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Despite the Board of Directors positive spin on Sirius Petroleum’s (LSE:SRSP) drilling update this morning, shareholders may not share the company’s enthusiasm as shares dropped more than 6% by midday.
The Background
Sirius commissioned a Competent Person’s Report (CPR) on the Ororo oil field in January 2012. The Ororo oil field was originally discovered in 1986 by Chevron, which found sizeable gas and oil deposits in twelve different sandstone reservoirs. Of the 12 zones reachable by the Ororo-1 well, two zones tested at a modest 2,800 barrels per day. Two others zones tested for gas deposits, while the remain eight zones remain untested. A third party investigation in 2006 estimated total recoverable hydrocarbons to be over 20 million barrels per year. It is this third party report that the CPR has been commissioned to verify. Sirius has partnered with Owena, a state-owned company, and Guarantee Petroleum, who will be the operator of the well. However, Sirius carries the burden of the upfront expenses, with the company requiring to fund all development costs. If, after all preliminary research is complete and Sirius agrees to go into production, they will pay $500,000 to Owena and Guarantee to purchase the right to receive 88% of the net cash flow until such a time as they have recovered their upfront costs. Following full cost recovery, Sirius cash flow entitlement will change to 40%.
The Drilling Update
Sirius is now reporting that, based on the combination of the facts that information from the as yet unpublished CPR continues to be positive in nature and that neighboring oil field have been successfully producing from greater depths than Chevron reached in the original drilling of Ororo-1, the company has decided to ask Gaffney Cline & Associates, the company generating the CPR, the assess the potential for the well at deeper levels. Although the company has put a positive spin on their actions with Sirius CEO Ed Johnson saying, “We continue to be satisfied with the progress on Ororo, including our assessment of the optimal development plan and service providers, and remain excited by our business development activities. We look forward to reporting further progress in due course.” Even though he commented that “We are grateful for the patience shown by our shareholders who have been expecting a CPR on the asset for some while now,” the drop in share prices today may indicate that some investors may not be as patient as Mr. Johnson hopes that they are.
Company Spotlight
Sirius Petroleum’s exploration efforts, located in the shallow waters of the Ororo Field just off the Nigerian coast, are at a relatively early stage of development. The company has entered into a joint venture with Taglient Oil Nigeria Ltd., Sirius Taglient Petro Ltd., in order to gain the necessary licenses and permits required to exploration and drilling.
References
↑ Official company history
↑ Oil Voice
↑ Official company report
↑ Stockopedia
↑ Official company drilling update
↑ Official company information
