Vaalco Energy Inc. said Tuesday it has ceased operations at a well in the U.K.'s North Sea because its reserves turned out to be "smaller than anticipated."
Though Vaalco suspended activity at the 9/28b-19A exploration well, it has kept infrastructure in place on the sea floor in case there is a need for further development.
Chief Executive Robert Gerry said the well was "tantalizingly close to being a success" since Vaalco had found an oil column. "Unfortunately," he added, "it did not contain enough hydrocarbons to be a commercial success."
The energy company's stock fell 44 cents, or 9.3 percent, to $4.31 in morning trading after the report.
Vaalco is also negotiating to participate in another exploration well in the Southern Gas Basin of the North Sea. Vaalco estimates that there are 45 billion cubic feet of gross reserves in the well and said it will pay a portion of costs to obtain a 25 percent working interest. Drilling is planned to start in the third quarter.
Gerry noted that gas in the U.K. is priced at about $10 per thousand cubic feet, and if that well is successful, "it will add significant reserves and cash flow to Vaalco."
Vaalco also said it is evaluating seven exploration and development areas for potential drilling at the Etame concession in the West African nation of Gabon. It expects to begin the drilling program there during the fourth quarter and estimates that there are 100 million barrels gross unrisked recoverable oil reserves there. Current production is 22,000 barrels of oil per day.
The company has nearly completed an offshore drilling platform for its Ebouri well that is scheduled to leave for Gabon at the start of May. Vaalco has signed a letter of intent with a drilling contractor to start drilling Ebouri in October and expects to begin producing 5,000 to 6,000 barrels of oil per day there in December.
That drilling rig is also contracted to explore another well immediately after Ebouri with the possibility of one additional thereafter. Vaalco is further seeking a land rig to begin drilling two exploration wells during the fourth quarter at the Mutamba concession. Vaalco owns all of the working interest there and expects to drill 100 percent of each prospect. The Mutamba oil sands are shallow, and hold estimated reserves of 10 million to 15 million barrels for each prospect.
The company is also trying to locate an exploration well in its Angola prospect on Block 5. However, due to an "extremely tight" market, a rig may not become available until early 2009.
Terms & Conditions
RSS Headlines
Fool UK