Shares in New World Oil and Gas (NEW) slipped more than 10% as it announced that the rate of drilling in its Blue Creek #2A side-track well in Belize had been slower than anticipated, as well as an issue of almost two million new ordinary shares.

The Blue Creek #2A side-track well is targeting a potentially significant trap in Hillbank and Y3, two oil-bearing formations seen in the Blue Creek#2 vertical well. Drilling operations had been halted whenever sections of interest in the targeted Hillbank and Y3 formations were encountered so that core samples could be taken.

"While there is a long way to go yet, the company's disclosure that it has not yet elected whether to test the well is disappointing," said analysts at FoxDavies. "We would have liked there to be more positivity, especially following [the] initial decision to drill the side track in the first place."

Almost 1.1 million new ordinary shares in the company, at an average of 9.67p per share, have been issued in settlement of professional fees and other transactional obligations. In part payment of historical costs related to the Danica Resources farm-in agreement, about 750,000 new ordinary shares in the company have also been issued at an average of 10.34p per share.

In addition, and as part of their directors' fee, a total of c. 141,000 new ordinary shares were issued to two directors at an average of 9.55p per share.

On a more positive note, the oil and gas exploration and development company has received a positive update to a competent person's report (CPR) for the Danica Resources project in southern Denmark.

Four Zechstein leads have been identified on the new data which were of better quality than previous vintages, with P90, P50 and P10 prospective resource volumes of 40 million barrels of oil (mmbbo), 97 mmbo and 192 mmbo respectively. The probability of geologic success has been estimated to be one in eight.

At Rotliegendes, P90, P50 and P10 prospective resource volumes are estimated to be 575 billion cubic feet, 1.401 trillion cubic feet (tcf) and 3.380 tcf respectively, with a one in nine probability of geologic success.

As Phase 1 of the seismic programme met New World's first phase of work obligations, the company can now apply for an additional 12.5% working interest in the project from the Danish Energy Agency, bringing the total interest to 25%.

"Danica's CPR has confirmed the prospectivity of the acreage, supporting management's initial investment proposition," acknowledged FoxDavies, but cautioned: "The proof of the pudding, however, shall be in the eating.

"We will keep a watching brief on the project."

Investor view

Users of the Interactive Investor discussion boards displayed mixed reactions to the announcements.

'Stockaro' asked what other investors thought of the directors buying more shares: "Is it a marketing stunt prior to disappointing news or do they feel it's money well spent?"; while 'Celticheart07' questioned why any director would accept shares as payment if the news was not good.

'Mrputt' called the announcement "terrible", saying the drilling in Belize looked "like a very expensive way of getting information for the next drill", there was "no further de-risking" in Denmark and the payment of shares to directors was in accordance with their contracts.

But 'yieldinvestor' was more optimistic: "If the side track looked looked like a dud, it seems to me they would have cut their losses.

"Frustrating need for further patience, but the vibes are good."

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New World Oil and Gas falls hard

New World Oil and Gas fell hard after announcing the issue of almost two million new shares as well as delays to drilling in Belize.

The bulk of the new shares - 1.08m - were issued at an average of 9.67p per share to settle professional fees and other financial obligations.

It also created almost 750,000 new shares at an average of 10.34p per share as part payment of historical costs related to the 2012 Danica Resources Farm-in agreement.

On top of this, a total of 141,387 shares were issued to the company's directors, Frederick Hodder and Chris Einchcomb, at an average of 9.55p per share.

In Belize, the firm said its Blue Creek 2A side track well was targeting a potentially significant trap.

Drilling operations have been halted whenever sections of interest in the targeted Hillbank and Y3 formations were found so that core samples can be taken, New World said.

As a result, the rate of drilling has been slower than that anticipated in the announcement of January 10th.

A further update would be made once the total depth was reached, at which point a decision would be made regarding testing the well, the company said.

The news overwhelmed positive a update Denmark, pushing shares down 11.5% by 09:00.

The firm reported an "extremely positive competent persons report update" at its Danica Resources Project.

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New World plunges on Belize abandonment

New World Oil and Gas (NEW) has plugged and abandoned a well in the Pet�n 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."

Analyst view

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."

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New World abandons well

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 Pet�n 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.

New World Oil & Gas: City analysts say sell-off is 'overdone'

City analysts believe investors have overreacted to New World Oil & Gas's (LON:NEW) well result in Belize, and the 45% drop in the share price is 'overdone'.

It was revealed this morning that the Blue Creek 2A ST well had been plugged and abandoned because insufficient quantities of moveable hydrocarbons were found.

The company stressed, however, that the well confirmed that an active hydrocarbon system exists, and live oil shows were measured in the Y3 and Hillbank formations. It also says extensive residual oil was present, along with high saturations of formation water.

On AIM, New World shares fell heavily, losing as much as half their value in early deals.

But, speaking with Proactive Investors, Seymour Pierce analyst Sam Wahab said the share price fall was too much.

"Given how bad 2012 was for a lot of exploration stocks, investors can get be spooked by 'dry' wells."

"I think there is a reasonable retail element in the stock at the moment, and at this level, I think we'll see speculative buying in this stock up into the next well result, especially now that it is so undervalued."

Wahab also explains that the institutions that bought into New World did so primarily to gain exposure to the Danish assets and for them Belize represents additional upside.

"It is still there to play for, and at the moment trading at less than 5p a share, it is excellent value where it sits at the moment, especially as the company has got a fully funded programme in place.

"The next drilling location is likely to take [this result] into account. The company has got an extensive amount of data that they can read across from. So I wouldn't say that Belize is a write-off [for New World]."

Similarly, Shore Capital analyst Craig Howie highlights that this is just the first of three wells, and he points out that the next one, Rio Bravo 1 well, is targeting a geologically independent prospect.

He also claims the share has been 'hammered' today and has fallen too far.

Howie says that while the result does have an impact on the stock's valuation, New World still has 'two more rolls of the dice' and he believes there is still 'pretty significant volumetric potential' in the rest of the prospects.

"Today's share price reaction implies there is no value [left] in Belize, but we would certainly contest that."

Indeed, in this morning's statement chief executive Bill Kelleher said that data analysis points to the migration of huge quantities of oil through the area.

"Combined with the presence of a reservoir ideal for oil production, and a large, extensive anhydrite seal, we remain highly confident that the elements required for a working hydrocarbon system are in place in North West Belize.

"As highlighted by B Crest, trap remains the key outstanding element required for success in this area and, with multiple prospects already identified, we believe it is only a matter of time before we locate a trap of significant size and in the process make a commercial hydrocarbon discovery."

New World will now move on to the next scheduled well in the programme.

The Rio Bravo 1 well will target the West Gallon Jug Crest prospect, which has estimated un-risked prospective resources of 113mln barrels of oil. Drilling is set to get underway in the current quarter.

"Our two other drill ready prospects in Blue Creek, and the multiple prospects identified in our three licence blocks in Denmark will mark the next significant milestones for the company and I look forward to providing updates on these exciting prospects in due course."

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