Small-cap oil explorerPresident Energy(LSE: PPC) share price has jumped this morning, rising as much 90% in early trading, after the company revealed thatit had made its first oil discovery at the Lapacho well in Paraguay.
The company announced that it had found conventional light oil and condensate at its Lapacho prospect. Management expects this oil to be of commercial quality,althoughfurther tests and drilling activities need to be carried out, before President can officially claim to have made a commercial oil discovery.
Nevertheless, whats really exciting about the discovery of oil at the Lapacho project was the fact that the oil was discovered before the well reached its target depth. This indicates that the prospect could yield more oil than initially believed. Additionally, the presence of oil at the Lapacho prospect implies that liquid hydrocarbons may be present in the deeper sandstonereservoirs at the companys nearby,but currently abandoned, Jacaranda prospect. President says it plans to re-commence drilling of the Jacaranda prospect in the hope of finding yet more oil at a deeper depth.
All in all, this discovery represents a significant milestone for President Energy, as the company now has proof that oil does exist in the Paraguayan Chaco. The discovery puts in place the foundations for further drilling and exploration activities in the future.
Todays news marks the latest development in what is shaping up to be an extremely busy year for President. Indeed, the companys US operations,which are located inLouisiana, produced 218 barrels of oil equivalent per day (boepd) during the first half of this year, generating revenue for the company of$22,200 per day. Record US production yielded much needed cash for President to pursue international drilling and growth opportunities.
Specifically, during the past few months, as well as drilling activities within Paraguay, President also acquired theadditional 50% of its Argentinian subsidiary, Puesto Guardian, over the summer. Thanks to this transaction, Presidents oil production should rise by 36% during the second half of the year to 530 boepd.
And, unlike many junior oil explorers, President has plenty of cash on its balance sheet to support exploration activities without the need to ask investors for cash injections.
At the end of June, President had a net cash balance of $23m and City analysts currently expect the company to break even by 2016. However, after todays announcement and discovery of oil within Paraguay, its possible that City analysts will start to upgrade the companys earning s forecasts.
Indeed, President plans to begin the first stage of production at its newLapacho project during 2015, depending upon test results. So, now President has all of the building blocks in place to support rapid growth.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.