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Advance Energy Plc on final countdown to Buffalo well result

If the Buffalo-10 well is successful the small-cap oiler could see material production in the not very distant future.

Patience is a virtue, they say, but then in the small-cap oil sector a little bit of giddiness can go a long way too.

Somewhere in between is the growing excitement around Advance Energy PLC (AIM:ADV) and the Buffalo-10 well, presently being drilled offshore Timor-Leste.

Advance Energy shares are up close to 9% in the past week as the drill-bit moves closer to its target zone.

A week ago, a rather technical and anodyne RNS marked the progress down to around 800 metres and this Friday a similar statement confirmed drilling had reached 2,700 metres.

It means the well’s target, the Elang reservoir, is expected in the coming days as Buffalo-10 is deepened down to it total measured depth at 3,500 metres.

Buffalo-10’s goal is to confirm the presence of commercial quantities of high-quality light oil that could open up an early re-development of the Buffalo field.

Small-cap investors could be rewarded with a quick uptick in value and followed by a rapid route to cashflow.

Drilling to date bodes well, according to Friday’s announcement, which said noted that the geology on the way down to the target has been on prognosis with the operators geophysical interpretation.

It’s an interesting and slightly positive footnote.

Ultimately it is the next announcements that will matter, whether or not the target zone has the oil that the company and partners hoped for. A success will likely catapult the share higher.

The quick turnaround from Buffalo’s acquisition (Advance picked up 50% in MM) to this value catalyst is, more or less, by design.

Speaking with Proactive last year chief executive Leslie Peterkin explained that the company targets assets in the eastern hemisphere that have a short timeline (three to five years) to reaching a significant inflexion point.

The company’s strategy is to invest but not operate any of these projects.

Advance has firm criteria in terms of targeting proven resources and existing or near-term cash flow – criteria that appear hand-in-glove.

In the field, Buffalo-10 operator Carnarvon Petroleum is testing an undrilled crest of the structure on the acreage with the aim of recertifying resources to reserves.

Pre-drill, the certified contingent resource sits at 34mln barrels.

It is not virgin territory and as the field was developed and operated by BHP and Nexen from 1999, producing 21mln barrels of crude over five years until it was shut in.

At its peak output was a very respectable 45,000 barrels of oil a day from 2 wells.

The concept for Buffalo is for a three-well operation tied to a floating storage facility (FSPO), to potentially yield some 40,000 barrels a day. The oil is a very light crude (53-degree API).

So, success with Buffalo-10 could open a lucrative project for Advance Energy and Carnarvon.

Economics laid out in the competent persons report (CPR), year-one gross free cash flow would be in the order of US$276mln at a crude price of US$50 (today, Brent is changing hands at US$85). It’s predicted that the project could take less than 12 months to achieve payback.

Subject to the well results, the partners have aimed to have the final investment decision for the field development later this year, which could mean material revenue-generating production as soon as 2023.

Once the proposition is laid out one might wonder why there isn’t more hype around the imminent well result.

Perhaps it’s a sign of the times and reflects a need for less bombastic communications for hydrocarbon companies amidst the era of ESG.

Or perhaps it’s the case that the teams behind the project prefer a quieter form of confidence.

In any case, the Buffalo-10 result is likely to come in the next week and it is certainly shaping up to be one to look out for.

Read More: Advance Energy Plc on final countdown to Buffalo well result

2022-01-14 09:14:00

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