Schacter''s $20 Target
Key Impact Plays / Black Gold Wealth Creation:
• Development and Appraisal: Brenda-Nicol: – Oilexco has a 100% WI in the Brenda and Nicol fields. Development work (3 horizontal wells at Brenda, 1 horizontal well at Nicol) has been completed with first production expected within days
(June/07). Production should average 30,000 b/d of 40o oil for the first running 12 months with peak rates expected to exceed 35,000 b/d. The field has been tied into the partially Oilexco owned (CNRL operated) Balmoral facility. The UK N.Sea has no royalties and operating costs are estimated at £3.25/b (~ US$6/b) including processing and transport for Brenda. The development(s) (Brenda, Ptarmigan and Shelley) are financed with a US$500M Royal Bank of Scotland debt facility. Huntington Prospect (OIL paid 53% to the casing point for 40% WI, numerous partners):
Oil-bearing reservoir sands were encountered in the Paleocene Forties and in the Upper Jurassic Fulmar intersecting 98ft and 130ft of oil-bearing (400 API) reservoir in the respective zones. The mapped aerial extent of the two discoveries is estimated to be 14km2 for the Paleocene and up to 23 km2 for the Upper Jurassic. The two zones are currently being drill stem tested and a full appraisal program will occur in Oct/07. Net recoverable oil to Oilexco could be as high as 250MB across both zones, which could be worth up to $20 in incremental NAV at current oil prices!
Oilexco may develop the discovery with a stand alone FPSO. Production rates are difficult to estimate but conceivably the project could be brought into production at rates >40,000 b/d within a 2 to 4 year development time frame. Two analogous Paleocene structures have been identified on Oilexco’s 72.7-per-cent-owned block 22/13b located immediately west of Huntington.
Ptarmigan:
(OIL pays 100% to earn 60%, Chevron, ConocoPhillips & Gaz de France are partners): Low risk appraisal and development program with a relatively short tie-in to the Brenda sub-sea manifold (15km). The accumulation will see development work begin in June/07 using the Ocean Guardian. Oilexco believes that the field contains up to 40 Mb and will be developed with 2 horizontal wells (20k to 30k b/d gross) with first oil in early 2008.
Shelley:
(100% WI) Block 22/2b: In Jan/07 OIL completed an appraisal (8 well cluster) with a DST of 2,416 b/d of 310 API oil from the final appraisal leg. This summer OIL will use the Ocean Guardian with first oil potentially in Q3/08. Oilexco will produce into the Sevan Marine No.3 FPSO (under construction). Oilexco believes the Shelley development will be capable of ~30,000 b/d peak production rates.
Kildare:
(OIL 50% WI with Nexen): The well tested the Jurassic Ettrick and Tweedsmuir at a total depth of 13,705 ft and encountered 91ft of net oil pay with test rates of 4,216 b/d and 3.1 mmcf/d. Based on current mapping 30Mb to 40Mb of recoverable oil is estimated in the Tweedsmuir in addition to the previously discovered Jurassic zone (20 MB?). The play has the potential to be expanded to ~100Mb with further successful appraisal wells with first oil possibly in late 2008.
Sheryl:
(OIL pays 95% for 65% WI, SLG as partner) Block 21-23a: The discovery well encountered 90 ft of oil pay and tested at 1,915 b/d of 230 API oil. OIL may drill the Constance “Tay” prospect in Nov/07. If Constance is successful this will provide the area with enough momentum for a stand alone development and first oil in 2009; if not a success, first oil from the block could be delayed into 2010. Blackhorse & Bugle: Bugle was drilled in 1997 and DST'd at 7,400 b/d and the Blackhorse discovery well DST’d at >5,200 b/d in 2005. Bugle will be pipelined to Blackhorse which will be tied into the Scott platform in early 2009 with ~20,000 b/d gross rates.
• Exploration: In addition to their impressive portfolio of development projects, OIL has a large inventory of exploration
prospects including numerous blocks (13) picked up in the 24th bid round.
�� Oddjob (OIL pays 100% for 70% WI, BG and Hess are partners): The target is a lower Cretaceous Captain Sands gas prospect with some oil upside in the Ettrick sands. Potential is for 50 to 200 Bcf and 15 to 70 Mb respectively and will be drilled early 2008. Catcher (OIL 50% WI with Encore and others): Paleocene target to be drilled in early 2008.
Pandora (OIL 100%): deep high pressure high temperature gas prospect (Block 22/2b, Shelley block) to be drilled with the Ocean Guardian in early 2008.
Recent Operational & Financial Results:
�� Sedco 712 – OIL has the SEDCO 712 rig contracted to Mar 2010 at the cheap rate of US$225k/day and $340k/day for 07/08 and 08/10 respectively. Ocean Guardian – a “High Pressure High Temperature” semi-sub contracted into spring 2009 at a rate of US$350k/day.
�� In April/07, 17.25M shares were issued at £3.44 (US$6.70/share, C$7.82/share) raising US$115.8M.
�� Our 12-month target of $20.00 is based on 4.0X the forecast 2008 cash flow of US$4.10/C$4.55 with a small
premium (~10% of potential incremental NAV) for the Huntington discovery.