reserves, page-25

Here's why trader. New research out from RBS - looks like a new analyst under Chris Brown called Krista Walter. Unedited by me.

Texon Petroleum
Realising value

The proceeds (US$12.4m ) from the sale of TXN's Olmos holdings were lower than we expected, but strengthen TXN's cash balance and place it in a stronger position to negotiate the recently announced sale of its large acreage position in the Eagle Ford Shale region.

Our expectation is that this acreage could fetch between A$200m and A$279 (A$0.82 to A$1.15/sh). Adjusting for the Olmos sale, this gives a TXN valuation range of A$252m to
A$331m (A$1.04 to A$1.36/sh). We conservatively set our target price to A$1.04, the lower end of this range. Depending on the sale process, we see further valuation upside and retain Buy.

Event: TXN sells Leighton Olmos holdings
TXN has closed a purchase and sale agreement with a USA-based company whereby Texon has sold its holdings in the Olmos reservoir and the overlying Wilcox reservoir in the producing Leighton oilfield and in the surrounding Leighton and Sutton leases. TXN's proceeds from the sale
amount to about US$12.4m before tax, which is below our optimistic forecast of US$21m.

However, it strengthens TXN’s cash balance, and places it in a stronger position to negotiate the sale of its Eagle Ford Shale acreage should negotiations drag on and further drilling be required - at US$10m per well. The sale does not include: the underlying Eagle Ford horizon; the Pearsall horizon leases; the Mosman-Rockingham leases; or the producing Eagle Ford wells.

Forecasts: Minor changes to reflect final quarter sales, but not relevant in current situation. We lower our forecasts to reflect the timing of sales in the final quarter. We also make an adjustment to cash balance to reflect the status after the sale of the Olmos in the Leighton leases and the cash balance as of 31 Jan 2012.

The net effect of these adjustments is a 36% decrease
in FY11 NPAT. However, focus is and should be on the Eagle Ford shale sale process, meaning these earnings adjustments are largely irrelevant.

Valuation: Focus on the sales process
We adjust our valuation for the Wilcox and Olmos in the Mosman-Rockingham leases accordingly. Focus will remain on the sale process it is running on its acreage in the Eagle Ford Shale region. Depending on the level of interest, the quality of the acreage and the strategic value to potential bidders, we value its Eagle Ford Shale acreage between A$200m and A$279m (A$0.82/sh to A$1.15/sh). Subsequently, our valuation range for TXN is now A$252m to A$331m (A$1.04/sh to A$1.36/sh). We conservatively set our target price to the lower end of this range, A$1.04 per share, and note that depending on the outcome of the sales process, there maybe
upside risk to this.

Downside risks includes: an unsuccessful sales process or operational issues
during the sale process.