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Oilex Ltd shares: can Cambay field potential transform the company?


Oilex Ltd (LSE:OEX; ASX:OEX), the Australian oil and gas exploration and production company, saw its shares surge an impressive 250.5% over the past year, with much of that growth due to gains of 287% in the past two months.

The surge in the Oilex share price followed news that its long-awaited takeover of the Cambay production sharing contract in Gujarat, India had taken key steps towards completion, what managing director Joe Salomon has described as a ‘major milestone’ for the company. The Gujarat State Petroleum Corp (GSPC) approved the sale of its 55% interest in the contract to Oilex for $2.2m, with approval gained also from the Indian government.

The deal will hand Oilex 100% control of the Cambay contract. The 55% interest in Cambay would add about $5m of gross assets to the Oilex balance sheet.

How Oilex built up its Cambay field position

Oilex has been patiently building its interest in the Cambay field since 2005, when it first bought a 30% share in the Cambay Field Joint Venture, then managed by GSPC and Niko Resources. Oilex’s next move was to buy Niko Resources’ 15% stake, before starting negotiations in 2019 for the remaining 55% stake owned by GSPC. The attraction for Oilex is that the Cambay field is one of the most prolific onshore petroleum provinces in India, with pipeline and other industrial infrastructure already built.

With its 100% interest in Cambay, Oilex can restart a work programme, by drilling two vertical wells to test the Eocene gas accumulation, which Salomon has described as having ‘significant potential’. Drilling is expected to complete in the second quarter of this year, once the binding sales and purchase agreement, and funding arrangements, are completed. The results of the pilot programme are expected to provide the data needed to determine whether horizontal wells can provide an estimated 3x to 5x increase on well productivity, thereby offering the highest commercial returns for the project. If the tests are successful, another field development plan would follow, involving the batch drilling of many more wells.

Improvements in Oilex balance sheet

In March, Oilex reported pre-tax profit of $419,000 for the second half of 2020, an improvement on the 2019 loss of $2.0m. The company is currently unprofitable but its balance sheet shows a comfortable debt-to-equity ratio of 11.6%. No revenue was reported, as the project had been closed while negotiations with GSPC continued, but costs for exploration, maintenance and administration were halved, and a profit booked from the sale of the CoEra Group for $344,000.

The sale of CoEra Group, which operates in the Cooper-Eromanga Basin of South Australia, and its 40% interest in the Bhandut Joint Venture, India, mean Oilex can concentrate on developing its Cambay asset and other key projects. In December last year, Oilex announced it had agreed with Burgate Exploration and Production Ltd to buy its interest in the Doyle-Peel licence in the East Irish Sea, off the UK coast, while ‘substantial progress’ is being made on its West Kampar production sharing contract in the Pendalian oilfield, in Indonesia.

It seems that the Oilex directors, in overcoming numerous challenges over a period of 15 years to finally achieve their objective of complete control – and with it the potential profits – of the Cambay asset, have shown themselves to have, as Solomon said, “focus, perseverance and capital discipline”.

For Oilex, the Cambay contract is the asset that, once sealed and delivered, and once they can unlock its potential value, will most likely transform the company.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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