A substantially-higher estimate for the Ogo oil discovery offshore Nigeria has lit a fire under Africa and Middle East focused oil and gas play Afren (AFR), up 8.5% to 161.5p.
Following analysis of well data the company has increased its estimate of recoverable oil from Ogo to 774 million barrels in the most conservative case from a pre-drill estimate of 202 million barrels.
Afren has a 40% stake in the find, which was made in June. Its AIM-quoted peer Lekoil (LEK:AIM) – ahead 19.9% to 59.3p – has a 30% interest and Nigerian firm Optimum Petroleum holds the remainder.
The next step for the partners is to drill an appraisal well – slated for the second half of next year – and carry out a 3D seismic survey over the wider OPL 310 licence (which contains Ogo) as they determine a plan to develop the asset.
In response to today's news, stockbroker finnCap increases its price target on Afren from 140p to 170p and moves from a 'hold' to 'buy' recommendation. Westhouse Securities analyst Jamal Orazbayeva also has a 'buy' rating and comments: 'Positive for Afren, as the upgrade to estimates is significant and further confirms our initial view that this is a large structure.'
Analysts at UBS call the discovery 'giant', adding it 'looks to be one of the most important made in West Africa in recent history.' Although the resource upgrade on Ogo is undoubtedly a significant development for the company, we remain concerned about a likely drop off in production next year as we discuss in more detail here.