Fred Kozak Ups his target to $17.50 !!
(thaks to Puzzle7355 for this)
HUNTINGTON DISCOVERY IS BIG;
INCREASING TARGET PRICE
Event:
Oilexco announced drillstem test results from the lowermost zone in the
Huntington well on Block 22/14b. Oil flowed from the Upper Jurassicaged
Fulmar sands at rates as high as 4,624 bbl/d of 39 degree API oil
plus 1.6 mmcf/d of natural gas. Flow rates were restricted by test
equipment used. No water or sand was produced.
Impact:
Positive. In conjunction with our geologic and technical review of the
Huntington prospect with the company, we have concluded that this
could be Oilexco’s largest North Sea discovery to date. As a result, we
are introducing 2009 estimates and are increasing our target price from
C$14.00 to C$17.50.
We had previously estimated a per-share impact of approximately
C$3.50 to Oilexco for this discovery, we are now estimating C$4.50 to
C$5.00/share to Oilexco’s 40% interest on Block 22/14b.
Valuation:
We value Oilexco at a multiple of cash flow, reflecting our estimates of
the timing of new production additions through 2009. We note that our
target price of C$17.50 is based on 4.7 times 2008E debt-adjusted CFPS,
but only 3.7 times 2009E debt-adjusted CFPS and does not include the
potential impact of the company’s current exploration program.
Next Catalyst
The next near-term catalyst for the company will be the results of the
next drillstem test in the upper zone (Forties) in the Huntington well.
With the Ocean Guardian now drilling on Ptarmigan for Oilexco, the
results of this well should be known within the next month.
A HUNTINGTON BLOCKBUSTER
Oilexco’s third discovery in 2007 could be the biggest yet. Located on Block 22/14b, the
company drilled an exploration well targeting a previous oil show in the Paleocene-aged
Forties sandstone and a deeper Upper Jurassic-aged Fulmar sandstone exploration target.
In order to hit both zones with one well, the 22/14b-5 well was situated to hit the flank of
both zones. Oilexco has a 40% interest in the well and the block.
The results far exceeded expectations. In the deeper Fulmar, 130 feet of oil-bearing
formation was encountered. On the drillstem test results released late on June 11, 2007,
the significance of the Fulmar discovery was revealed. The Fulmar tested up to a
maximum rate of 4,624 bbl/d of 39 degree API oil and 1.6 mmcf/d of natural gas through a
one-inch choke at a flowing pressure of 310 psi. More importantly, no water or sand was
produced in the test and no oil-water contact was evident on the logs run through the
Fulmar sand.
Oilexco had previously announced an areal extent for the Fulmar of as much as 23 square
kilometres. Most notable is that the Fulmar structure on the 22/14b block solidifies a
Fulmar prospect on the adjacent block, owned 72.7% by Oilexco.
Combined with the uphole Paleocene-aged Forties sand, we now estimate that Oilexco
could have exposure to as much as 75 million barrels net (up from 50 million barrels net),
making this Oilexco’s most significant UK North Sea discovery yet.
In terms of potential value to Oilexco, we had previously estimated C$3.50/share of
incremental value to Oilexco. We are now estimating an incremental value of C$4.50 to
C$5.00 per share to the company. More importantly, however, is that we can now include
Huntington in our production estimates for 2009, as highlighted below.
2009 ESTIMATES AND REVISIONS:
As a result of our analysis of the Huntington discovery, we are releasing our new 2009
estimates and are revising our 2007 production and 2008 estimates to account for the
delayed production from Brenda/Nicol as well as the impact on the company’s financials.
As a result of the delayed cash flow and higher net capital expenditures on Brenda, we
have also pushed our tax horizon forecast out to the middle of 2009.
For Oilexco, we have now incorporated our best estimate of production timing from each of
the identified or projected production projects. On the next page, we show a graph of the
components to our estimates, adjusted to reflect our view of updated production timing.