Interactive Investor

Investors hail Caza results

17th April 2014 15:12

Ceri Jones from interactive investor

Shares in Caza Oil & Gas rose 8.3% to 10.02p after the US explorer announced that its West Copperline 29 Fed #2H well reached its intended depth of 15,000 feet in the Bone Spring Sand interval.

Under controlled flowback, the producing rates have been described as "steady" and were working at a level of 1,177 barrels of oil and 1.1 million cubic feet of natural gas.

The well was producing on a 34/64ths adjustable choke at 1,000 pounds per square inch flowing tubing pressure, the company said.

"The West Copperline 29 Fed #2H well is a direct offset to our West Copperline 29 Fed #1H well," said chief executive W. Michael Ford.

"Both wells are producing from the second Bone Spring Sand interval. This is the third significant well producing on the West Copperline Property, and we plan to commence drilling operations on the fourth, the West Copperline 29 Fed #4H well, within the next couple of weeks."

There was also log data from the Brushy Canyon, Avalon Shale and first Bone Spring Sand intervals in the well, which indicated the presence of oil and natural gas across each of these intervals and suggested favourable conditions for future development. Caza has a 62.5% stake in the well.

Additionally, the non-operated Marathon Road 15 PA Fed #1H 3rd Bone Spring, in which the explorer has a 14% working interest, well has averaged 1,665 barrels (bbls) of oil and 1,594 thousand cubic feet of natural gas, which equates to 1,913 bbls of oil equivalent per day from 16 March to 16 April 2014.

This is the first well on a 600-acre drilling unit, and the operator intends to drill several more wells this year.

"We are very pleased with the results at Marathon Road, as this is one of the highest producing wells in the entire Bone Spring Play to date," added Ford. "We look forward to participating on future wells at Marathon Road as they are proposed later this year."

Investor view

Investors on the Interactive Investor discussion boards were pleased by the announcement, but disappointed that some shareholders are selling into strength. 'Five Iron' said: "In the annual results they said December output had reached 608 bbls per day to CAZA and made us cash flow positive.

"Since then 47.5% of 1,108 bbls per day at West Copperline 3H, 47.5% of 1,366 at West Copperline 2H and 12.5% of 1,913 at Marathon Road.

"So that's another 1,500 bbls per day or total of 2,100 bbls per day worth $210,000 per day or nearly £1 million a week to Caza's coffers, more than tripling income per day in the last couple of months.

"So our £17 million market cap looks pretty undervalued."

'Yeast-is-rising' said: "This is a material result that will add to the cash flow. It is well known that decline rates are steep with shale oil. I tried to figure them out from their figures and one of the presentations and I think it was 50% in the first year.

"But with results like this you can't go wrong. It would equate to an average of 1,025 bbls of oil a day in the first year, times $100 a barrel, times 46.94% net revenue, would lead to $48,000 profit to CAZA a day = $17.5 million a year.

"The next quarter results will tell us more. But all these results will add up. And as they said before, the key to a higher return on investment is 'accelerating and expanding this drilling programme [which] will significantly increase both production and cash flows, which will optimise the work programme and drive economies of scale'.

"It is a pity that YA Global Master etc. are selling into any rise. Hopefully this will end soon."

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