Shares in AIM-quoted oil & gas play Petroceltic (PCI:AIM) fell 3% to 6.5p after its Kamchia-1 exploration well offshore Bulgaria failed to find gas in commercial quantities.


Investors in the sector will be used to much bigger falls when companies report disappointing drilling wells but the reasons for today's muted response are two-fold.


First, this is one of a number of wells the group has planned this year. Prior to drilling, broker Liberum Capital valued the well at 1.3p per share in a success case whereas the total potential value of its 2013 exploration campaign, including wells in Romania, Italy, Egypt and Kurdistan, northern Iraq, is 23.1p.


Secondly, the market is more focused in the near-term on a second farm-out deal for the group's Ain Tsila project in Algeria. Earlier this month (17 May) the group announced it was within reach of a 'binding agreement' over the farm-out of an 18.375% stake in the gas field. This would leave Petroceltic with a 38.25% stake but it is still subject to the approval of the authorities as well as its existing partners Enel (18.375%) and Algerian state energy company Sonatrach (25%).


The ongoing negotiations are expected to delay a mooted move to the main list but could provide further independent validation of the asset and highlight its inherent value – which Liberum puts at 9.2p a share. The group looks well-resourced, cashflow is expected to increase substantially in 2013 following the merger with Melrose Resources last year and a $500 million borrowing facility was secured last month.

Issue Date: 24 May 2013