RBCSums things up pretty well. Their upside target is $2.00. GLTA
August 23, 2013
WesternZagros Resources
Challenging Geology
Our View: Our WesternZagros NAV has been cut to C$1.69/share,
our Target Price has been reduced to C$1.60. We expect investors to
take a 'show me' attitude in H2/13, and we have therefore cut our
recommendation to Sector Perform.
Key Points:
News: Yesterday WesternZagros announced that the Kurdamir-3 well
encountered water in its deepest target zones, and two production tests
(DST #1 and 2) at the base of the well failed to flow oil at commercial rates.
This results have negative implications for the structure’s prospective
resources and the nearby Baram prospect (see exhibit 2).
Impact: Prospective oil resources in Kurdamir were estimated at ~1billion
barrels and K-3 was intended to de-risk ~200mmbbl (see exhibit 3).
Today, it is unclear whether the K-3 result reflects local conditions – due
to reservoir compartmentalisation, perching of water, etc - or whether
it negatively impacts the whole structure. In the meanwhile, we have
removed 200mmbl of prospective resources from our WesternZagros
NAV , and increased the risk associated with the remaining structure and
the down-dip Baram prospect. Moreover, we anticipate that the pace
of appraisal/development activity at Kurdamir will slow for a period and
this has negative implication for the field’s value (PV/bbl). Consequently
we have lowered our WesternZagros NAV to C$1.69/share, from C$2.71/
share, and our Target Price to C$1.60.
Next news: The operator, Talisman, now intends to production test two
shallower zones in K-3; in our opinion DST #3 and #4 are intended
to (re)confirm contingent oil resources in the Oligocene of 365mmbl
(P50). Thereafter attention is likely to turn to the ongoing Hasira-1 well,
which is targeting a series of stacked objectives on the Garmian Block
(+C$0.37/-C$0.16 per share), before returning at year-end to the Kurdamir
area for the Baram-1 (+C$0.56/-C$0.08) result.
Financials: Management is due to announce its Q2/13 results on the 28th
August; we estimate that it has cash of ~$170m, sufficient to fund its nearterm
obligations.
Outlook: Having talked encouragingly about the outlook for K-3,
yesterday’s news was a major set back for the company, and any negative
news from DST #3 and #4 would have serious implication for Kurdamir. In
our opinion, Hasira-1 lacks the materially to attract investors back to the
stock, and the increased risk associated with Baram will result in investors
taking a ‘show me’ attitude to exploration. Therefore we expect the stock
to drift in H2/13, and we have cut our recommendation to Sector Perform.