Price: 275.25p Target Price: 278p Recommendation: Buy Market Cap: £333.5m
Drilling operations on the Lambouka-1 well have been completed and the Operator has advised that two hydrocarbon bearing zones have been interpreted in the Lambouka - 1 well. Drilling and wire line logging operations on the well were concluded after the well reached a total measured depth of 2786 metres.
Analysis of the final suite of wireline logs has supported earlier results from logging while drilling that two hydrocarbon bearing zones are present in the Abiod Formation - the primary objective for the Lambouka - 1 well. The nature of the hydrocarbons is likely to be comprised of gas in the upper interval and gas and possibly condensate in the lower interval based on the hydrocarbon shows recorded from the cuttings while drilling. Although the gas shows were not as strong as encountered in the same Abiod interval in the nearby Dougga-1 discovery, no carbon dioxide (CO2) was detected while drilling the Abiod Formation unlike in the Dougga-1 discovery.
Although this morning’s drilling update is far from perfect in terms of the desired result, we feel it requires highlighting that it is also certainly not definitively bad. The well is a discovery and did intercept hydrocarbons (gas and gas condensate) over a thick net pay interval of 23m in the primary target Abiod formation. However the disappointing part is that no fluid samples were obtained and no pressure data was recorded. We presume that the extensively fractured nature of the limestone reservoir would have played a part in the continued loss of drilling fluid and deterioration of the well bore.
Gulfsands and operating partner ADX Resources are currently deciding whether to suspend the well for future re-entry or plug and abandon it with the possibility of attempting a re-drill at a later date. We anticipate the market will react negatively to this news however we feel GPX’s current market value is underpinned by their strong net cash position, Khurbet East production and the relatively small amount US GoM production. As such any significant dip ought to be viewed as a buying opportunity as we feel the ultimate medium to long-term prize of being part of the redevelopment of the Iraqi oil and gas industry for a relatively small company like Gulfsands is too large to ignore.
Werner Riding, +44 (0) 207 634 4772