbon system did exist and live oil shows had been measured. The company argued that a potential trap could have been affected by 'tectonic activity'.
New World tried to remain positive on the issue by confirming its next well to be drilled in Belize will be the Rio Bravo well #1 in West Gallon Jug for which it insists funding is already in place. Infrastructure is already in the place and drilling is expected to commence this quarter. The planned drilling depth is 8,400 feet.
Chief executive Bill Kelleher defended the 'tremendous job' done at Blue Creek, arguing all was not lost as the data 'will now be applied to our next well.' He also insisted that other drill ready prospects at Blue Creek would mark the 'next significant milestones' for the company.
Shares plummeted during early trading today by 40.6 per cent to 4.8p, valuing the company at £28.7 million.