Omega Oil and Gas (ASX: OMA) is doing what an oil and gas exploration company is supposed to do - go drill and find oil and or gas. The specific place it's drilling has long been highly prospective. The Canyon and Tasmania areas over the Kianga Formation are known for having at least potentially the right geology. However, as always with any form of prospecting only so much can be done by models, observation and prediction. At some point someone's got to actually drill a well and see what really is down there. This is exactly what Omega has been doing and it's the results of this which have prompted that surge in he share price.
In more detail the Canyon-2 well was spudded back on March 19th and now goes to over 3,800 metres. There's near 300 metres of gas shows and associated liquid hydrocarbon tells as well. The full details of the results are here. OMA themselves describe the results as “outstanding” and for results so far they are. Omega will wrap up this well and move the rig shortly to the Canyon-1 position and try this out all over again.
Omega Oil and Gas share price from ASX
For those not used to the slightly specialist language of oil and gas exploration. This does not prove that there's a viable resource of gas and or oil there. It also doesn't tell us how much is or isn't there. From the varied modelling exercises we know what we think might be there. In fact, we're reasonably certain that there's some 3TCF (three trillion cubic feet) of natural gas down there.
But there are many reasons why it might not be there. Fractured rock and it has escaped over the millennia is just one possibility. What drilling like this does is “derisk” what we think we know. We think we know the total resource and now we've got to prove it into a reserve. Each further piece of information confirms - that is, removes a part of the risk that we might be wrong - what we think we know. There is no certainty of viable and profitable production until all such risks have been checked by drilling and testing. But what this does mean is that as each risk is checked, the well or field passes the test, then the value of Omega rises toward that 3TCF of natural gas.
Such exploration is, these days, a process, not the drilling of a single gusher which makes fortunes overnight.