FoxDavies Daily Monitor - Falcon Oil & Gas, Afren and Ophir Energy

Tuesday, August 21, 2012

Falcon Oil & Gas (FO CN, C$0.15 ▲ 3.45%) - Positive Australian Operational Update:Hess continues to make good exploration progress on the Beetaloo Basin (28,000km2), increasing the 2D seismic program capital expenditure from $40mm to ~$57.5mm, and remaining on target to complete it by yearend. More importantly, Falcon is fully carried on the entire 2D seismic program and its 37.5% interest in the five well exploration programme. In this news:

  • 1,200km of the targeted 3,600km 2D seismic acquired to date
  • Two seismic crews acquiring 25km of 2D seismic per day should put Hess on target to complete seismic program by year end
  • Falcon remains fully carried on the entire 2D seismic program
  • Hess must exercise its option to elect to drill five exploration wells no later than 30th June 2013 to earn 62.5%.
  • Falcon fully carried for its 37.5% of the five well exploration program
  • Additional carry - Falcon will be fully carried on the first US$10MM gross cost of the first development well

Afren (AFR LN, 127p ▲ 0.47%) - Reasons to be Cheerful, 1,3,2…:The company posted record sales revenue of $771.7mm (+379% y/y) and net profit of $103.1mm (+132% y/y) driven by first year of full production from Ebok field. Net Production averaged 41.2m boed and company is on track to deliver targeted production of 42m-46m boepd for the year. With successful discoveries at Okoro East and Ebok North Fault Block during 1H'12, we expect significant upward revision of 2P reserves which is currently estimated at 185mm boe. BR-1 at Barda Rash successfully tested 6m bopd of 28° to 32° API oil, scheduled commencement of production during 3Q'12 offers another important catalyst. The company has built extensive portfolio which offers significant potential across the full cycle E&P value chain. Prospective acreage positions in the markets which are target M&A potential along with the established track record of successfully delivering through high-impact exploration campaigns, we believe Afren's share price is highly discounted despite strong fundamentals. In this news:

  • In 1H 2012, the Group realised an average oil price of US$107.9/bbl and an average gas price of US$6.0/mcf (1H 2011: US$110.4/bbl and US$8.0/mcf).
  • Cash at bank US$443.7 million (1H 2011: US$320.9 million)
  • Net debt US$582.5 million (1H 2011: US$343.0 million) with majority long dated (2016-2019)
  • World class discovery at the Simrit-2 well in Kurdistan region of Iraq - first three out of a planned 12 DSTs completed have flowed at 13,584 bopd.
  • Significant resource upgrade in East Africa from net mean prospective resources of 2,113 mmboe to 5,838 mmboe, following portfolio maturation since Black Marlin acquisition.
  • New plays identified offshore Kenya and Tanzania

Ophir Energy (OPHR LN, 537p ▲ 2.19%) - Fortuna Favours the Brave:The announcement that the Company has intersected 55m of gas bearing pay in its (R5) quasi-exploration well in the eastern lobe of the of the Fortuna Complex has gone a long way to reducing the risks in the Block, and moves the asset closer to commerciality. With the prospect that the 2C resources could be upgraded by 114% to 798bcf (133mm boe) is all positive for valuation. Estimated mean in-place resource number for the eastern lobe of the Fortuna Complex of 553bcf (92mm boe), recoverable mean resource from the eastern lobe is estimated as 426 bcf (71mm boe). The company will now spud exploration well on the western lobe of the Fortuna Complex. As we have seen elsewhere, until flow tests have been completed, there is still a way to go before commerciality can be declared, and the discovery heralded as a true success. In this news:

  • Fortuna East -1 (R5) is the fourth gas discovery by Ophir in Block R, and the sixth in the block to date. Ophir operates Block R with an 80% stake.
  • Gas discovery in the deeper-lying Viscata Channel Levee Complex exploration target.
  • The well also encountered the lateral stratigraphic equivalent interval of the Tranquilla and Iambe exploration prospects, confirming good quality reservoir and significantly de-risking the Forethrust play across the Block.

Heritage Oil (HOIL LN, 190p ▲ 13.03%) - Upping the Ante in Africa:The Company announced today it will sale 26% interest in the Miran block to JV partner Genel Energy for cash consideration of $156 million. Loan of $294 million will be provided by Genel which after 15 months will be repaid through the transfer of remaining 49% interest in the asset. The company plans to utilize the proceeds primarily for the exploration and development of OML 30 Block in Nigeria. At this stage, given the uncertainty surrounding the Nigerian assets and future funding, we will continue to risk the OML 30's contribution to the overall valuation and maintain our 315p Target Price and BUY recommendation. In this news:

  • Sale by HEME of a 26% interest in the Miran PSC and Miran JOA to Genel for $156 million valuing the entire interest currently held by HEME at $450 million.
  • Loan of $294 million to be provided by Genel to Heritage.
  • The combined proceeds from the Sale and drawdown of the Loan, totalling $450 million, will be used to partially fund the Proposed Acquisition, to continue the exploration, appraisal and development of the Company's existing portfolio, fund further potential acquisitions and as general working capital.

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This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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