Though the promise of billions of dollars worth of untapped oil will always be calculated to excite investors we think the market’s thinking in its response to two separate announcements from Europa Oil & Gas (EOG:AIM) this week is a little shaky.

Europa’s partner on the Wressle field, Egdon Resources (EDR:AIM), reveals it has commenced an extended well test on the Wressle discovery - located in Lincolnshire. Egdon is up 9.1% to 15p whereas Europa only manages a 1.5% advance to 8.25p despite have a larger stake in the development (33.3% to Egdon's 25%).

On Tuesday (16 Jun) Europa shares rose as much as 15% in intra-day trading as it published independent analysis by industry consultant ERC Equipoise which put the unrisked net present value of its 15% stake in three assets off the coast of Ireland at $1.6 billion.

In truth we’re more interested in the fact that any oil produced during the test on the Wressle well will be sold and thus have in the company’s words ‘an immediate positive impact on cash flow’.

The valuation of Europa’s acreage in the Porcupine basin off Ireland’s west coast is clearly good news – particularly as under the terms of its farm-out agreement with Kosmos Energy the US firm will incur all the costs of an initial exploration well up to $110 million – but investors should not get carried away.

In 2013 Providence Resources (PVR:AIM) drilled, in partnership with super major Exxon Mobil (XOM:NYSE), a highly anticipated well on its Dunquin prospect which had also been ascribed a net present value in excess of $1 billion.

Ultimately the failure to find oil in commercial quantities saw Exxon walk away and Providence shareholders brought crashing back down to earth. Until a discovery has been drilled you can never be sure it will deliver hydrocarbons or, indeed, cash flow.

Issue Date: 18 Jun 2015