RE: Pirateship2006 a Pivotal Year; 2007 Looks Even Better
During 2006, Antrim established a significant reserve base offshore of the
United Kingdom, with Ryder Scott assigning 12.3 million probable barrels
equivalent to the three fault compartments at Causeway, and 9.2 million
probable equivalent barrels at the Fyne & Dandy fields. These were the
first steps in the development of these fields and particularly at
Causeway, we expect to see substantial reserve additions as development
continues. The North Sea accounts for about 95% of total Company
reserves.
Last year’s reserve additions resulted in extremely low finding costs of
$2.59 per equivalent barrel, and after adding in an estimate of future
development costs, there is still a very respectable $19.56 in finding and
development costs for the current reserve base, shown in Exhibit 1. As
drilling resumes later this year at the fourth fault compartment at
Causeway and at Fyne & Dandy, successive reserve additions could bring
down these average costs.
Production from the North Sea fields is expected to come onstream in
2008, when we expect to see substantial cash flow – approximately $2.00
per quarter basic or $1.70 diluted (if the Company maintains its current
balance sheet). Companies usually trade on a multiple of the 12-month
forecast cash flow, meaning the market could begin to price Antrim’s
stock on the North Sea financials later this year. Annualized cash flow
could be $8.00 basic by Q3/08 ($6.80 diluted), and even using a low
multiple of 2x to account for some additional dilution or farming down of
interests implies significant upside to the current stock price.
Ryder Scott valued Antrim’s 24.3 million barrels of equivalent reserves
(economic conversion) at $119 million, or $4.90 per barrel (Exhibit 2), a
relatively low figure reflecting the probable nature of most of the reserves.
Once a development plan has been approved for the North Sea fields,
these reserves can be classified as proven, with a subsequent increase in
value that could be as much as three times the probable amount. There is
still the potential for over 50 million barrels to be added in the North Sea.
Ultimately, the best-case scenario indicates the potential for some
75 million barrels equivalent, which, if valued at $15.00 per barrel, could
be worth $1.1 billion, or over $11.00 a share. (Production in 2008 could
peak at almost 35,000 bd; at $50,000/bd, the producing assets could be
worth $1.8 billion).