Carnarvon Petroleum Limited (ASX:CVN) is involved in the exploration, development and production of oil and gas in Australia and Thailand. It is a major partner in potentially the biggest oil discovery in Australia in decades. Apache Corp., a major US energy company and a partner with Carnarvon, has found 300 million barrels of crude in an exploration well. The Phoenix South-1 well in the Canning basin, offshore Western Australia State, has produced major discovery which can provide a major impetus to further exploration in the region.
The equity interest holders in the well are:
Carnarvon Petroleum – 20%
Apache Energy – 40%
JX Nippon – 20%
Finder Exploration – 20%
Four distinct oil columns have been found in the Phoenix South-1 well which range from 26 meters to 46 meters in thickness. Six light oil samples have been recovered from three distinct intervals so far. The net cost for Carnarvon Petroleum is around A$6 million and the company had $50 million in cash holdings as on 30 June 2014. This puts the company in a comfortable position to meet any expenses related to the field.
The discovery of this well holds a major implication for the surrounding 20,000 km2, in which Carnarvon holds material equity interest. Adjoining acreage like the Roc-1 well in WA-437-P where Carnarvon holds 20% equity is being reevaluated. Simon Andrew, a broker in Hartleys, a Perth based brokerage, said it will take some time to understand the full significance of this find. “It will take two to three months to work out the actual recoverable volumes from the discovery,” he told The Wall Street Journal.
In addition to this the other partners Apache Corp. and JX Nippon have agreed to drill the Roc prospect in WA-435P which is in the North West Shelf. Apache has also exercised its option to acquire a 40% interest in WA-436P and WA-438P. Carnarvon will retain 30% equity in both the wells. Owing to these major discoveries the price of Carnarvon has increased rapidly in the past few days. From being range bound in the $0.08-$0.10/share for the entire 2013-14, it has increased to $0.25/share in the past few trading sessions. Given the lucrative prospects of the Phoenix South-1 well and the interests in future explorations, this stock can have a bullish trend for a long period.
Figure 1: Price movement of Carnarvon Petroleum Limited in last 12 months
The major partner of Carnarvon in these explorations, Apache Corporation, has proven reserves of around 3 billion barrels of oil equivalent. It has operations in US, Argentina, Australia, Canada, UK North Sea and Egypt. According to analyst Apache will also see an uptrend in its shares due to this find.
The current oil production in Australia has dipped to a historic low of 416,000 barrels a day, a low unseen since 1972.
Figure 2: Oil consumption and exploration in Australia
As major international corporations are investing heavily in natural gas exploration in Australia, the investment for oil production has shrunk in recent times.
With the widening gap between consumption and production of oil in Australia this discovery can be fortuitous for the energy sector in Australia. Also with the pent up demand of oil the requisite impetus and investment for exploration would not be far away. Overall the future of the company with its major equity stake in current and future oil wells seems to be very bright.