Gulfsands Petroleum and ADX to suspend Lambouka-1 discovery well, for re-entry at a later date

Gulfsands Petroleum (LON:GPX) told investors that its joint venture partner ADX Energy (ASX:ADX), has decided to suspend the Lambouka-1 discovery well.

The decision will allow the partners to re-enter Lambouka-1 at a later date.

Overnight, in Australia ADX said the decision, to suspend and re-enter Lambouka-1, will provide the “best opportunity” to minimise rig time and maximise reservoir information.
The intention would be to drill a side-track hole in the Aboid Formation up-dip of the existing gas discovery, and subsequently conduct production testing.

Yesterday, Gulfsands confirmed the Lambouka discovery after ADX interpreted two hydrocarbon bearing zones in the Aboid formation. However technical problems relating to wellbore deterioration raised questions over the joint venture’s next move.

The technical problems prevented full data collection and analysis, but ADX said the hydrocarbons are likely to comprise of gas and possibly condensate.

On Tuesday, the joint venture partner said it was considering whether it should ‘plug & abandon’ or ‘suspend & re-enter’ Lambouka-1.

Gulfsands are earning into a 30% interest in Lambouka-1 - and the Kerkouane exploration license it is hosted on - the operator ADX has a 30% stake, while Carnavale Resources (ASX: CAV) 20%, XState Resources (PINK: XSTLF) 10% and PharmAust Ltd (ASX:PAA) 10% own the remaining equity in the project.

City analysts remained upbeat In response to yesterday’s news.

“Although this drilling update is far from perfect ... it is certainly not definitively bad,” said Werner Riding, Ambrian Securities’ oil and gas analyst.

Similarly, Fox-Davies analyst Lionel Therond said yesterday the news was broadly positive, as it “provides much needed exploration success and potential upside to the investment story.”

The analyst also highlighted that the Lambouka-1 discovery somewhat de-risks the other prospects in the licence, and furthermore the potential discovery of additional reserves nearby would help the economics of field development.

Therond emphasised that the presence of condensates would improve the economics of the gas discovery.

Although given the lack of data, Therond said the discovery is not yet “of a nature to materially affect the share price on a risked adjusted basis”. Earlier, in its ‘Morning Newsflash’, Fox-Davies estimated that the discovery’s impact could be in the order of 15p per share.

Seymour Pierce was more upbeat, in valuation terms:  “Whilst a decision on whether or not to test the well has yet to be taken, the company is offering scoping figures on potential reserves at this stage of 74 million barrels”.

“Our preliminary view is that this worth approximately 75 pence a share,” said Alan Sinclair, Seymour Pierce oil & gas analyst.