Caza Oil & Gas shares soar on Bongo field update

Shares in Caza Oil & Gas (TSX:CAZ, LON:CAZA) more than doubled in value after the group revealed it had made a potentially significant natural gas discovery in Texas.

Logging results from the OB Ranch 1 well on the Bongo field showed the company hit a pay zone measuring more than 100 feet containing gas and gas liquid at depths of between 12,400 and 12,900 feet.

The company completed the drill on Tuesday, which went down 16,280 feet and hit three distinct sandstones: Yegua, Cook Mountain and Wilcox.

The gas was found in the Cook Mountain sands, while Yegua "may hold additional high-value potential".

The Wilcox sands contained gas, but this was deemed uneconomic.

Caza chairman John McGoldrick told Proactive Investors: "One of the great things about Texas and Louisiana is that a lot of wells have got multi-pay – they have oil and gas at different levels.

"It is one of the great attractions about drilling out there. You occasionally get nice surprises.  The Cook Mountain sand tends to be a prolific reservoir.

"The deep zone looks tight. There is no point in mucking around with that."

The plan now is to engineer and complete the well, which "should be a relatively simple task", the Caza chairman said.

"We will probably frack the well," he revealed.

"Getting the fracking crew is the only issue....it could take up to 60 days to get those guys out.  But relative to the North Sea it isn’t a particularly long lead time. Our development times are very, very short."

The shares took off on the back of the announcement, and were trading up 15.75p  26.50p in early afternoon London deals.

David Hart, an oil and gas analyst at Westhouse Securities, said: "This is a very positive update from Caza.

"Although the Wilcox sands are not commercial in this location, the discovery of over 100 feet of net potential pay in the Cook Mountain formation exceeds all pre-drill expectations.  Yet as it is still very early, flow rate and volume data are not available, making valuation difficult."

The presence of the gas condensate means the group should receive a premium price for its product once out the ground. Tying into the local pipeline should be a relatively simple job, McGoldrick added.

"This is one of the beauties of dealing in Texas and Louisiana, there is pipeline capacity in most places."

The group owns 40 per cent of Bongo, with ASX listed Verus Investments (ASX:VIL) another major shareholder with 12.5 per cent.

Separately, Caza expects news imminently on a project in the Permian Basin in Texas that it farmed out to Devon Energy, while drilling is also expected to commence soon on the Arran project in Louisiana.

"Personally I’m very excited about this one (Arran). It is a terrific prospect," the Caza chairman said.

The group came to AIM in December 2007, bringing with it a rather different approach to exploration than that of many other companies.

Instead of acquiring exploration acreage - and then commissioning expensive seismic - the company had already acquired seismic data covering no less than 8000 square miles of Texas and Louisiana.

The company’s founders considered that this data would help give them a competitive edge.

Caza’s CEO, Mike Ford, had struck a deal to get cheaper access to seismic data from specialist seismic contractors.

McGoldrick calls it "probably the biggest database of just about any independent".

American oil and gas companies often operate through holding percentages of various properties.

As at June 30, the group had cash of $9.3m, which is enough to meet its current needs, the chairman said.

http://www.proactiveinvestors.co.uk/companies/news/20024/caza-oil-gas-shares-soar-on-bongo-field-update-20024.html