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I note that yesterday, the stock price of AIM listed Falklands Oil & Gas (LSE:FOGL) jumped by 10.25p to 85.25p ( a gain of almost 14%) after it announced that it had spudded its first well in the South Atlantic as it always said that it would do in August. To be fair there was other news as well. But I wonder how many of those who piled in yesterday actually know what spudding means?
In case you do not, but have never wanted to admit to it here is a definition for investopedia:
In the oil and gas industry, the process of beginning to drill a well. Initially a larger drill bit is used to drill a surface hole, which is lined with casing and cement to protect groundwater. After the surface hole is completed, the main drill bit is inserted and the well is drilled to the total depth
So there we have it. The well in question has not actually started drilling yet, it is just that they will start boring through rock at some stage in the future. There is no surprise whatsoever in the news and it does not change the estimates of what may or may not be there or the risk weightings attached to the valuation one iota. Yet the reaction on the BBs was to roth about billions of barrels of oil as if the world had changed.
Now, inadvertently they may have been right in that Falklands also announced a new farm in deal with Noble on blocks where it hitherto had a 100% interest. That de-risks it as an investment and so should push up its fundamental value. I still think that the risk/reward play here is generous but less so after the Noble news. But I just wonder about how much some investors in what remains a high risk (albeit potentially high reward) play actually know about oil. Just wondering.
Tom, spudding means they have started drilling, in the case of Loligo for FOGL they have started to drill the 42″ hole, which will go for 79 meters before 32″ casing is run and then they continue with the drill but down to a 26″ hole size.
The Loligo well diagram is here if you like :
http://img716.imageshack.us/img716/7276/loligodrilling.gif
If you want to know about the upside I suggest you read this post – if you cannot see the mammoth upside potential then really Tom, you must be blind :)
http://boards.fool.co.uk/understanding-loligo-fogl-12614508.aspx?sort=whole
You should try to stop this “they do not know what they are on about” when in fact your comment above about “not drilling yet” shows you are not really in the know are you………they are drilling the 42″, thats what spudding a well is all about, the commencement of drilling operations.
I avoid NOP, you promote it. The multi year performance of NOP is awful, so far FOGL is much better.
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I think Tom is -ve on FOGL because in the event of the 80% chance of failure transpiring, a sp fall will occur
Great upside potiential but a punt.
Discussion about spudding a bit irrelevant and a poor example to use ‘cos of the farm in timing.