Small cap news: San Leon Energy discovers gas in Poland

Gas explorer makes first commercial gas discovery in Poland

After long disappointing its army of private investors, Aim-listed San Leon Energy has announced that it’s made its first commercial shale gas discovery in Poland sending the share price up almost 50% to 1.7p by mid-afternoon.

Today the small cap gas explorer unveiled test results that it believes show that its Rawicz-12 appraisal well, in south-west Poland, will be commercial in scale.

Flow testing began on February 5 and has to date flowed at a rate of up to 4.1 million standard cubic feet per day. It is expected that the well will complete its flow testing on 28 February 2015, following which pressure build-up data will be acquired for several weeks.

The Rawicz project is operated by Palomar Natural Resources (Palomar) with 65% equity, and San Leon has no up-front drilling costs for its 35% equity share of the first two wells. (Thereafter, it will take on 35% of the costs of subsequent wells but is expected to have cash flows from the first two wells to finance this).

Oisin Fanning, San Leon Executive Chairman, commented: “This is the well we have been waiting for – a significant gas discovery in one of the highest-priced gas markets in Europe. The Rawicz field has existing gas infrastructure nearby and a development feasibility project has already been completed.

This well is transformational for the Company, a step towards energy independence for Poland, and the first of what we anticipate will be a series of such wells for San Leon in the Rawicz field and elsewhere in Poland. These results are gratifying for the management and staff of San Leon Energy and are expected to be beneficial for our shareholders. I would like to thank our investors for their patience, and congratulate the on-site team for a job well done. We look forward to updating the market on the full interpreted results of Rawicz-12, and the next steps for the Rawicz field.”

Analysts’ views

Mark Henderson, an analyst at house broker Westhouse Securities, commented in a note today. “Given high gas prices in Poland and the adjacency of the field to existing infrastructure, this is a highly significant commercial gas discovery which will be converted to a producer in due course. Three to five further wells will be drilled to develop the field (SLE is effectively carried by Palomar Natural Resources for the first 2). SLE holds a 35% equity interest in the Rawicz project.”

He concluded: “Our view: we believe that the shares should rally strongly today as this is the first confirmed commercial discovery of recent years in Poland. The market has become increasingly disillusioned with SLE’s lack of delivery and false starts and this strong well result could mark the start of a sustained turnaround in operational, financial and share price performance.”

Henderson has maintained his ‘Buy’ recommendation with a 6.1p price target.

San Leon’s other house broker is FinnCap, which has a ‘Buy’ and a price target of 13p. Analyst Dougie Youngson commented in a note today: “The impact on valuation will be determined by the overall cost of development and the speed of payback to Palomar. SLE is funded for its share of the first two wells and will therefore need to fund additional costs. Nevertheless, this is an important result for the company and will be value accretive once onstream and cost recovery has been exited. There is no change to our valuation today.”

As more wells are drilled the hope is that the estimates for recoverable reserves will go up, leading to an increase in the share price of San Leon Energy.

The writer holds shares in San Leon Energy





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Categories: News, Small Caps

About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.