Cannacord buying today....$0.30 target in 2011 In the Neuquén Basin the company has 20% working interest with an opting to increase to 50% in 2 blocks: the 12,355 acre Blanco De Los Olivos Oriental and the 14,000 acre Cartiel Viejo Sur. ArPetrol plans on drilling 2-3 shallow wells (1200m) commencing in Q4 2011 targeting conventional multiple zones in Blanco De Los Olivos. While the first block sits outside of the shale oil and gas window, the Cartiel Viejo Sur block lies 60 km NE of YPF’s 150mm boe shale oil discovery at Loma La Lata Field and offers exposure to the Vaca Muerta shale. So far, the company has not announced any drilling plans on the Cartiel Viejo block.
In the Austral Basin, the company’s flagship asset is the 100% owned 8.3 million acres (33,600 sq. km) Faro Virgenes block. The Austral accounts for 35% and 20% of Argentina’s natural gas reserves and production and ArPetrol owns its only onshore processing plant (85 MMcf/d capacity). The company recently received approval for inclusion in Argentina’s Gas Plus program allowing it to increase its realized price to $2.47/Mcf up from $1.20/Mcf a year ago.
This block offers development and exploration opportunities for years to come thanks to several known pool sizes ranging between 8 and 375MBOE in multiple hydrocarbon charged formations. Faro Virgenes will be the main driver for cash flow growth and with $38 million dollars in hand, the company will be drilling a minimum of 6 natural gas wells (3 low risk development and 3 exploratory) by the end of 2012.
Firm -- Target Price
Canaccord $0.30
Conclusion
Argentina is a hydrocarbon rich country with excellent geology. The few juniors that are focused on this country all share one thing in common: a high impact inventory of prospects that offers significant valuation upside exposure thanks to underdeveloped basins. As realized oil and gas prices improve, the total or partial removal of price caps is another variable that will fuel increased development and exploration. The petroleum industry is well developed with proper infrastructure and a strong internal market.
The “Why Argentina?” was easy to answer but the “Now Argentina?” is one question you will have to answer given the global turmoil we are going through and the upcoming presidential elections in October where there is always a risk to the investment climate.