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Business Day: SacOil to move quickly on new asset in Egypt

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07 Jan 2015

Business Day

By Charlotte Mathews

SacOil to move quickly on new asset in Egypt

Oil and gas junior Sacoil Holdings is moving quickly to bring its recently acquired Lagia oil field in Egypt into production, which could generate the company’s first revenue from oil sales.

Brent crude oil for February delivery touched a five-year low of $51.23 per barrel on Tuesday, reflecting substantial growth in US output from shale deposits, which is putting most oil companies under pressure to cut spending on development.

In a report this week Moody’s Investors Service corporate finance MD Steven Wood said if oil prices fell below $60 per barrel, North American exploration and production companies were likely to cut spending 30%-40%.

Exploration companies outside North America were likely to cut spending by 10%-20%, depending on prices.

Sacoil said on Tuesday its subsidiary, Mena International Petroleum Company, which bought 100% of the Lagia field in September for $10m in shares and the settlement of up to $4.1m of the vendor’s liabilities, had contracted Schlumberger Egypt to start initial development.

This would include hydraulic stimulation of five wells. The results were expected by the end of this month.

"The company anticipates total daily production of approximately 350 barrels of oil per day, provided the completion of operations at each of these wells is successful," it said.

"In addition to these hydraulic stimulation operations, a thermal recovery process is being planned for the first half of 2015 which should further enhance oil production and recovery of the reserves from the Lagia oil field."

Sacoil said a second phase of development starting in June was planned in which up to five additional wells would be drilled. Lagia is an onshore field covering about 32km² in the Sinai Peninsula, with potential for heavy oil in shallow reservoirs and lighter oil in deeper reservoirs. Its net proven and probable reserves are 6.174-million barrels.

Sacoil has said previously that it would fund the first phase of development from its existing cash resources, which were R320.7m at the end of August, of which R106.7m was restricted.

In the six months to August Sacoil’s only income was derived from R77m of interest on investments which more than covered its operating costs of R46.6m.

Sacoil’s shares were trading 3% lower at 32c Tuesday, having shed about 55% since the end of March last year, following oil price weakness.

Source: Business Day