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30 Days to Spud: A 1 in 3 chance of a 10 bagger?


Published 02-JUL-2015 23:42 P.M.


10 minute read

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Deepwater driller Maersk has been given official notice to mobilise their world-class drill ship, The Venturer, to the location of the highly prospective Hawkeye-1 exploration well in 30 days.

With this impressive vessel currently sitting in the port of Labuan, Malaysia, mobilisation should only take a day or so, which means we are now counting down until drilling begins in the first week of August.

The offshore Philippines target, estimated to contain gross ‘best estimate’ prospective resources of 112 million barrels of oil, has the ability to completely transform this well capitalized junior and with drilling expected to take less than a month to complete, we should have results before the end of August.

There will be weekly drilling updates and any material hydrocarbon shows could be announced to the market immediately.

In the success case, the reward would be over 14 million barrels net to the £21M (A$42M) capped Red Emperor Resources NL (AIM|ASX: RMP) – and new investors essentially have a 1 in 3 chance to make over 10 times their money in the coming weeks as the drill is executed.

However, success is no guarantee in offshore oil exploration and we will explain how we arrived at these numbers further down.

RMP’s JV partner and operator, the A$81.5M capped Otto Energy (ASX: OEL) has a 78.18% working interest in Block SC55 in the Philippines, and a proven track record in the region.

The official notice to move the drillship into position for Hawkeye-1 and to begin drilling in 30 days is a particularly strong catalyst for a potential pre-spud ramp up in RMP.

Hawkeye-1 is targeting commercial oil resources below a gas cap – and even if no oil is found, there is the possibility of finding gas and confirming a working hydrocarbon system that can be explored further by the JV.

To pay for its US$4.5 – $5.625M share of the drilling costs and maintain a strong balance sheet beyond this drill, RMP just raised £2.88M (A$5.76M) through an oversubscribed share placement – that’s in addition to the A$12M cash it has in reserve to fund any future explorations and shore up its position.

Since Catalyst Hunter’s first article on RMP, 1 in 3 Chance of a 20 Bagger? Offshore Drilling Weeks Away , the stock has risen over 140%:

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The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

And now drilling at Hawkeye-1 set to begin in 30 days, this stock may be set to run even higher again.

RMP: 1 in 3 chance for 10 times value uplift

Our analysis of RMP’s potential “10-bagger” value uplift is based on the following:

  • Both internal and independent geologists have given Hawkeye-1 a 1 in 3 chance of success;
  • Total discovery potential on the well is in excess of 112 million barrels with over 14 million barrels attributable to RMP after the government’s share;
  • RMP’s JV partner Otto Energy recently earned US$108M from the sale of its interest in the producing Galoc Oil Field in the Philippines – this values oil there at US$34 a barrel;
  • Based on this recent sale, in the region, an estimated value of an undeveloped barrel to RMP would be approximately US$15 a barrel – or A$20 a barrel;
  • Even if no oil is struck, the company has over A$14M locked away (after drilling), its 20% interest in Georgian Block VIa and a dual listed platform from which to raise capital and attract assets – limiting the downside case;
  • RMP’s current market cap sits at A$42M , but with cash and our perceived “shell value” of the company being in excess of A$14M there is only a A$28M value given to its interest in SC55;
  • Yet 14 million barrels at A$20 a barrel gives a potential discovery value to RMP of A$280M.

Based on the above numbers, should RMP successfully strike oil in the coming weeks, the company’s current market cap could multiply ten times over. However, it should be added that offshore drilling is risky and has no guarantee of success – there are many variables, which could impact the result.

Assuming a fair valuation of the RMP capital shell of A$3M, a share price of 3-4c underpins the company’s value. This assumes no value for its Georgian asset, which is added upside should the company be able to monetise it in the short to medium term.

RMP – The Timing: Hawkeye-1 well to spud in 30 days

Deepwater frontier drilling at Hawkeye-1 is set to begin in 30 days.

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The latest events surrounding the imminent spudding are as follows:

  • Maersk drilling has been given official notice by JV operator Otto Energy to move its Venturer ultra-deepwater drillship into position at the Hawkeye prospect within the SC55 Block offshore the Philippines;
  • This move activates the binding contract already issued to Maersk to secure the rig’s services for the month long well work;
  • We see the issue of official Commencement Notice as further acceleration of the pre-spud ramp up in market interest that RMP is seeing, leading to continued speculative interest during drilling;
  • Hawkeye-1 is modeled as a very straightforward target in a water depth of approximately 1,700m;
  • The top of the target structure is 1,000m further below the mud-line, and Hawkeye-1 could hit oil within 15 days of spudding;
  • Regular drilling updates are expected from the moment the drilling begins;
  • The window between now and results is very small – RMP’s JV operator Otto Energy estimates it will take 23 days from spud to release of the rig.

Our previous Catalyst Hunter stock

Since our previous article on Stonehenge Metals (ASX:SHE) Wave Energy Technology Deal Complete , SHE has risen over 750%:

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The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

RMP: Strong fiscal position for drilling and beyond

As highlighted earlier, RMP is solidly funded for this imminent drilling event, currently with A$17M in cash in the bank having recently raised £2.88M (A$5.76M) through an oversubscribed capital raising . This raising gives an indication of the high level of support it’s involvement in Hawkeye-1 is generating.

An application has been made to the London Stock Exchange for the admission of the new shares for trading on the AIM.

The share placement is intended to pay for its 15% stake in Hawkeye-1, any further development works, as well as to fund future endeavors.

Further to this, it is an opportunistic time for RMP to drill for oil offshore:

  • The global price of oil is in a temporary down cycle at the moment, and rig costs have been slashed globally;
  • The well cost for Hawkeye-1 is estimated at around US$30-$35M USD;
  • In this case, RMP’s share of the costs is just US$4.5 – $5.625M – easily covered by its cash reserves of A$12M and the coming A$5.76M it just raised from investors;
  • At any other time the cost for this event would be upward of US$50M – Hawkeye-1 is therefore a comparatively low cost well, which boosts its upside potential in the event of a commercial hydrocarbon discovery;
  • Regardless of the result, RMP will be in a strong position financially, which will give the company the ability to continue to “cherry pick” attractive assets with its cash reserves intact.

RMP: The drill target – Hawkeye-1

Extensive 3D seismic imaging shows the Hawkeye-1 well is likely to be a gas cap above what’s thought to be an oil leg.

Maersk’s Venturer drill-ship will plunge its drill bit directly down to a water depth of 1,700m, then hit the mudline, with the very top of the target structure just 1,000m beyond.

Detailed 3D seismic imagery shows a flat spot in amplitude on all datasets consistent with a gas contact at 2,750m and a possible pocket of oil further down:

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A previous joint venture between Otto Energy (ASX: OEL) and BHP Billiton (ASX: BHP) on the SC55 Block identified the Hawkeye-1 target and Cinco – a 1.6Tcf gas target to be drilled later down the line.

However, a global corporate review saw BHP exit its entire South East Asian portfolio – not for a lack of prospectivity in Block SC55 though. Plus owing to the previous agreement, BHP is still contributing US$24.5M to Hawkeye-1’s imminent drilling.

The JV, now led by OEL (of which RMP is a part of), retained all of BHP’s technical input, and used this data to pinpoint the exact location of Hawkeye-1, now set for imminent drilling in 30 days.

Key technical highlights for the target are as follows:

  • Bright amplitudes down dip are consistent with structural contours on the western side. Modelling assesses these deeper amplitudes as either an oil leg below the gas cap or low saturation gas caused by leakage;
  • The mid case ‘best estimate’ for Hawkeye is 112M barrels of gross recoverable oil, yielding 14.3 M barrels net to RMP (15% working interest after government share);
  • An independent assessment of Hawkeye-1 by Jordan & Pay Exploration Consultants gives it a 32% (1 in 3) chance of success to discover the oil leg – a relatively strong chance of encountering hydrocarbons.

Regular drilling updates are expected, and the operator estimates it will take 23 days from spud to release of the rig.

An oil pocket could be penetrated within a fortnight of spudding.

And because of the potential gas cap, there is the upside that even if oil isn’t discovered, a hydrocarbon discovery would more than likely add significant value to the SC55 Block and open up the play for other participants, possibly a major.

Following the drilling event, the JV has nine additional gas drilling targets worked up in the vicinity of Hawkeye-1, and RMP will have the opportunity to participate in these drilling events as they come.

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RMP’s Hawkeye-1 well could therefore prove to be the key that unlocks a new oil and gas frontier for the Southwest Palawan basin offshore the Philippines.

Our previous Catalyst Hunter stock

Since our article on Rumble Resources (ASX:RTR) Next Friday: Fraser Range Diamond Drilling , RTR has risen almost 190%:

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The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Drilling could begin any day now

RMP’s JV partner Otto Energy has issued its official Commencement Notice to Maersk to prepare to mobilise the ultra-deepwater drillship Venturer and spud the Hawkeye-1 well in the next 30 days.

Hawkeye-1 is targeting a ‘best estimate’ gross prospective 112MMbbl oil with 14.3MMbbl net to RMP.

To participate in this imminent drilling event, RMP is spending just $5.625M USD (potentially less) of a total cost of US$30M to $35M USD – a low cost well with significant discovery potential.

The company has just raised A$5.76M through an oversubscribed share placement, meaning it will likely still have significant cash in the bank account to pursue other exploration opportunities in the wake of Hawkeye-1.

Hawkeye-1 could establish a hydrocarbon system within the SC55 block where a further nine targets – including the Cinco 1.6Tcf gas target – have been established.

The long-term possibility is that Hawkeye-1 could open up a new oil and gas frontier for the Philippines, with RMP in prime position to enjoy the upside.

When the drillship Venturer reaches the Hawkeye-1 site the drill bit will lower down 1,700m to the mud line and begin hunting for oil and gas.

An anticipated gas cap is thought to be as little as 1,000m beyond the mud, and from there Hawkeye-1 it could hit a pocket of oil at 2,750m.

There will be weekly drilling progress updates, with work expected to take a total of 23 days.

We anticipate a steady flow of news from Hawkeye-1, with the possibility of a significant oil discovery multiplying RMP’s market value almost immediately.

Oil and gas exploration is high risk – but it’s also high reward – and the start of this high-impact drilling event is almost set in stone now.

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S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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