Catcher While You Can

10/06/2010 10:06 am EST


John Snowden

Contributor, The IRS Report

North Sea oil explorer EnCore appears to have struck it rich with the Catcher prospect, writes John Snowden in The IRS Report.

EnCore Oil (London: EO) has found what looks to be an excellent commercial proposition in the North Sea in the Catcher prospect, which is likely to be one of the largest oil discoveries in the area for years.

Many oil explorers are on constant watch to raise exploration funds, sometimes using the vaguest piece of good news to tap the market for funds. EnCore's recently announced preliminary results for the year to June 30th show a spectacular set of figures. A £22.9 million (about $36 million) gain on the sale of the Breagh prospect has swelled cash coffers to £41.9 million, leaving the company debt free. A profit of £11.4 million for the year adds further comfort.

The reserve estimates for oil discoveries sometimes take ages to evaluate. On Catcher, [EnCore development partner] Premier Oil penciled in reserves between 25 million and 50 million barrels. After the EnCore success in the Catcher East sidetrack, where quality oil-bearing sandstones were encountered, Premier raised estimates to between 50 million and 80 million barrels of oil. Plans were then made to drill a third well in the southwest of the block, and in a separate statement, an EnCore spokesman said Catcher could contain up to 300 million barrels of oil.

While EnCore remains speculative, the company prospered under the chairmanship of Mike Lynch, who was with EnCore since its inception and stepped down for personal reasons nearly a year ago. He departed leaving the company in great shape with cash in the bank and no debt. His replacement as chairman, Christine Wheeler, has worked in the oil industry for more than 35 years.

She chairs an experienced team with [chief executive officer] Alan Booth, a co-founder of EnCore who was previously chairman and managing director of EnCana (UK) and an executive of the parent company EnCana (NYSE: ECA).

Alan Eugene Whyms, another EnCore co-founder, was also at EnCana (UK) as finance director and has more than 20 years’ experience in the oil industry. Exploration director Graham Dore was has a similar number of years in the industry, gaining experience as a geologist with Amerada Hess (NYSE: HES).

On August 31st, the company announced that the side-track well approximately 1,000 meters south of the original Cladhan discovery has encountered excellent quality oil-bearing sandstones, with no oil-ater contact observed. The result is at the upper end of board expectations, and they hope to drill again this year to determine the overall size of the discovery.

The share price surged 22% to 80 pence on the news, but there may be a pull-back. [Shares closed at 127.50 pence in London Friday—Editor.] More results are due from the Catcher discovery later this year.

Small oil explorer stocks are highly volatile and responsive to news and rumors. So, this may well prove a roller-coaster ride, but I believe it will [be] rewarding.

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