Australian petroleum explorers have always looked overseas for investment opportunities, so the current upswell of offshore Antipodean exploration is really nothing new.
Market driven opportunities in the US and other regions are certainly driving explorers to greener pastures, though according to Sun Resources managing director Dr Brad Farrell one of the basic reasons is that it is hard to get good ground in Australia and a good price for your product.
Onshore, native title is well documented as an impediment, but winning offshore acreage has its own difficulties.
"Cornea hurt us," he said, referring to Shell's failure in 1999 to honour the conditions of its ridiculously high bid for what was then very hot Browse Basin acreage offshore Western Australia. Shell and partners walked away from most of their promised exploration expenditure after the hyperbole and their enthusiasm was deflated by unsuccessful drilling in difficult geological conditions.
Subsequently, and paradoxically says Dr Farrell, the Cornea debacle has impacted the smaller end of town with the juniors finding it hard to win prospective blocks.
"We have everything to lose by not drilling," he said. "We all live and die by our exploration programs.
"So when opportunities like the San Joaquin play present themselves, combined with the market potential of South California, we move swiftly to take advantage of them."
Dr Farrell said Sun considered the Eagle oil pool to be low risk in nature in view of the demonstrated flow of oil and gas from the target sand, with the recent recovery of 250 barrels of oil from the well bore.
"Hence, California, despite the Pacific peso (read Australian dollar)," he said. "Drilling costs are very similar to Australia because of the size of the industry there, and when the commercial monetary reward is six to eight times (that of Australia), it doesn't make a lot of sense not to give it a go.
"We are still working on our Australasian assets and bidding for new blocks in the Carnarvon Basin, but with the Eagle well and then Kingfisher behind that in June, I see this Californian program as the best opportunity for maximum growth in the next six months for Sun shareholders."
From an investment point of view, the partners in the Eagle well represent an attractive, though highly speculative investment. Sun is the better leveraged Australian Stock Exchange stock in the Eagle joint venture, aside from the First Australian Resources options which will expire in July, possibly before the completion of conclusive logging and testing of any possible discovery. The Kingfisher well, scheduled to be drilled mid-year, is a larger gas prospect than Eagle.
Sun has a fairly tightly held register with a combined total of less than 90 million shares and options on issue. This is the smallest issued capital of all Eagle partners, which usually translates to a higher proportional change relative to other more liquid stocks.
There are a few investment strategies suggested in relation to oil well exploration, which an analyst will tell you involve taking a position some time before the spudding date. An investor's risk profile then dictates how much, if any, stock is retained during the actual drilling. Some brokers say these strategies range from selling enough stock to recoup your initial investment, then holding the rest for a single exit at a predetermined price or profit figure, to a more staggered disposal of the stake, which covers a range of risk and profit scenarios in the one trade.
If you're still with us, the in-depth strategies such as the latter are best utilised for trades involving significant sums of capital, given the time required to manage the complexity of trades of this nature.
Sun has built up a number of exploration assets over recent years, which after some recent rationalisation has been pruned down to a healthy footprint of opportunities.
Recently it has been disappointed by Waitaira-2 well in New Zealand, however, in WA operator Apache Energy has identified further drilling targets delineated from seismic data over the Boyd and Argos prospects in the Carnarvon Basin, where Sun has interests in five onshore and offshore permits.
In Papua New Guinea, Sun and partners have applied to renew a smaller permit area excised from two larger areas with the Amdi prospect a possible drilling target in late 2002.
Sun is still optimistic, that along with partner Victoria Petroleum, they can provide New Caledonia's growing nickel industry with locally produced energy from its Cadart play.
They were encouraged enough by the non-commercial gas find in their early 2000 Cadart-1 well and the hydrocarbon shows in other shallow drilling to continue with their exploration. The upgrading of the perceived oil and gas prospectivity of the New Caledonia Basin by the recent French Government discovery of the world's largest gas deposits, in the form of hydrates, in the offshore section of the basin has also re-rated the region's development potential.
Sun also holds 14.7% of ASX-listed Basin Minerals, which currently has a 20.8-million-tonne mineral sands resource in the fashionable Murray Basin (in the Victorian portion).
TECHNICAL OFFICE
Level 1
40 Kings Park Road
West Perth WA 6005
Ph: (08) 9481 3638
Fax: (08) 9481 3528
DIRECTORS
Dr Brad Farrell, Peter Woods, Dr Wolf Martinick and Dr Philip Linsley.
MARKET CAPITALISATION
$5 million (at press time)
MAJOR SHAREHOLDERS
Sun directors (13%)