"The Songo Songo Gasfield is located immediately to the west of the Nyuni Block. The geology of this field can thus be used in evaluating the geology and prospectivity of the Nyuni Block. The Songo Songo Gasfield produces from the top of the thick Early Cretaceous/Jurassic sequence of interbedded sands and shales. The gas column in the field is some 289 m (950 ft) thick, with the maximum net productive sand thickness being some 168 m (550 ft). Porosities in the productive sands range from 16 to 27%, with the great majority being in the 17-25% range. Permeabilities range from 0.1 to 100 md."
From here we can make a few guesstimations...
Songo Songo gas column = 289m Net productive sands = 168m (or 58%) Recoverable gas = 1tcf
Rough corelation (assuming similar closure)... KN-1 = 60m Net productive sands (58%) = 34m (versus 168)
So...34m is approximately 20% of the Songo Songo net pay.
On this basis we might assume this new discovery is 20% of the size of Songo Song (20% x 1tcf)...or some 200bcf recoverable gas?
Need much more dats to determing this, including formation paramters...and of course mapped closure...but it does give a clue to the upside of positive results in all cases.
Certainly more here than they were expecting...and significant given the lower water contact confirming a separate structure here than that controlling the Songo Songo field, which instantly upgrades the other stuctures to the East.
12.4m less 3.5m
At a market cap of just 10.3m tonight (86m shares x 12c), this discovery is being valued at virtually zero.
At Dec 31 they had $12.4m cash with projected and outflow for the current quarter of some $3.5m (exploration and development)...so if we add another $1m for admin they should be sitting on some $7.9m cash as of tonight.
This leaves some $2.5m left for their entire energy portfolio, including up to a possible net 40bcf with today's discovery.
Even if on the low side, say a net 20% of just 50bcf, they are still sitting on some 10bcf net, literally just 3km from existing pipelines.
Assuming 8mmcf/d for this well, (low side assumption versus the Songo Songo 60mmcf/d), we get potential income for KEY's 20% of 8mmcf/d of some US$6,400 per day (1600mcf x US$4/mcf av - net of costs)...or US$2.34m per year net for relatively little up front infrustructure cost. Assume at least 5 more wells and we get US$11.7m per year for this field.
Regardless of upside however, the market will only likely focus on near term net income...which at US$2.34m per year (AUD$2.53m) on the above conservative numbers, will provide KEY with income of 2.9c per share.
A PE of 8 gives us 23.2c value for this one drill hole!
Five wells of similar production (assumimg 50bcf+ field) and we get a value of $1.16 for the field.
Forget cash...forget their other assets.
So...in the short term I see a potential 23c of value for this result...with a value of say $1/mcf for in ground resource value.
At say 10bcf net to KEY and $1/mcf in ground value, we get another US$10m added to the market cap above PE expectations...or 11.6c per share.
All up, I see an upside target close to 34.8c for this single well, based on a 50bcf field, 8mmcf/d production and US$4 net profit per mcf of gas produced.
Remember, this is just KILIWANI NORTH #1 discovery...and of course a little bit of luck.
Upside here in my view.
Cheers!!
KEY Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)