Penny Shares Guide

After completing the drilling of the first two wells this year, Dragon Oil is charging ahead with its 2010 Turkmenistan drilling programme. The first two wells, both located on the Cheleken contract area in the beautiful Caspian Sea, have been completely drilled. Initial testing has also begun on these two wells, named the Dzheitune A/142 and 13/143. The first well, the A/142, was drilled by the Iran Khazar rig to a depth of 3,961 metres. This well underwent extensive initial testing at a rate of 2,103 barrels of oil per day. The other well that has been completely drilled, the Dzheitune 13/143, was drilled down 3,450 metres and tested at a rate of 2,168 barrels of oil per day. It is expected that further testing will be administered in the near future.

These two wells are the first of eleven wells that are scheduled to be drilled during the 2010 year. Dragon Oil’s aim in drilling these additional wells is to secure a growth in their production of oil of at least 15 percent. The company, which is headquartered in the country of Dubai, is confident that it will be able to meet it’s committed production growth target with the addition of these eleven new wells.

The Khazar rig used to dig the A/142 well will next be completing a workover of a well located on the same platform as these first two wells. Another drilling rig, Rig 40, which was used to drill the second of the new wells, will begin to dig the Dzheitune 13/144 well in the coming months.

In response to the announcement concerning these newly drilled wells, Dragon Oil’s shares dipped 2.50p to land at 478.50p. Well, I thought it was good news!  Perhaps someone thought it was not good enough.

The shares of Cove Energy (“COV”) present an interesting buying opportunity for the right investor. Clearly a speculative play, there reward potential is high, but significant volatility should be expected. The fundamental factors on the company are mixed, although intangibles are strong, and the technical picture offers some interesting insights. Overall, within the speculative space, COV is an attractive buy, but should not be a core holding of any but the most aggressive portfolios.

Fundamentally, the company’s interest in various wells coupled with the fact that it has already raised the capital needed to fund its current-year drilling is encouraging. The strategic locations of the wells – from offshore in Mozambique to Rovuma and Mnazi Bay – places them is well-diversified and potential critical areas. The strategic partnerships the company has developed, primarily with Anadarko, provides further evidence that COV is positioned to succeed. Lastly, the experience of the two top executives, one from Shell and one from Petrocelic international, are key. The pressures facing speculative plays like this require the skill of a stable hand at the helm.

Technically, the recent spike drove the stock into a severally overbought condition, but this has eased. What is particularly encouraging is that the stock was able to correct this condition without a massive sell-off in the stock. After spiking above 40, the shares have eased to 38. The corresponding decline in overbought readings has been more significant. Essentially the stock is well positioned to build on its own momentum and run significantly higher with the right catalyst. The stock is still significantly above its 50-day moving average, so potentially buyers should watch this relationship. Any close significantly below this moving average should be perceived as negative.

In general, the story supporting this stock, coupled with fundamental and technical factors, make it an attractive speculative bet with a solid risk to return profile.