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Europa Oil & Gas's many moving parts offer plenty of share price catalysts

Chief executive Hugh Mackay highlighted the oiler sees " so much activity on so many fronts in the months ahead".
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Ireland's large but unproven potential is the big prize - but onshore UK are the tangible assets

There are many moving parts to the Europa Oil & Gas Plc (LON:EOG) business, and all represent potential share price catalysts for investors.

Europa, in Monday’s results statement, told investors that it is expecting to see more progress with its Irish exploration portfolio as well as potential news for the production growth onshore UK.

Chief executive Hugh Mackay said: “With so much activity on so many fronts in the months ahead, I look forward to providing further updates, as we continue with our strategy to monetise our asset base and generate value for our shareholders.”

Big potential in unproven offshore Ireland

Europa has interests in seven exploration project areas off Ireland’s west coast, in the Atlantic margin, and through desktop work the company has already detailed a catalogue of prospects that it believes could be host to some 4.7bn barrels of oil across its inventory of 32 prospects.

The strategy is to bring in bigger explorers who can help fund wells to test these big numbers.

To that end it has some success; a deal was agreed with Kosmos Energy back in the summer of 2013 only for that deal to be cancelled in September 2015 after a change in management led to a rethink of priorities for the mid-cap partner.

Much more recently, Cairn Energy farmed into a stake in Licensing Option 16/19 where Europa has so far estimated between 300mln barrels and 1bn barrels oil equivalent.

Europa is now working on further similar transactions.

The Cairn tie-up sees the partners initially focussing on seismic processing and analysis in order to de-risk and ‘high grade’  exploration target ahead of a future drill programme (at present two of the targets are deemed ‘drill ready’.

In the meantime, the hope is that third party drilling can provide the kind of breakthrough that can spur new investments into the very promising but as yet unproven Irish oil frontier.

A slew of big oil firms took new exploration areas back in a 2016 auction by the Irish government with ExxonMobil, Statoil and the Chinese National Offshore Oil Company (via its Nexen vehicle).

Since then, AIM-peer Providence drilled a well this summer in partnership with Total and Cairn Energy.

Providence’s well failed to hit the bullseye, with both the Druid and Drombeg targets both containing water not oil; nevertheless, a new wildcat is understood be in the works nearby, with a subsidiary of the Chinese state oil company planning a well for 2018.

Mackay, on Monday, highlighted: “We remain focused on securing farm-outs for the remainder of our Irish licences with partners with whom we can advance our assets towards drilling.”

Tangible production growth and a new onshore play

Onshore UK the prize is orders of magnitude smaller, albeit, the projects are more tangibly near term – at least it could be, subject to local politics.

The company is a planning appeal judgement away from doubling group production, with Europa’s 30% stake Wressle field set to add 100 barrels per day which would bring net output to 200 bopd.

Monday’s financial results statement saw revenue of £1.6mln for the year, up from £1.3mln in the previous twelve months, and it marked a pre-tax loss £0.7mln.

A doubling of production would have a meaningful impact on the group’s financial metrics, even if the Wressle field may appear small beans compared the touted exploration potential offshore Ireland.

As well as Wressle, the Holmwood project provides another source of catalysts for Europa.

Holmwood (like Wressle) has had its fair share of planning complications - it was finally greenlighted after a number of years, and earlier this month it made an additional application for a security fence and the project now awaits further judgements related to traffic management.

Europa, which holds 20% of the project, expects drilling operations to get underway at Holmwood during the first six months of next year.

At its inception Holmwood was going to be a relatively straightforward production project with the potential for incremental growth.

In the interim, whilst the project was in planning purgatory, the proposition was dramatically altered by the apparent breakout success of the Horse Hill project - which is located immediately to the west of the so-called ‘Gatwick Gusher’ well site.

A well at Holmwood will target the conventional Portland reservoir and it will also examine the deeper Kimmeridge zones.

Consequently, Holmwood will be added to the roster of wells targeting the potentially prolific emerging oil play which was unearthed through the successful well test at Horse Hill (which yielded at total rate of 1,688 bopd, including 1,365 bopd from the Kimmeridge).

Those following the play and the companies involved - including UK Oil & Gas Investments PLC (LON:UKOG), Angus Energy Plc (LON:ANGS), Doriemus PLC (LON:DOR) - are presently focussed on the Broadford Bridge, Brockham and the upcoming new programme at Horse Horse.

The start of drilling at Holmwood will bring Europa in the Horse Hill cabal, and as such there may be an uptick in speculative buyers into the stock.

All things considered, there’s no shortage of catalysts for investors in Europa. It remains to be seen how quickly these milestones can move the share price, in the meantime attentions will be trained offshore, onshore and the boardroom.

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