“We think that Exxon’s (
NYSE:XOM,
Stock Forum) tenacity in pursuing PSC ratification, from the original farm-in announcement in November 2011 to finalization in April 2013, is a testament to how prospective it thinks the block is.”
So says GMP Securities about a project involving Canadian Overseas Petroleum (
TSX:V.XOP,
Stock Forum) and oil industry mega-player, Exxon, off the coast of Liberia.
GMP estimates Exxon paid around $250m in value to get 83% of Liberia’s Block LB 13, which it calls “one of the largest entry costs that we have seen into a frontier basin.”
V.XOP, with a 17% share in the lease, looks to be in for a nice coat tail ride, especially with Chevron deep into a project right next door, and Eni (
NYSE:ENI, Stock Forum), Tullow (
OTO:TUWLF,
Stock Forum), Repsol (
OTO:REYPF,
Stock Forum), Lukoil (
OTO:LUKOY,
Stock Forum) and Anadarko (
NYSE:APC,
Stock Forum) sniffing about nearby.
Canadian Overseas Petroleum shares sit around the $0.24 mark, with GMP setting a price target of $0.47.
According to V.XOP executives, Exxon considers the project one of their top five exploration plays worldwide.
From the GMP report:
“Although Canadian Overseas is an E&P with limited visibility on funding, Exxon’s entry provides it with a carried well, expected to be drilled H1 2014. The well will be drilled in a turbidite channel/fan complex. Overall, the several prospects identified in the block are estimated to hold 2.6bn bbl gross best estimate recoverable resources in total. As an indicator of risk/reward, a 300mmbbl discovery could represent upside in excess of five times the current share price.”
The Chevron play indicates there’s value in the territory, as that company has pulled the trigger on drilling wells.
“Chevron has recently contracted Seadrill’s West Tellus drillship to drill two wells in its Liberian blocks (LB-11, LB-12 and LB-14) from October 2013 to April 2014. Canadian Overseas’ Block LB-13 is located between LB-12 and LB-14,” says GMP.
V.XOP has a solid base in their other property, a shale oil play in New Zealand that ensures a base valuation near where the share price is currently, but the Liberia program is rarified air for a junior explorer. Should the promise of the area bear fruit, GMP pegs the ‘blue sky’ valuation of V.XOP’s share as being worth $2.6 billion.
Shares in Canadian Overseas Petroleum were down 2.13% to $0.23 in early trading, close to the 52-week high of $0.275.
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Full disclosure: Canadian Overseas Petroleum is a Stockhouse Publishing client.