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Home » Tips » Stocks In Focus » Canadian Overseas Petroleum set to build on transformative 2021

A good indicator about the prospects for a company is when its directors decide to buy, or sell, its shares. At Canadian Overseas Petroleum Limited (CSE:XOP / LSE: COPL) CEO Arthur Millholland on 1 February announced he had bought US$385,700 of COPL shares on the Canadian Securities Exchange at a price of $0.58 per share. As he says: “This share purchase shows my confidence in the company’s recently announced deep discovery and the performance of our miscible flood at our Barron Flats project in Wyoming.”

Millholland is best placed to know about COPL’s prospects and, going by the acquisitions and discoveries COPL has made, he has every reason to be confident about its future. He says he would have bought more shares, but for the restrictions placed on how market regulations define closed periods. As he says: “I am more than happy to purchase shares in the Company in the market when I can. In fact, I had planned to purchase more but came up against a blackout period today which extends to the filing of our annual results on March 30th.”

It must be frustrating for Millholland to know the potential of COPL and yet be unable, due to market restrictions, to buy shares in his own company on the open market like everyone else. For COPL is going places, as he knows.

Significant discovery

Last month, COPL announced a significant conventional light oil discovery at its Wyoming asset, which COPL acquired in January 2021. The asset comprises two oil production units, the Barron Flats Shannon Unit and the Cole Creek Unit, which are at the beginning of their 40+ year life. The recent Barron Flats Federal Deep discovery was the result of an accelerated exploration programme initiated after the acquisition last year underlying the Shannon Unit that is already producing 2,000 barrels per day from the existing wells. The current production rate and the new discovery show that the Wyoming asset’s long-term potential for production is, as COPL says, “on a scale many multiples greater than our original expectation”.

Millholland says: “The size of the exploration upside at our Wyoming asset was a surprise to us all. Conventional light oil discoveries of this magnitude have been rare in continental North America for years if not decades. We control the majority of this discovery as it is coincident with our large contiguous lease block. We will start exploiting the discovery this year.”

Mapping of the reservoirs has shown the discovery to be extensive and a significant potential resource, with an estimated combined reservoir volume of 1.5–1.9 billion barrels of Oil in Place (OIP), of which 1.3–1.6 billion barrels are within COPL lands.

The Barron Flats Federal Unit consists of two discoveries, the upper Frontier reservoir sands and the lower Dakota reservoir sands. COPL estimates the Frontier discovery to be 33,000 acres (51 square miles) in size, of which 88% is within its leasehold, and has an estimated OIP of 1–1.32 billion barrels on the Company’s leasehold. COPL estimates the Frontier element of the discovery has a capacity of up to three horizontal wells per square mile each initially producing 1,000 –3,000 barrels per day. Exploitation of the Frontier sands will commence later this year through horizontal wells.

The Dakota discovery is estimated to be 37,000 acres (58 square miles) in size, of which 77% is on COPL lands, and has an estimated OIP of 308 million barrels. The discovery well drilled in August 2021 intersected 20 feet of net reservoir sand, and light oil was recovered. The well has been placed on production unstimulated at an initial rate of 100–120 bbl./d. Further exploitation of the Dakota sands will also likely be through horizontal wells.

The Barron Flats Shannon Unit continues to outperform expectations, with crude oil production increased to about 2,000 bbl./d, as a result of the miscible flooding (gas injection to increase oil recovery), which commenced on 1 April 2021. As a result, however, COPL encountered higher than expected surface working pressures and had to improvise a 2-mile gas pipeline from the wellsite to the plant to handle the increased volumes.

Phased production plan

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A lot has happened to COPL in a year. As Millholland says: “We are delighted that this discovery reflects the scale of previous discoveries made over my career and in particular the North Sea. We estimate the Frontier element of the discovery to [have] the capacity of up to three horizontal wells per square mile each initially producing 1,000–3,000 barrels per day. We plan a phased production program and have already applied for permits covering four horizontal wells. We will use internal resources to cover the initial costs of development, whilst full field development plans are evaluated. This discovery highlights the long-term sustainable production outlook from this outstanding asset.”

COPL is also pursuing opportunities in Sub-Saharan Africa. In Nigeria, COPL has an interest in an oil appraisal and development project in shallow to mid-water offshore Nigeria in area OPL 226, which it is managing in partnership with Shoreline Energy International Limited and through its jointly held affiliated company Shoreline Canadian Overseas Petroleum Development Corporation (ShoreCan). OPL 226 project has a best estimate of 2C contingent resources of 16 million bbls (gross) and unrisked prospective resources of 533 million barrels (gross) of oil.

The COPL share price is up 94% so far this year, mostly gained in the space of four days after 6 January, when the price surged 84% on news of the confirmation of a significant oil discovery at its Wyoming asset.

Related

This article is not investment advice. Investors should do their own research or consult a professional advisor.

James Norris

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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