Shares in President Energy (LSE: PPC) rose by more than 15% when markets opened this morning, following news that the companys Lapacho x-1 well in Paraguay has found potentially significant volumes of oil and gas.
The firm says that very encouraging hydrocarbon shows were encountered throughout the drilling of the well, with high levels of gas present throughout the 418m of the 600m target interval which was penetrated by the well.
President says the outcome from the well is consistent with the firms ambitious pre-drill estimates of gross mean prospective resources of 1 trillion cubic feet (Tcf) of gas and 30 million barrels of condensate a valuable light oil.
The firm believes the greater Lapacho area could contain as much as 5 Tcf of gas and additional condensate.
More detail to come
The Lapacho x-1 well was drilled to a target depth of 4,543m into the Santa Rosa Formation, but was not straightforward.
President reported that difficult downhole conditions restricted full logging of the well, but the firm is now beginning an open hole well test that should provide more accurate data on flow rates and fluid types.
President expects to release a further update with the results of these initial tests in around 10 days so we should have further news before Christmas.
Paraguay is a relatively unexplored oil and gas province, and the country currently imports all of its energy requirements. This suggests that substantial domestic discoveries, such as Lapacho, could find a ready commercial market if developed.
Neighbouring Brazil, Chile and Argentina, where President also operates, are also net energy importers.
Whats the outlook?
The next milestone for President will be initial flow test results from Lapacho in around 10 days.
Elsewhere, the firm has production assets in Argentina and Louisiana, which generated revenue of $5.8m during the first half of this year. The firm is hoping to increase production in Argentina after gaining 100% ownership of its Puesto Guardian field in the country.
On the financial front, President reported a cash balance of $23m at the end of June, in addition to an unused $15m loan facility.
President spent around $35m on exploration and evaluation activities during the first half. Based on this rate of spending, the firm could run short of funds by the end of the year, without a new fundraising.
However, a successful well test at Lapacho should ease the route to new funding, and I believe President remains a reasonable buy.
In my view, President does have many of the ingredients needed to deliver strong gains for investors.
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