Oriel hails significant oil discovery by Cairn Energy

7th Oct 2014 10:23

Oriel Securities has repeated its 'buy' rating for Cairn Energy after the announcement of an oil discovery by the company offshore Senegal on Tuesday.The discovery "materially upgrades the prospectivity" of the Sangomar Deep Block, Cairn said.Cairn, which has a 40% working interest in the block, said the Sangomar well, located 100km offshore, found a 29-metre net oil bearing reservoir in cretaceous sandstones.No water contact was found in a gross oil bearing interval of over 500 metres.Initial estimates for the FAN-1 well range from 250m barrels at a 90% probability of success (P90), 950m barrels at P50 and 2,500m barrels at P10. These are broadly in line with pre-drill estimates."Bottom line: Positive," said analysts Dragan Trajkov and Robin Haworth."This is on the face of it a significant discovery, however likely smaller than the circa 820m barrels of unrisked prospective resources targeted pre-drill from two target fans."They said that, assuming a 30% recovery factor and risking the discovery at 50%, this could indicate upside of 12% to the current share price.However, the distribution of net sands across a large gross interval was not disclosed and oil qualities mean that "material uncertainties remain at this stage", Trajkov and Haworth said.The stock had jumped 9.3% to 196.7p by 10:578.