CapnBirdseye I think you need to check your numbers again.
"The problem is, who has $2.2B lying around to buy PCL's possible assets and who else would they be in competition with? I mean, Woodside only have a MC of AU3.1B with their many developed assets, and Origin AU$1.4B."
Woodside (ASX:WPL) has a market cap of AU$ 31.8 billion. They have ~748.6 million shares on issue with a current share price of $42.55.
Origin (ASX:ORG) have a market cap of AU$ 13.96 billion. They have ~874.4 million shares on issue with a current share price of $15.93.
Mbawa (Kenya L8) actually has three volumetric scenarios.
All these volumetric estimates are for the cretaceous plays at P10. Thus there is a 10% chance that these volumetric calculations will be plausible in the event of a discovery. ORG/PCL have stated that there is also possibility for multiple Jurrasic plays, but they will only be examined in the event of a discovery in the cretaceous.
A wildcat discovery at Mbawa will highlight the potential of the Lamu Basin. To sell the asset for $5-$10 per barrel, PCL in conjunction with the JV would need to develop the asset and determine the commercial quantity of reserves. The big thing about Kenya is the fact that there is already an oil refinery there. The Kenyan governement can opt for the crude to be refined in Kenya, so they can export petroleum products. This is what Uganda is currently doing.
ENI just bid US$ 1.5 billion for Heritage Oil's assets in Uganda ~ 350 million barrels 2P (~$5/bbl). Tullow executed their pre-emptive rights and have now sold the share to CNOOC for US$ 2.5 billion which includes a condition to sole fund a 1200km pipeline. CNOOC and Tullow will then need to both fund an expensive capex program to build an oil refinery to handle the waxy oil.
What I'm highlighting is how much significant value infrastructure can add to a discovery. With Kenya already having a refinery, oil can simple be piped straight to onshore facilities. This will reduce capex program for any discovery at Mbawa.
The real question is, can PCL get to this stage of development?
Hypothetically, if PCL farmed out 15% of their 25% in L8 to fund their costs of a well they would a 10% interest. If a discovery is made the SP would fly, but nothing will be known until the JV test the well. They made decide to P&A the well and begin analysis of the results to select next drill location (much like what Karoon is doing right now). PCL will then be required to fund 10% of every well in this very expensive program. A well will probably cost ~US40-50 million. Lets say PCL has to pay $5 million per well. They don't have the money and would have to use both debt and equity to finance the program. Other option is to sell down a 5% share, but at what value would this 5% be worth after just 1 well drilled?
What PCL needs is Baniyas. Kenya is the big game, but Baniyas will get us there. In my opinion Baniyas is the key to unlocking PCL over the long term. To provide holders with much more significant value. PCL now have a 38.5% stake in Baniyas. The JV plans to farm-out 50% so that leaves PCL with 19.25%. 19.25% of a 24 million barrel find and 56 BCF of gas would give PCL approx. 4.5 mmboe. Baniyas is a few tens of kilometres from production facilities and oil pipelines. The capex program to monetize the discovery would be minimal. If Baniyas could flow at 5000 bopd, PCL would receive ~1000 bopd. That would be 365,000 barrels of oil per year and at US$50 per barrel that is US$ 18.25 million per year in revenues. PCL could also sell Baniyas. Baniyas would be very valuable given the proximity to infrastructure.
PCL would be able to fund their 10% share of the extensive appraisal of any Kenyan discovery, with a Baniyas strike. I am really hoping Baniyas is drilled this year. A discovery there could be crucial to us realising the full extent of the potential of Kenya. If not PCL will probably get taken out at 50c per share (~300 million) in the event of an Mbawa discovery.
PCL Price at posting:
3.4¢ Sentiment: LT Buy Disclosure: Held
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