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Business News of Sunday, 8 July 2001

Source: by Julie Bain

Ghana wells hold key to Dana future

Aberdeen's Dana Petroleum is rolling out a well-drilling programme which, if the oil and gas exploration company keeps up its current strike rate, could see it at least doubling its recoverable oil reserves by the end of the year.

Seven of the last eight wells Dana has sunk have come up trumps and the firm says that if just one of its targeted Ghanaian offshore wells comes in positively it would lift its asset base considerably. The drilling of the first five of the company’s latest 12-well exploratory programme is due to be completed by November.

Tom Cross, chief executive, said: "We have an exciting few months ahead with drilling in some of world’s most prolific oil regions including the North Sea, West Africa and Indonesia.

"In particular, Dana has built a very significant licence position offshore West Africa, focused on Mauritania and Ghana. Any individual well drilled there has the potential to more than double our current oil reserves of around 100 million barrels."

The company, which floated in 1996, holds 70 licences and has just approved a $30m exploration drive which will see it carrying out seismic testing and drilling work in all its key oil plays by the end of 2002.

West Africa is of particular interest to the industry right now with the reserves offshore of Angola, although bringing drilling difficulties as a result of deep sea finds, complicated geology and an unpredictable fiscal regime, the region presents the biggest potential prizes.

Oil majors such as BP Amoco and Exxon Mobil are spearheading development in the region and the African Institute of Petroleum says Angola may secure as much as $30bn in investment by 2010.

It was discoveries in this area which subsequently encouraged companies like Dana to explore further along Africa’s western coast where governments are more stable and the geology is not quite as complicated.

Cross added: "Our company philosophy is to win licences in up and coming regions early, through detailed technical work. This allows us to deal with majors later, bringing them in at a premium and using their capital to bring our discoveries into production.

"We know the majors want to be in West Africa, being smaller we have speed and flexibility on our side and when we find oil we have the choice to either develop it ourselves or to swap the proven reserves for good quality oil and gas production in a more stable political environment like the North Sea."

Mark Redway, an oil and gas analyst with Teather & Greenwood, said: "In offshore Mauritania Dana has the largest acreage of anyone but its area is less well understood than where the drilling is taking place right now."

Redway said that mini-major Australia’s Woodside Petroleum, which has a keen interest in the area and of the big oil and gas players knows the most about what the region has to offer, has recently "farmed-in" to one of Dana’s licences at a premium value (to share the cost of seismic testing and drilling by Dana) and this should be seen as a positive endorsement of the company’s acreage.

Cross said Dana, which has about 70% of its production in the North Sea, is keen to build up its UK position further, taking on increased stakes in some of the new breed of oil and gas fields.

He added: "Dana is working closely with various partners to grow its North Sea production and revenue base. In the next two to three years we will bring new UK reserves on stream which are today held by much larger companies."

Cross, like many involved with UK listed exploration and production companies, sees considerable upside in Dana’s share price but is dismayed at investors’ reluctance to factor in exploration potential.

Share prices in the sector have been picking up and in recent weeks a number of UK listed exploration and production companies have seen their share prices rise.

Edinburgh Oil & Gas shares jumped on news that the tiny company had made one of the most significant discoveries in the North Sea since 1993.

Mark Redway at Teather & Greenhill, says, "In 1999 with oil at $10 per barrel everyone was very nervous about spending money on exploration... Oil started to recover but in 2000 people were still nervous; now exploration spending has picked up.

"A lot of smaller companies like Edinburgh Oil & Gas, Fusion, Cairn and now Dana are seeing their share prices go up." The catalyst for increased investor interest, according to Redway, is companies’ increasing ability to show they can add to the reserves base.

"A number of companies have been performing well in the last few months. It is no coincidence that the prices have gone up," he says.

Premier Oil’s share price is looking considerably healthier than it was 12 months ago and after focusing on Far East gas since the early 1990s it is now moving to build up acreage in up-and-coming oil and gas regions.

Last week it bought a 55% stake in an exploration licence in offshore Guinea Bissau where drilling should take place in the next 12 months.

Premier’s share price has, to a degree, laboured as a consequence of a shareholder structure which sees Petronas and Amerada Hess each holding a 25% stake.