Xtract Energy

HOLD

11/01/2012

Drilling has started at the P2-10 gas prospect in Holland, where Xtract Energy (XTR) has a 5% royalty on gas sales.

P2-10 is one of two wells that AIM-quoted Xtract sold to oil major Chevron in 2010 for £3.28m, and bulls believe that these Dutch prospects could prove highly significant.

Chevron's rig-move to the well was delayed by bad weather conditions in December and the drilling programme is now expected to take 100 days, according to Surrey-based Xtract. The company has pointed out that any gas produced will be priced on the Dutch system, tied to oil and more than twice its UK equivalent.

Meanwhile, Xtract, steered by chief executive Peter Moir, says that, provided a 'suitable weather window' occurs, Danish oil company Maersk should release its Maersk Resolve rig on 26 January to drill at the Luna offshore Danish well, where Xtract has 33% and Norwegian operator Noreco holds 47%. Estimates put the company's potential share of Luna's resources anywhere between 35m and 153m barrels, with potentially much more at its other Danish prospects, Lead 'A' and Chalk Channel.

Longer-term, Xtract's stake in the Julia Creek oil shale prospect in Queensland, Australia, could have much larger potential, with resource estimates ranging from 240m to 1.9bn barrels, though environmentalist opposition could be fierce. For the time being, Moir has stated that the company's present programme needs no new funding.

Highlighted by Growth Company Investor last month at a depressed 1.85p, Xtract shares, which have traded between 4.25p and 1.03p over the past year, now stand at 2.2p. Hold on.