The news of the 66m net pay oil find, which came from four oil columns that were largely separated by shale zones, nearly trebled the share price of Carnarvon Petroleum yesterday which owns 20% of the relevant WA-435-P block in the North West Shelf's Bedout Sub Basin.
While Apache (40%) has estimated that the oil-in-place might be up to 300MMBbls, StockAnalysis principal Peter Strachan, a seasoned petroleum commentator, told the Australian Financial Review that the discovery could host up to 60MMbbls of recoverable oil based on the results so far.
He told the newspaper that most recent Australian oil discoveries are in the sub-30MMbbls range making anything bigger than that significant.
Based on the measured permeability at Phoenix South-1 and low permeability Triassic sandstones of the Phoenix-2 discovery BP made in 1982, Macquarie Private Wealth has initially estimated a 30% recovery rate is possible at Phoenix South-1.
Consequently it has assumed the well hosts 90MMbbls of recoverable oil, which became part of its outperform rating for Carnarvon shares with a 12-month price target of 28c, made after these shares climbed from 9c to 24c yesterday.
MPW noted that the shallow water depths of the discovery at 130-140m made the minimum threshold for development as low as 15-20MMbbls - which further supported Apache's call yesterday that Phoenix South-1 was already a commercial discovery.
While oil projects cost much less to develop than gas developments, MPW also noted they are commercialised in much shorter timeframes with the Santos-operated Fletcher Finucane oil project in the Carnarvon Basin delivered in about 8 months.
The Phoenix South-1 discovery has also renewed the exploration impetus among surrounding blocks with Apache quickly committing to drill the Roc-1 commitment well in WA-437-P and exercising its options to acquire a 40% interest in the WA-436-P and WA-438-P blocks.
MPW consequently saw an opportunity for Carnarvon to make a transaction.
"We note that Carnarvon retains a 30% interest in WA-436-P and WA-438-P, providing scope to farm-down a 10% interest to normalise its equity position across the four Phoenix gas blocks and potentially crystallise a price at a substantial premium to the value implied by the recent farm-in transactions," it said.
The broker flagged other price catalysts for Carnarvon shares to be further evaluation of the discovery by year-end, drilling of the ROC commitment well and appraisal drilling as "early as 2015".
There was also some scepticism among other analysts according to the Australian Financial Review.
"The $157 million surge in the oil and gas minnow's market value was seen as overblown by some analysts, given the very early analysis of the drilling results," the newspaper reported.
"It looks a bit punchy based on the facts we've got today," one analyst said yesterday.
"There are still a lot of unanswered questions here."
