Auctus Advisors bumps up TP!!Exploration success at Carrizales Norte
The Carrizales Norte-1 (CN-1) exploration well encountered a total of 148 feet of net oil pay measured depth (128 feet TVD) across three very high quality sands. We understand that this well above pre-drill expectations
. • This is the largest net oil pay encountered by a well so far on Tapir (RCE5: 90 feet, RCE-4: 45 feet, RCE-3: 58 feet, RCE-2 80 feet, RCS-1: 55 feet). Because the reservoirs encountered at CN-1 are slightly deeper than at Rio Cravo, the pressure of the reservoirs is expected to be higher, resulting in high production rates.
• The result of the CN-1 well is material for the company as no reserves have yet been booked for the field. We currently carry only 1.8 mmbbl net P50 prospective resources for Carrizales Norte. This is very close to the YE22 net 2P reserves attributed to the Rio Cravo Este field but could be too conservative. We previously only attributed a 50% chance of success to this well. On successful well tests, we anticipate that a significant volume of resources will be converted into 2P reserves, resulting in a substantial increase in the company’s overall 2P reserves. We value Carrizales Norte at £0.08/sh.
• The result of the CN-1 well also derisks the FY23 production profile with further drilling locations. We continue to forecast YE23 production at ~5 mboe/d. The CN-1 well is expected to start production in June.
• We have increased our target price from £0.45 per share to £0.50 per share (~our ReNAV). Three very good sand packages 26 feet of net pay was encountered in the Carbonera C7 sands with high quality reservoir characteristics similar to what was encountered at the RCE wells. The Gacheta formation had 64 feet of net oil pay with excellent reservoir characteristics and oil shows and strong hydrocarbon chromatograph response. 58 feet of net oil pay were encountered in the Ubaque formation. The main pay zone is a very clean, thick and continuous sandstone with excellent reservoir characteristics. Testing will likely begin with the deeper Ubaque, followed by the Gacheta and then the highly porous and permeable C7 reservoirs. The CN-2 well will be spudded immediately afterwards.
Valuation and cashflow
The impact of the positive result at CN-1 is partially offset by the appreciation of the £ compared to the US$ and the trimming of our Brent price assumption for 3Q23. Our ReNAV has increased from £0.44/sh to £0.49/sh. As we move Carrizales Norte into our Core NAV with a chance of development of 85% (50% previously), it increases from £0.25/sh to £0.32/sh. Assuming US$75/bbl for Brent until YE24, we forecast that the company will hold ~US$15 mm in net cash at YE23 and >US$50 mm at YE24.