North Sea Oil Sends Shares Soaring

Published in Company Comment on 29 June 2010

An 'exceptional' oil find sends shares gushing.

Alas, modern deep-water drilling in the Gulf of Mexico has proved to be a nightmare for oil super-major BP (LSE: BP). Meanwhile, in a flashback to the Seventies, it seems that the North Sea is once again the place to be for oil firms.

Catcher on the rise

So far, 2010 has been a terrific year for shareholders in three firms exploring the North Sea off Aberdeen. Shares in EnCore Oil (LSE: EO) have risen 255% so far this year; Nautical Petroleum (LSE: NPE) has enjoyed a 259% rise, and FTSE 250 firm Premier Oil (LSE: PMO) is up a more modest 11% in 2010.

The secret of this success is down to what could be one of the biggest discoveries of oil in recent years: the Catcher fields in the North Sea. The licence for Catcher is shared by partners Premier Oil (35%), Wintershall (UK North Sea) Limited (20%), Agora Oil & Gas (15%), EnCore (15%; also Catcher's operator) and Nautical Petroleum (15%).

Earlier in June, encouraging news about a discovery of light oil at the Catcher well (located in UK Central North Sea block 28/9) sent shares soaring at EnCore Oil, Nautical Petroleum and Premier Oil.

A fabulous find

Yesterday, these three companies announced that further drilling at the Catcher East side-track well indicated that this oil find could be much bigger than first thought, with 'Catcher East and Catcher...likely to be part of a single significant oil accumulation'.

Encouraged by these results, the Catcher partners are to drill a further side-track to the south-west of the original Catcher find. Indeed, EnCore's scoping analysis indicates that the entire Catcher field may contain up to 300 million barrels of oil, of which half may be recoverable, making it the biggest North Sea oil find for many years. There are additional prospects nearby that could increase the scale of this find, too.

Similar notices from EnCore and Nautical Petroleum sent their shares shooting skyward. At Monday's market close, EnCore shares had soared 46% to 52p, with Nautical up 23% to 170p. With a market cap of £1.53 billion, shares in Premier Oil moved up just 7% yesterday to 1,266p.

At these prices, EnCore has a market cap of £150 million and Nautical is worth £110 million. Having started 2010 as small-cap tiddlers, these companies have since appeared on the radar screens of institutional investors. Hence, more good news from the Catcher field could spur further share-price leaps. Check out our Oil & Gas board for more discussion about this find and the prospects for all three shares.

Pain in the Ukraine

On the other hand, Monday was a day that shareholders in Regal Petroleum (LSE: RPT) would rather forget.

Yesterday, Regal admitted that the Ministry of Environmental Protection in the Ukraine had, on environmental concerns, ordered the firm to stop producing gas from its Mekhediviska Golotvshinska and Svyrydivske gas fields.

This suspension order was signed on 30 March, but Regal -- founded by colourful and controversial Romanian-Australian entrepreneur Frank Timis -- claimed not to have received it until 21 May. Although Regal has continued to produce gas from the fields while negotiating with the Ministry, this warning sent Regal's investors rushing for the exit, crashing its shares 29% to 26p.

At yesterday's close, Regal was valued at under £78 million, thanks to its shares falling almost two-thirds (65%) so far in 2010. Oil-sector watchers will recall that Regal was fined £600,000 in 2005 after announcing a huge find at its Kallirachi well in Greece, only to later admit that the well was non-viable. A different management team was in charge of Regal back then.

The oily roller-coaster

In summary, investing in small oil firms can be hit or miss -- and for every EnCore, there is a Regal. So, spread your oil investments around and don't be tempted to 'bet the farm' on any oil producer, even a mega-cap such as BP!

More from Cliff D'Arcy:

> To buy or sell shares, try an online broker account with The Motley Fool's Share Dealing Service. You can deal in real time for a flat rate of just £10 per trade. Click here to open an account for free today. 

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