At the time of writing, shares of Carnarvon Resources Ltd [ASX:CVN] are up by 11.11%, to 45 cents per share. Carnarvon Resources is an oil and gas explorer, with offshore leases across Western Australia.
Why did Carnarvon Resources Ltd shares do this?
The company wrote a letter to shareholders regarding the strategy and plans over the coming months.
Carnarvon’s Managing Director, Adrian Cook, explained how the company divested its onshore Thailand oil production assets in 2013. The transaction realised more than AU$100 million, prior to the drop in oil prices at the end of 2014. The company elaborated today:
‘In refining the strategic focus, the Company decided Australia’s North West Shelf represented a logical, manageable and compelling area of focus for our geoscience team, which was familiar with the province. This was viewed as a strategy that investors could embrace, appreciating the risks (and potential rewards) that come with offshore exploration.’
With a strong cash position and an industry in retreat, Carnarvon secured and progressed new projects with its in-house geoscience team near the bottom of the oil cycle. It focused on overlooked areas by majors, which could yield significant discoveries.
Indeed, major oil companies don’t always make great explorers! They tend to overlook major opportunities and also negotiate terribly timed acquisitions and divestments. Canavan secured a quality offshore oil project near the bottom of the oil cycle, thanks to the lack interest by the major oil companies.
The acquisition payed off, as well…
What now for Carnarvon Resources Ltd?
The company elaborated on its recent discovery today:
‘The Dorado-1 well was one of the higher risk exploration targets considered by our joint venture, and the decision to drill was taken because of the large geological structure (i.e. potential for large volumes of hydrocarbons) and the low drilling cost relative to the potential reward. The joint venture has now announced that the well encountered approximately 120 metres of net oil pay. Both the light oil recovered in the wireline testing and the indicative quality of the reservoir point to a highly valuable discovery.’
The discovery sent the share price through the roof, despite the recent pullback. It was also a massive boost for the struggling oil and gas sector ― especially at the junior end of the market. In the future, with drilling and evaluation of the Dorado-1 completed, Carnarvon’s assessment of the hydrocarbon volumes is underway.
The bottom line: I like where the company is going. But the story now comes down to the hydrocarbon volumes ― how big is this discovery, and is it commercial? The Dorado structure at the Caley interval is estimated to hold roughly 125 million barrels of oil equivalent. If the actual volume exceeds this estimate, the share price could explode ― especially if the oil price pushes higher!
Resources Analyst, Markets & Money
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