Canadian Overseas Petroleum (XOP.V) drills nothing but sand, stock implodes

12/20/2016

Back when I first kicked off in this markets driven quest for profits and asskickery, the first company I actively bought into was Canadian Overseas Petroleum (XOP.V).

I was into the story, how a small company had gone into the Liberian off-shore rights game and somehow came out with a plot, and how Exxon Mobil had come in and said, “Hey little man, let us do the drilling and we’ll just make you rich when it all comes up spouty.”

And little man said, “Yup!” And a bunch of folks bought the stock.

And then we waited. Eventually I got bored waiting and sold my piece for a loss. Lesson learned.

But in the back of my head I thought, “One day I’m going to regret this.”

Yesterday, I did not regret this. Because that’s when Canadian Overseas Petroleum Ltd. announced its Mesurado-1 well came up, as the Australians would put it, drier than a nun’s nasty.

The market doesn’t like dry holes, especially when they cost USD$120 million to build. Luckily for XOP, Exxon Mobil footed the bill, as the Canadian crew have peeled off all but a 17% carried interest in the thing, which will now serve as a storage space for sand.

Shares in XOP were very active on the news, trading 74.5 million in total volume. Down $0.11 from $0.135. Today it fared much better, trading 8.3 million in volume and closing up $0.01, to $0.03 per share, but the news that the company struck sand has likely changed the company forever.

“Canadian Overseas Petroleum Ltd. has provided the following update. The Mesurado-1 well operated by ExxonMobil Exploration and Production Liberia Ltd. (the operator), an affiliate of ExxonMobil, reached final total depth on Dec. 17. Drilling operations commenced on the Mesurado-1 exploration well on Nov. 21, 2016, using the Drillship Seadrill West Saturn. The Mesurado-1 well is located about 50 miles offshore Liberia on block LB-13, in approximately 2,500 metres of water, which the company’s 100-per-cent-owned subsidiary, Canadian Overseas Petroleum (Bermuda) Ltd., holds a 17-per-cent interest.

The well, targeting oil in a sequence of Late Cretaceous Santonian-aged sands, intersected 145 metres (475 feet) of net sand, of which 118 metres (387 feet) were deemed to be reservoir quality. No hydrocarbons were indicated by the logging while drilling operations performed across the targeted intervals. As such, the operator has advised the company that no further logging operations will be conducted, and the well will be plugged and abandoned.

“We are naturally disappointed by the lack of hydrocarbons in the targeted reservoir sands in the Mersurado-1 well,” commented Arthur Millholland, chief executive officer. “The targeted Santonian sand sequence and thickness intersected was in accordance with our seismic interpretation. The lack of hydrocarbons at this location where our seismic data presented attributes indicative of hydrocarbons will cause us to do additional work on the 3-D seismic over the block and re-evaluate the other leads we have mapped on LB-13.”

The news was devastating to investors who long saw Exxon’s involvement as an almost certainty that oil would be forthcoming, one day. The company says there’s still hope in their other assets, but yeah.

In addition, Mr. Millholland commented: “The company holds an attractive oil appraisal and development project offshore Nigeria on OPL 226. Appraisal drilling operations are planned to commence in late 2017. These operations will continue to add value to the company.”

As of now, XOP is a $15 million market cap liquidation play, without the liquid.

— Chris Parry

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