Stella GuessworkAnyone else have any ideas just how much oil there might be in the Stella field reservoir?
I'm just back-of-enveloping out loud here, but looking at the map on the Stella/Harrier tab on this page of the company website, with reference to the scale (bottom right):-
https://www.ithacaenergy.com/operations/greater-stella-area
It looks like the field might be roughly equivalent in size to a circle diameter 5km, surface area 19,635,000 metres squared. Assuming an AVERAGE NET to Ithaca RECOVERABLE oil pay depth over this area of only 1.1 metres (i.e. 2 metres average contiguous gross pay) gives 21,600,000 metres cubed of oil, equivalent to 135,850,000 barrels.
The A1 well demonstrated the pressure and deliverability of the Stella field as a commercially viable producing asset, but told us nothing of its size. Should the A2 well results come in with similar flow characteristics to the A1 well, from a production area roughly one fifth of the circumference of the hypothetically circular reservoir away (see diagram page ten company presentation):-
https://www.ithacaenergy.com/sites/default/files/wysiwyg/2013%2009%20ITHACA%20ENERGY%20Corporate%20Presentation.pdf
Then would it not be logical to assume (from a ballpark perspective) that one fifth of the volume of the hypothetical reservoir (i.e. 27,170,000 barrels net) would be proven to some degree. A3 success would add again a greater confidence over two fifths of the reservoir's area.
Assuming only A1 & A2 success (i.e. the lowest estimate of flow capacity and net recoverable reserves in place in this scenario), with a conservative average gross sustained production flow-rate estimate of 15,000 boepd (from only 2 wells), 260 producing days per year, gives 3,900,000 barrels per annum production gross, or 2,145,000 barrels per annum net to Ithaca from the Stella field over the next twelve years. Applying a $70 netback gives $150,000,000 annual before (and for the first several years after) tax cashflow to the company. The before tax present value of these cashflows discounted at 10% is over $900,000,000, hence my assumption that in a blue-sky scenario the GSA could be worth well over $1bn on its own.
The 2013 end of year reserves upgrade will probably be out in April 2014, but will only incorporate the very first preliminary data from the Stella A1 & A2 wells, with little or no decline information, is why I'm only looking for a 2P reserves upgrade in the region of 5 to 10 mmboe, but am targeting a further 20mmboe to be added to the reserves by end 2014 (once the GSA has been observed on production for 6 months, and all but entirely derisked).
Any way I cut it, it looks to me like Ithaca deserves, on the strength of its current production levels of over 10k boepd, and 69mmboe 2P reserves, an enterprise value in the region of $1bn (the market has currently assigned an $800m mkt cap on top of the company's $350m debt which we know includes a portion of 'speculative' value assigned to GSA post A1 results), add to this an increase of 75% to 2014 exit production levels (i.e. 2014 exit 17,500 boepd net) and add 40% to 2P reserve base (27.5mmboe) from the GSA (at equal weight), and I come to a (conservative) fair value enterprise value of say $1.575bn end 2014. Assuming debt increases by $100m (although I think it may likely decrease by say $40m), then we would reach an implied market capitalisation target of $1.125bn for Ithaca exiting 2014, implying a $3.65 fair value share price target.
I really have no idea of course, and am probably talking out of my *rse - someone please tell me. I have deliberately kept the production numbers on the low side, but my estimate of recoverable oil in place net to the company is really just a guess. I'd be interested to hear anyone's thoughts. Clearly if the flow rates are initially as rich as 30k boepd, and the field turns out to be in the 50-100mmboe size range, then my target price is way too low.
Just how much oil is there at Stella, and when will we see this being reflected in the company's 2P numbers? We of course hope to see the increase in daily production and consequent boost to reported cashflow by mid 2014.
Thanks for your input,
E17