Northern Petroleum shuts three wells to save cash, fourth abandoned as uneconomic

A drilling update from Northern Petroleum revealed two separate zones along a recently tapped Canadian well were too watery to be pursued in the current oil price environment, while three other producing wells have been shut to conserve cash.

Northern's well 102/11-30 in north-west Alberta has been suspended for further evaluation, after drilling and testing found one lower zone was water wet and an upper zone produced oil, but with too high a water cut to be economic in the current environment.

"This well result means that we will need to re-evaluate our understanding of drainage in the Keg River reefs," said chief executive Keith Bush.

"However, the well has confirmed our seismic interpretation at the reef edge which is an important step forward in the overall development. Integrating the results of this well and monitoring the performance of the producing wells over a longer period of time will provide a better understanding of how to economically produce the oil held within our acreage."

Elsewhere, the 102/15-23 well, which produced intermittently on natural flow in January, is being fitted with a pump, while three other production wells that that were yet to be tied-in have been shut in to release expensive rental equipment and to find a way to cut costs.

One of them, 16-19, is planned to be brought back into production once management have negotiated a new production package, while water disposal options are being evaluated to bring the two other wells back into economic production.

"We believe we've found an economic solution on 16-19 and will continue to work on the other two wells," aded Bush.

"Maximising the net cashflow contribution from our production will always be a priority. We have seen the start of a reduction in service costs and expect this to continue after the winter drilling season."

Broker Westhouse was disappointed with developments, though noted that Northern had $12m in cash at the end of 2014, equivalent to 8p per share, and no debt.

"This type of development requires investment and scale (one well per season is not enough), hence NOP will have to address its future plans for this asset and how they can fund further activities," said analyst Jamal Orazbayeva.

"Without further drilling, the value attributed to Canadian operations - our published core net asset value was 21p per share - will not be recognised by the market."