The stockbroker repeated a ‘buy’ recommendation and hiked its target price to 2.7p (from 2.2p) suggesting some 57% upside to the current market price of 1.76p per share.
“Confirmation of a positive well investment decision from Shell to test the Pensacola prospect is a very welcome outcome and is the next important step in Deltic’s evolution,” analyst Chris McMahon said in a note.
“The company can now look forward to a high impact event which has been validated by a discerning major oil company. In our view, this overrides any disappointment that could present itself from the well moving to May 2022 (from the fourth quarter of 2021).”
McMahon added: “Deferring drilling until May 2022 allows the joint venture to incorporate the Pensacola well into a multi-well drilling campaign which should benefit from advantageous day rates and operational efficiencies.
“We await confirmation of the final well design but for now assume a gross well cost of US$25mln, for which Deltic remains fully funded.
“We note that there is no update at this stage on the Selene well, which we had originally expected to be drilled in 2022, however, given the similar scale, lower risk and closer proximity to infrastructure we believe it is possible that it could be included in a multi-well programme.”
In a stock market statement on Monday, Deltic told investors that Shell had decided to drill the high impact Pensacola prospect and that it had confirmed to The Oil and Gas Authority the contingent well commitment is now firm.
Shell, as operator of the joint venture, expects the well to be drilled in May 2022. Deltic remains fully funded for its 30% working interest in the well.
“Confirmation of this well investment decision represents the achievement of another key milestone as we continue to execute our exploration-led strategy in the Southern North Sea with our world class partner, Shell,” said Graham Swindells, chief executive of Deltic Energy.
“The rigorous re-evaluation of the Pensacola prospect has validated and reinforced the fantastic work of our technical team and their initial view that the Pensacola prospect, and the Zechstein play as a whole, represented a significant missed opportunity in the Southern North Sea.
“Well planning is already underway, and we look forward to providing regular updates as we progress through the planning phase towards the commencement of operations, in addition to continuing to mature our other prospects, including Selene, towards drilling.”