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The companies says Ntorya-2 represents a better-than-expected result,
but, both shares are down almost 20% - here, we take a closer look. Proactive investors Jamie Ashcroft attempts
to decode this morning’s announcements and the reasons for the share price
fall.
What was the result?
The Ntorya-2 well is located some 1.5 kilometres from the
original Ntorya-1 discovery well and it has intersected a much larger gas
reservoir zone.
Flow testing was impeded somewhat by technical issues,
nonetheless, the well testing yielded a rate of 17mln cubic feet of gas per
day, which would be 2,833 barrels oil equivalent per day.
"The overall results of Ntorya-2 have substantially
exceeded Aminex's expectations and now we have the potential for a commercial
development project in the Ruvuma Basin,” said Aminex chief executive Jay
Bhattacherjee.
Technical problems
The obvious source of shareholder dissatisfaction comes from
the fact that technical problems limited the partner’s ability to fully measure
Ntorya’s production capacity – in fact, Ntorya-2 flowed at a lesser rate than
the previous well (albeit under different operating conditions).
During drilling there was a significant influx of gas into
the well, and as a result the company had to adapt which resulted in
constricted gas flow during testing.
Specifically, Aminex explained that it had to increase the
drilling mud weights due to the “strong gas influxes” so that they could
maintain well control and operate within safety parameters.
Subsequently, the higher than planned mud weights resulted
in reservoir invasion which tempered overall test performance.
The upshot is that the gas flows measured by the appraisal
well do not properly represent the extent of what could be possible at this
well location.
For context, the Ntorya-2 well cut in a much larger pay zone
than the original discovery yet its flowed gas at a lower rate.
The new appraisal well encountered some 51 metres gross
reservoir (34 metres were perforated) whereas Ntorya-1 tested only a four-metre
interval and yielded 20mln cubic feet per day.
Aminex told investors that Ntorya-2 would be suspended for
future production.
The burden of high expectations
When considering the share price response to Wednesday’s
news it is probably important to note that the results were hotly anticipated
and expectations have been building for a number of months.
Speculation frequently coincides with expectation, and as
such trading in Aminex and Solo Oil shares has been brisk in the weeks and
months leading up to the Ntorya-2 well.
Aminex shares, for example, had risen almost 250% - to 6.84p
from 2p - in the three months before today’s well results. Similarly,
Solo Oil shares were up about 180% in the same period.
One could probably deduce then that at least a portion of
Wednesday’s sellers simply closed out speculative trades as the nuanced well
result took momentum out of the shares.
What comes next for Ntorya?
Aminex highlighted that there will now be a period of
analysis, which will guide what happens next.
The partners will have to reconcile the findings of the
Ntorya-2 well and the previous Ntorya-1 data, and in time they’ll likely come
up with a new estimate of the project’s resources.
The presence of oil shows in Ntorya-2, whilst plainly good
news, will also give some more pause for thought. This part of east Africa is
already known to be host to vast gas resources, with major offshore discoveries
providing the basis of significant LNG developments, but, oil discoveries have
been elusive and are something of a holy grail for exploration geologists
studying the area.
Aminex intends to revise the geological model of the onshore
portion of the basin, to account for the apparent evidence that oil is present
in the vicinity of Ntorya.
With the phase of desktop work, the partners will draw
conclusions that will be used for the next programme on work in the field. A
third well will be planned, with the location determined based on the upcoming
assessments
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