GREY:ERINQ - Post Discussion
Post by
radcat on May 28, 2015 12:51pm
From IR / UK Broker
The attached was issued today from one of our London-based analysts.
Christopher D. Heath
Director, Corporate Finance and Investor Relations
Erin Energy Corporation
1330 Post Oak Boulevard, Suite 2250 | Houston, Texas 77056
Office +1 713 797 2945
Email chris.heath@erinenergy.com |
www.erinenergy.com
NIGERIA | OIL&GAS | ERIN ENERGY
Oyo-7 in sight
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Erin Energy’s share price performance has been positive, increasing 68% following a reverse stock split on 22 April, and achieving first production from Oyo-8 at a stabilised flow rate of 7,080bpd. As an update, the company announced at its annual shareholders meeting on 27 May 2015 that Oyo-8 is now producing 7,200bpd. First oil from Oyo-7 is expected next month with a similar flow rate achieved at Oyo-8 anticipated. Following this, the company plans to drill one exploration well in the deep Miocene formation by the end of this year from a choice of several commercial prospects including Ereng, (which we value at US$9.72/share unrisked, US$1.36/share risked) which we consider the most compelling on a risk/reward basis.
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We have increased our core NAV and RENAV values to reflect lower development risk at Oyo based on 2P and 3P reserves. Our revised core NAV is US$7.55/share, and risked exploration value (RENAV) is US$10.49/share.
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We have included some value for 2D and 3D seismic data in Kenya and the Gambia respectively in our RENAV. In the Gambia, a known exploration lead contains ‘best estimate’ prospective resources of 225mmbbls estimated by Gaffney, Cline and Associates (GCA), We have valued this prospect at unrisked US$1.07/share, risked US$0.04/share, utilising a geological chance of success (GCoS) of only 5%. Given the analogous geology to neighbouring Senegal, where a world class commercial discovery was made in late-2014 at the SNE-1 well, we feel justified to include some value for this on a risked exploration basis. GCA published resource estimates for The Gambia, in mid-2013, prior to the SNE-1 discovery, which may indicate upside to the existing GCoS estimate. In addition, the GCoS estimate is less than other frontier basins like Greenland, for example, at 10%, and is therefore probably too conservative for what is a compelling geological analogue.
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A recently announced offtake agreement with Glencore (N/R) provides US$150m in credit facilities from Oyo-7 and Oyo-8. Estimated revenue according to our forecasts from these two wells in 2015 is US$175m at US$75/bbl. Full year capex of US$84m implies free cash flow of US$91m, according to our model. Although the offtake agreement may help to address shorter-term working capital requirements, and is therefore positive, the wider development programme will need an estimated US$560m, split US$360m on four additional development wells in the Oyo field and US$200m on four exploration wells of known prospects out to 2017, according to our forecasts. This means that Erin could opt for equity and/or debt finance in 2016, to secure its longer term expansion plans. It could also opt to farm down from certain assets in order to secure exploration/development finance post-seismic interpretation, notably in Kenya and the Gambia. Erin has the advantage of having full operatorship and 100% stakes across its entire asset base in Nigeria, Kenya, and the Gambia, and a 30% stake in Ghana giving it the option to farm down and crystallise value.
Angus McPhail
angus.mcphail@fcmbuk.com
Tel: +44 (0)20 7220 1043
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