FoxDavies Daily Monitor - San Leon Energy, Kea Petroleum and Tangiers Petroleum

Monday, September 24, 2012

San Leon Energy (BUY - 60p) (SLE LN, 10.5p, ▶ 0.0%) Commerciality Buoyed by Oil Find: The news that the SL-1 well might contain oil is good news, and will also have the added benefit of improving the commerciality of the shale gas that is being targeted in this play. given the fact that this was unexpected, more detailed work will be required before any definitive pronouncements of the size and producibity of this find can be made. We are currently consolidating approximately 8p in our 60p price target for Nowa Sol and while we are encouraged by this development, it is too early to be able to fully understand what this means for the prospectivity. Nevertheless, we believe that this significantly reduces some often commerciality risks associated with this concession. We are reiterating our BUY recommendation and 60p price target. In this news:

  • Lelchow SL-1 well to proceed for the planned well completion. The well for drilled to a depth of 1,167 meters TVD and oil was found in the Zechstein Main Dolomite. Oil was recovered to the surface during initial clean out of the well.
  • Well completion has been designed for near-term commercial production from the well.
  • The company has ordered all required downhole and surface completion equipment to clean out the well from Schlumberger.
  • Well completion is expected to be performed within the first two weeks of October to be followed by cleanup and initial flow testing immediately thereafter.
  • The spud of the Czaslaw SL-1 well, the second of a two-well exploration programme focused on the Main Dolomite trend, has been delayed due to permitting delays with the local mining authorities.

Kea Petroleum (KEA LN, 9p, ▲ 2.86%) Declares Puka as Commercial Discovery: Today's news goes long way in de-risking Puka field and is valuation positive. Field gross recoverable resource is estimated at 1mm bbl of oil with a potential upside of up to 3mm bbl. Additional flow test results from Puka 1 well are better than initialproduction test results which led to declaration of commerciality. News that Kea now plans to drill Puka 2 well (follow up well) is another positive. In this news:

  • The Maximum flow rate of oil achieved was 310 bopd and of gas was 1.8mm cfpd.
  • Company has decided to proceed to drill a follow up well, Puka 2, as soon as possible. Planning for Puka 2 is well advanced.
  • Puka 1 was drilled with a small rig and primarily designed as a low cost slim hole exploration well and is not ideal for production, as it limits production rates, completion and production options.
  • Puka 2 will be drilled by a larger capacity rig and has been designed as a conventional larger diameter production wellbore that will allow for higher flow rates and flexibility with completion and production.

Tangiers Petroleum (TPET LN, 19p, ▶ 0.0%) To Raise up to $5.8mm: Announcement that equity fund raising will be increased to $5.8mm to support company's growth opportunities in Africa, including potential farm-in deals and acquisitions is positive. Under the new management, which includes new Executive Chairman - Eve Howell, Tangiers has been actively pursuing opportunities in the African region. In this news:

  • The funds will be raised through an upsized $5 million Placement of approximately 18.2 million shares at an issue price of A$0.28 (GBP £0.18) per share to sophisticated and institutional investors and through a SPP capped at $800,000 to existing shareholders at A$0.28 (GBP £0.18) per share.
  • As previously advised, the Placement will be completed in two tranches with approximately 8.2 million shares issued in the first tranche pursuant to the company's remaining 15% capacity under ASX Rule 7.1 and the balance of 10 million shares issued in the second tranche subject to shareholder approval at a General Meeting of shareholders scheduled to be held in late October.

Bayfield Energy (BEH LN, 31p, ▲ 7.83%) Revises Oil Sales Contract: To Gain ~$22/bbl - The Company has switched benchmarking of crude oil production from Bayfield's field to Brent crude from WTI crude and also revised discount to 9.5% from 17.5% earlier. This is excellent news as it will increase realization by ~$22/bbl, which would be financial and valuation accretive. In this news:

  • Bayfield and the Trinidad state oil company, Petrotrin, have agreed revisions to the Crude Oil Sales Agreement governing the sale of Bayfield's share of production from the Trintes field, offshore Trinidad.
  • Bayfield first entered into a contract for the sale of its crude oil with Petrotrin in April 2009, which set the sales price at a 17.5% discount to the published price for West Texas Intermediate ("WTI") crude.
  • Under revised negotiations, Bayfield's crude will adopt Brent crude as the reference price and a revised discount of 9.5% for a minimum period of 12 months. The revised terms are effective from 1 August 2012.

TXO (BUY 0.90p) (TXO LN, 0.295p, ▲ 5.36%) Stepping Out…: Today's news is another step in TXO's march up the value chain, and in the GBG investment, the Company is making significant headway. There is still a significant way to go before the project gathers momentum, however, but this is a step in the right direction. Following this news, we are reiterating our 0.90p price target and BUY recommendation. In this news:

  • TXO has announced further investment in Grand Bahama Group Limited (GBG). It purchased further ordinary shares for a consideration of £0.3mm (6.5% equity interest), raising its equity holding to 23.64%.
  • Fund will be utilized by GBG to acquire the leasehold interest in the 3.85 acre site within Freeport Grand Bahama, finalise and submit the final stage of its environmental impact assessment study to the Grand Bahama Port Authority and commence construction of its Hydrocarbon Recovery Plant ("HRP").
  • The Company has also renegotiated the terms of an option to invest a further £2.6mm in GBG in return for additional ordinary shares in GBG which would increase TXO's total holding in GBG to 43.18%. The Option expires 31st December 2012.
  • TXO also announces that it has received full repayment of the recent unsecured £49,000 and £10,000 loans it made to the GBG.

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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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