Carnarvon Petroleum rocketed today after confirming new offshore oil discoveries — but an analyst says extraction will be expensive and the explorer could opt for a lucrative exit.

Stockhead columnist Tim Treadgold wrote about Carnarvon in May when the stock (ASX:CVN) was trading at 16c.

At that stage Carnarvon had a low profile due to a lack of exploration success and limited interest in oil exploration due to low prices.

It now has its foot on what looks to be a commercially viable discovery in its part-owned Dorado well off the north-west coast of WA.

Dorado is part of Carnarvon’s broader Phoenix project which is about 250km north of Port Hedland on WA’s north-west coast (see map below).

Carnarvon today confirmed it had made new oil discoveries at the “Crespin” and “Milne” sites of the Dorado-1 well.

The stock jumped 43 per cent to trade as high as 69.5c — quadruple its value since July — with more than $40 million worth of shares changed hands.

“Discovering more oil in the Crespin and Milne Members makes this a truly incredible find, for Dorado and for similar structures nearby that have been identified in Carnarvon and [joint venture partner] Quadrant’s prospect list,” said Carnarvon boss Adrian Cook.

Analyst David Low from Wood Mackenzie called the deal “a real win”, though he said there would be “significant upfront capex required to drill the wells, purchase subsea equipment and obtain an FPSO”.

An FPSO or “Floating Production Storage and Offloading” vessel is a ship that houses processing equipment and storage for oil.

Carnarvon’s Dorado well is part of its Phoenix project 250km north of Port Hedland. Map: Carnarvon

“Raising such funds would be a hurdle for a small-cap player such as Carnarvon Petroleum,” Mr Low said.

Carnarvon might choose instead to bring in a partner or look for takeover offers.

Carnarvon “could attract interest from established Australian oil and gas operators or an international E&P [exploration and production company] looking for exposure to the Australian upstream sector.

“Longer-term, it opens up a new oil play in the region, which could prove a real boost to Australian exploration after a number of very lean years.”

Here’s Carnarvon’s share price graph since July:

Carnarvon shares (ASX:CVN) have quadrupled since Tim Treadgold wrote about them in May
Carnarvon shares (ASX:CVN) have quadrupled since Tim Treadgold wrote about them in May

Drilling and evaluation of the Dorado-1 well was now complete and assessment of the oil volumes associated with the discovery was “now well underway,” Mr Cook said.

“The hydrocarbon volumes will be announced to shareholders and investors as soon as possible,” he said.

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