NORTH Sea-focused Deltic Energy has seen its shares surge 12 per cent after the company increased estimates of the size of a propect that Shell bought in to.
Deltic said the results of an analysis completed with Shell suggested the Selene find contained much more gas than had been thought.
The company made the announcement a day after seeing off a potential bidder.
Last month Deltic spurned a £12 million approach from another small oil and gas business, Reabold Resources, which its directors reckoned undervalued the company.
On Monday Reabold announced that it did not intend to make an offer for Deltic.
Directors of Deltic reckon the firm can prosper as an independent after finding potential in areas that bigger fish had overlooked.
READ MORE: North Sea oil and gas minnow in growth mode after exploration coup
The former Cluff Natural Resources achieved a coup last year when Shell acquired stakes in licences it holds containing two big prospects.
Market conditions have deteriorated dramatically since then amid the fall in oil and gas prices triggered by the coronavirus crisis. This has led some firms to slash spending in the North Sea.
However, yesterday’s update from Deltic indicated that Shell remains interested in the prospects.
Deltic said it had completed a considerable amount of technical work on the Selene prospect with Shell.
This has resulted in estimates of the size of the find increasing to up to around 1,000 billion cubic feet, from up to 684BCF.
A 1,000 BCF field could contain the equivalent of around 170 million barrels of oil.
READ MORE: Oil and gas independent stokes interest in prospect off Scotland
The company’s confidence in its understanding of the area of the Southern North Sea containing Selene has also increased. It said the geological chance of success has been significantly improved, to 70 per cent from 40%.
Chief executive Graham Swindells said the significantly increased gas volumes and decreased risk profile further cemented the importance of Selene as one of the largest undrilled structures in what is a mature area.
He added: “We are encouraged by the level of technical and human resources being deployed on this project by Shell and will continue to work with them towards securing a firm drilling commitment for the proposed 2022 well on Selene.”
In June Deltic said that Shell remained fully committed to drilling on Selene and the Pensacola prospect nearby. It said then that drilling on Pensacola was expected to start in the second half of next year.
Robin Haworth at Stifel said the brokerage was encouraged by yesterday’s update from Deltic adding: “Not just for the volumes but also that it signifies Shell’s ongoing interest in the project.”
Stifel has a buy rating on shares in Deltic, which entered the downturn in a relatively strong position.
The company had £13m cash at March 31.
Mr Swindells has said the firm could draw on this to allow it to capitalise on opportunities that could emerge.
He said last month that London-listed Deltic was looking at a range of acquisition opportunities including oil assets off Scotland.
Mr Swindells noted that after focusing on early stage exploration, Deltic would be interested in buying into production assets, which generate cash that it could use to fund its work.
Cluff Natural Resources was founded by Algy Cluff, who played a part in the discovery of the huge Buchan field in the North Sea in 1975 then went into mining in Africa.
The company refocused on the North Sea exploration business after facing opposition to its plan to produce gas by burning coal held under the Forth.
Shell chief executive Ben van Beurden said last month that the oil giant remained committed to the North Sea. The Anglo-Dutch firm has slashed the value of its portfolio of assets around the world by around $17bn amid the fallout from the coronavirus crisis.
Shell retrenched in the North Sea amid the last downturn in the industry. However, it retained interests in a range of gas fields in the Southern North Sea.
Mr van Beurden has noted the potential for gas to play an important role in support of the transition to a lower carbon energy system.
The Brent crude price rose yesterday amid signs the outlook for the global economy is improving.
Deltic Energy shares closed up 0.1p at 0.95p.
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