There are positive noises on the shale play but disappointment on a conventional opportunity which is deemed not to be commercially viable – news which is not apparent until some way down the release and which is not explained in any great depth.
When chief executive Matthew Idiens spoke to Shares earlier this month he described the latter as a ‘bonus’ and had indicated there were plans to bring it on stream while the unconventional reservoirs were evaluated. This would have provided useful early production and cash flow which will now not be forthcoming – hence the market’s disappointment.
That said the primary purpose of State 1-34 was to gather data from the shale and Rose is at pains to point out the conventional failure has no implications for its development. Analytical work on the results is expected to be complete before the end of the first half. This will help the group to determine a plan for drilling and fracking operations to tap into the shale.
The company is preparing permit applications for six wells and once permits are approved it plans an initial three well drilling programme. Once these wells have been drilled and evaluated it will have six months to drill the remaining three wells or allow the permits to lapse.
FinnCap retains its ‘buy’ recommendation and 12p price target. Analyst Dougie Youngson writes: ‘The deeper conventional play (for reasons not stated) have now been deemed to be uncommercial. This play was considered to be a “nice to have” rather than a “have to have” in terms of the resource base. We had not included the conventional interval in our valuation so we do not need to change this today.’