Days after shareholders in small cap oil firms Egdon Resources (EDR:AIM) and Europa Oil & Gas (EOG:AIM) were left licking their wounds after an unsuccessful joint drilling effort with the Kiln Lane-1 well there's good news on another shared project – with excellent results from testing on the Wressle discovery. Egdon gains 17.2% to 8.5p and Europa is up 7.8% to 6.88p.

Web chart - Egdon - Mar 15

A fourth flow test on Wressle in Lincolnshire brought the cumulative flow rate to 710 barrels of oil equivalent per day (boepd). An oil column was identified within the Penistone Flags zone - separate to a previously tested gas interval - and that oil column has flowed at a rate of 77 barrels per day.

The oil is said to be good quality at 33 degrees on the American Petroleum Institute's (API) measure of gravity. The higher the API gravity the lighter the crude and the lighter the crude the higher the quality as it is easier to refine into petroleum products like petrol and jet fuel. Crude with an API gravity between 22 and 38 degrees is generally defined as medium crude.

The next step is an extended well test in May which will run for two months – this will provide early production and revenue.

House broker to Europa, finnCap, keeps its price target at 16.6p and notes its client's net cumulative flow rate from Wressle of 237 boepd is more than its total current output.

Egdon's house Cantor Fitzgerald reiterates its 'buy' take and 39p price target and says Wressle is likely to be 'economically viable in the current oil environment'. Analyst Sam Wahab says: 'Egdon’s shares, in our view, offer investors exposure to a well-capitalised and geologically diversified independent, one of the few listed companies with UK shale exposure and key strategic relationships operating in a politically secure region.

'On this basis we believe the current share price represents an attractive entry point ahead of a fully funded and value accretive near term conventional drilling programme.'

Issue Date: 27 Mar 2015