3.25 Target PAN ORIENT ENERGY CORP.
POE (CAD$0.90) – Target: $3.25 – BUY
Action: Maintain BUY; SAGD Project Holds Significant Longer Term Upside
Although the final production test results of the Sawn Lake SAGD pilot project are impressive, the demonstration project will be suspended at the end of February 2016 due to the current low oil prices. In March 2016, POE will submit an application to expand the demonstration project to 3,200 bbl/d in order to be ready to continue the appraisal of Sawn Lake once oil prices recover. We maintain our BUY recommendation and $3.25 target price on POE’s strong financial position and high-impact exploration potential in Indonesia.
Details: SAGD Well Pair Test Over 600 bbl/d With An SOR of 2.1
Results comparable to “High Case” resource estimate: POE announced excellent final production test results from its Sawn Lake, SAGD heavy oil pilot project in Alberta. The Sawn Lake heavy oil asset is held by POE’s 71.8% owned subsidiary Andora Energy Corporation (“Andora”). Andora holds a 50% interest in the Sawn Lake pilot project. In January, gross production from the SAGD well pair averaged 596 bbl/d (298 bbl/d net to Andora) with an Instantaneous Steam to Oil Raito (“ISOR”) of 2.2 and in the first 21 days of February production averaged 620 (310 bbl/d net) with a SOR of 2.1. This compares favorably to an independent contingent resources report (“Sproule Report”) which assigned the following values to the demonstration project SAGD well pair as 2016 averages: Low Case of 242 bbl/d with an ISOR of 5.7; Best Case of 345 bbl/d with an ISOR of 4: High Case of 449 bbl/d with an ISOR of 3.1.
Impact: Positive. Sawn Lake Has Large Resource Upside Potential.
The pilot demonstrated that the SAGD process works in the Bluesky formation at Sawn Lake, showed the production capability and ISOR of the reservoir and provided critical information required for well and facility design associated with future commercial development. A NI 51-101 compliant contingent resource report effective December 31, 2014, that was prepared by Sproule Unconventional Limited ("Sproule”) assigned a Best Case contingent resource estimated net to Andora of 214 million barrels or 154 million barrels net to POE’s 71.8% ownership in Andora. This represents substantial medium to long term upside in the event that oil prices recover and development of the SAGD project proceeds.