ShaMaran recommendationShaMaran gets a buy recommendation from Swedish online bank Avanza today, here is the article translated with google-translate. the article has some factual errors before it was translated, so take it for what it is...
Season with ShaMaran
Posted: 2011-12-06 14:08
Equity Research: An investment in Lundin Petroleum Company ShaMaran implies a great potential - but also a big risk. However, we believe that the stock seats spice up the portfolio and recommend Buy.
ShaMaran Petroleum
ShaMaran Petroleum is a Canadian oil company active in Kurdistan.
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Getting back on the Lundin family, usually a good deal
Operates in one of the world's richest oil fields
Possible takeover candidate
Our recommendation: Buy
ShaMaran Petroleum is engaged in oil exploration in one of the few remaining oil-rich areas in the world. The company licenses located in the Iraqi part of Kurdistan. The area was until quite recently, in principle unexplored due to political instability.
A total of only 10 test drilling before 2006. In recent years, activity has increased. About 25 test drilling has been completed, of which 70 percent were successful.
There is absolutely no doubt that ShaMaran operating in an oil-rich part of the world. Approximately 55 percent of total world oil reserves are located in the Middle East. In Iraq, are three of the world's 10 largest oil fields.
The total oil supplies in the Iraqi part of Kurdistan is estimated at 70 billion barrels, plus very large gas reserves.
ShaMaran Petroleum has interests in four fields in Iraqi Kurdistan; Atrush, Pulkhana, Arbat and Taza. For the first two blocks is holding to 60 percent of those blocks are also ShaMaran operator. For the latter two blocks equal ownership shares of 20 and 26.8 percent.
ShaMaran published earlier this year that it found oil in Atrush-field, but has not specified how the large volumes that were found. However the company said that tests showed flows at 6,393 barrels per day despite the constraints imposed by the equipment. When the well goes into production is planned to produce more than 15,000 barrels of oil per day.
There are also plans for a second drilling during the year, which could mean a sharp increase in production forecasts. It is worth mentioning that the British company Gulf Keystone Petroleum has made a discovery of 7.5 billion barrels of oil just 20 miles from Atrush field.
The Pulkhana-fields were already drilling for more than 50 years ago, in 1956, which gave a flow of 2950 barrels per day. During the past year, ShaMaran tested at flow rates of between 2650-3530 barrels per day at Pulkhana-8. The source will be completed for production in 2012.
Drilling at Pulkhana-9 indicated that there may be up to five separate oil-bearing structures in the current field.Test results from the most recent drilling will be announced in the coming weeks. A positive outcome will of course be positive for the stock price.
The company says that the potential discoveries in the field amounts to more than 500 million barrels of oil.
The potential oil reserves in the Arbat-field is also significant. The field covers an area of ??930 square kilometers, according to ShaMaran Petroleum possible reserves of 2.2 billion barrels of oil.
Also for the fourth field, Taza, said the potential deposits to be significant. According to the company is the potential for approximately 545 million barrels of recoverable oil.
According to the company is the potential reserves in the four fields totaling more than 3.3 billion barrels of oil.
The coming year will continue to be intense for the company. Fields Atrush and Pulkhana will be put into production during the latter part of next year. Additional drilling will also be completed on all fields.
ShaMaran Petroleum recorded a loss of $ 3.3 million for the first nine months. Investments in exploration and intangible assets amounted to $ 77,000,000 for the first three quarters.
At the end of the quarter, cash in the company at $ 28.6 million. During November, filled the coffers at an additional $ 51 million through a so-called Private Placing of 127,500,000 shares at a price of 0.40 Canadian dollars per share.
An extensive exploration program means that we can not rule out further capital raisings in the coming year.
It is not meaningful to make profit forecasts for an exploration company ShaMaran Petroleum. The value for the shareholders will instead be created by the deposits, except Atrushfältet, likely in the area.
According to the company it costs between 100 to 200 million Canadian dollars to get into a new field in Kurdistan. If we apply the valuation of ShaMaran licenses, we end up at a value between 400 to 800 million Canadian dollars, equivalent to 2.7 to 5.4 billion.
If you compare this amount with the current market value, fully diluted, for 1.9 billion so does not appear to valuation in any way challenging. Another way of looking at the valuation is the value of the resources that may be extracted.
There are few transactions completed in the area. According to the company, the value of recoverable resources are estimated at between 4-8 dollars per barrel.
The potential is that we have mentioned very much. The risk of the company is continuing the political risk in Iraq. As a seasoning in the portfolio shares defunct definitely, not least in light of the extensive drilling program will be implemented in the coming year.
ShaMaran is, as mentioned earlier, operating in a very oil-rich region, which means that the probability of finding oil in the upcoming drill program is high.
The region is attracting a growing interest from major oil companies. We therefore see it as highly likely to ShaMaran Petroleum will be acquired within a few years. We recommend therefore Buy