With the oil price soaring globally, oil stocks are becoming increasingly popular. Formed in 2004, Canadian Overseas Petroleum (LSE: COPL) is a Canadian company concerned with the exploration, development, and production of oil and gas. Headquartered in Calgary, the company has operations in the state of Wyoming and Sub-Saharan Africa. Recent buying of this stock is intriguing – let’s take a closer look.
Recent discoveries and increased production
With a market capitalisation of £60.5m, Canadian Overseas Petroleum stock is one of the smaller oil and gas companies currently on the market. Since 11 January 2022, the share price is up 43%. What is the reason for such stunning growth? In an announcement from 22 November 2021, the company stated that production from its Barron Flats Shannon Unit in Wyoming was 35% ahead of expectations. This resulted in a 14% increase in the share price at that time, but was not responsible for the recent gains.
Furthermore, in the Q3 update for the three months to 30 September 2021, the company announced the discovery of light oil at its Barron Flats Deep Unit, also located in Wyoming. The official results of the discovery are still private, but the company is currently working on a development strategy and hope to update the market in the near future.
In the same announcement, Canadian Overseas Petroleum stated its business was suffering from tighter supplies of natural gas liquids (NGLs). These are necessary for the development of oil exploration. Throughout 2021, NGLs were in short supply across North America. With this shortage in mind, it is possible that the company’s ability to explore will be impacted. Yet, the management is satisfied that the company has sufficient NGLs to make it through the winter into 2022.
On the other hand, the company has made consistent losses for the calendar years 2016 to 2020. While this is not unusual for a small oil exploration company, it is worth noting so that I can better understand the wider financial position.
Why the massive increase in share price?
On 10 January 2022, the company made a significant discovery of light oil, again in Wyoming. This discovery is estimated to be 1.5bn to 1.9bn barrels of oil. This discovery has excited the market and directly resulted in the 43% weekly increase in the share price. The CEO, Arthur Millholland, stated that the amount of oil found is “many multiples greater than our original expectation”. Indeed, some extraction and production of oil from this discovery has begun. In the lowest field zone, the company is already producing around 100 to 120 barrels of oil per day. The discoveries are exciting news and will be compounded by the high oil price.
Canadian Overseas Petroleum has made a number of encouraging discoveries of light oil in recent times. While this stock is still small, I think the rewards far outweigh the risks. I will be adding this stock to my portfolio as a speculative buy.
