I had an unfortunate timed meeting which I only just got out of after market close (was hoping the suspension wss going to last until tommorrow) so I missed all of the action
today – was for the better to be honest after seeing what has transpired. I was able to have a quick look earlier on my phone as I popped out of the meeting, I wish I hadn’t as it was a sea of red, looked brutal from what I saw (couldn't believe it). Share-price didn’t finish too bad by the end of the day though.
I managed to have a quick look at the announcement now and listen to GJ interview and my general thoughts are;
- Dempsey was estimated at 1+ TCF prospective resource unrisked. This estimate was performed by SGC presumably (they didn’t say otherwise). GJ said Borba was multi TCF, ‘Dempsey on Steroids” and the most anomalous piece of seismic he has seen in the basin to date.
- The independent resource assessment
today has given Borba a mean unrisked prospective resource of 141 BCF.
- Firstly we have Dempsey and Borba assessed by two different companies, there is no consistency (one independently one not). How can Dempsey be 1 TCF+ and Borba 141 BCF based on GJ comments. Secondly I think was has happened is that SGC does think Borba is significantly larger than 141 BCF and potentially multi TCF, however the independent resource assessment has potentially come back ultra-conservative and doesn’t reinforce this. I think SGC have panicked a bit and that is why the commentary on the broader Borba trend was included in the announcement talking about TCF potential; “The interpretation of the 3D data reveals traps that are significantly larger than the Borba Prospect with Tcf potential”. I thought Borba was the most anomalous seismic seen now there are larger traps? Now Borba has had to be referred as a ‘player opener’, even though I think SGC probably consider Borba to be the play not the play opener but can’t say this.
- The chance of intersecting a sand full of gas has been estimated at 70% which is pretty good (announcement says it is a ‘low risk’ prospect)
- Mean net entitlement to XST is 37 BCF which is based on 11 zones. SGC has mentioned there are 16 target zones – they are still going to be drilling through the 16 target zones which mean that 5 target zones haven’t been reflected in the resource assessment. So we have by the looks of it an ultra-conservative resource report which has excluded 5 target zones. 37 BCF still provides good upside though. 37 BCF is 37 million MMBtu. At US$4 per MMBtu this is approx $150m to XST putting the share price up around 6c based on Borba, let alone the oil production assets. But obviously the end result could be a lot higher or lower than 37 BCF. The market reaction was always going to muted/ disappointed when a multi TCF ‘Dempsey on steroids’ expectation was set over a few months prior.
- XST MD comments that Borba has the potential to transform XST almost immediately. “The stage is now set for the drilling of a very significant exploration well for Xstate. Borba is a very low risk gas prospect with high upside immediately adjacent existing gas infrastructure. Success in intersecting gas at Borba 1‐7 has the potential to transform the company almost instantaneously. An independent estimate of 70% chance of success means there must be high confidence in the quality, quantity and controls of the all the technical inputs required for geological success. This well, plus our growing Canadian oil production business puts Xstate on a very solid footing early in 2021.”
- Drilling expected to commence end of the week
Overall, drilling is set to commence, plenty of news flow coming on gas shows, and Borba still presents good upside to the share price and is relatively low risk. I thought there was an over reaction
today, but that was always expected based on the expectation that had been set. Check out the gas shows recorded for Dempsey during the drilling campaign, Borba has more target zones than Dempsey so expect the same kind of news flow and some more. I haven’t sold a share and happy to believe that “
Borba has the potential to transform XST almost immediately”. DYOR
(20min delay)