Shares in AIM-quoted oil explorer Trap Oil (TRAP:AIM) have tanked after the group's Scotney well in the North Sea drew a blank, sending the stock down 17.4% at 11.25p.
Given the uncertainties involved in exploring for oil and gas the derating looks a tad on the harsh side. However it could reflect a lack of immediate catalysts to drive the share price and the fact this is the second dry well in a row after drilling on the Magnolia prospect, also in the North Sea, failed to uncover hydrocarbons last month.
The company is committed to securing a rig to drill an appraisal well on the Trent East find before the middle of August, but its future exploration efforts are very much weighted towards 2014.
The Scotney well was targeting around 57 million barrels of oil and Trap had a 12.5% stake. The good news for the company is that its cost exposure to both Magnolia and Scotney was fully carried by its partners and it continues to look well-funded.
At the end of 2012, Trap had total cash resources of £9.3 million and in early 2013 it put in place a $20 million three-year senior secured borrowing base lending facility with GE Capital to increase its financial flexibility. The group is also generating cash from its 15% stake in the Athena field. The interest was acquired for £21.8 million in December and the company expects the deal to pay for itself within a year; implying cashflow of around £1.8 million a month.
The Trent East Area, in which Trap secured a 33.33% stake in February, contains the existing Trent East discovery. The company, which plans to take the lead on the development of the asset subject to Department of Energy & Climate Change (DECC) approval, estimates this could contain 60 billion cubic feet (bcf) of natural gas.