Oilex Ltd (“Oilex”, “OEX”, “Company”) has announced that it is on track to achieve net oil production of 2,000 barrels per day and become cash flow positive by the end of CY09. Future projects, particularly those in India, will be phased so that expenditure can be funded from cashflow. We have adjusted our forecasts accordingly, with revenue and profit pushed out. Our valuation has decreased due to timing of cash flows and from the dilutionary effect of 44 million shares issued; however, it remains at a substantial premium to the current share price and we rate Oilex Ltd as Buy.
Further cash management initiatives have been undertaken, with the sale of Oilex’s 8% stake in Bow Energy Ltd completed during Q408. Plans are also underway to farmout other non core assets by the end of March 2009. This will allow the Company to focus on cashflow from its cornerstone asset at the Cambay oil and gas field (OEX 45%), in India. The Company had $14.7m in cash at the end of Q408, with another $5.5m expected during Q109 from the second tranche of a share issue, which raised $10.1m in total.
Cambay Oil Value Estimated at 179cps (OEX 45%)
Oilex is currently producing at ~350 barrels oil per day gross from the Miocene Basal Sand (“MBS”) reservoir in Cambay. This rate is restricted by infrastructure constraints, which we expect to be resolved within 4-5 weeks. Additional short-term production potential exists from workover of an old well, Cambay 57, within the next few weeks. Two development / appraisal wells are scheduled in the MBS in May 2009, with additional wells in 2009 possible in both the MBS and in a deeper zone, the Basal EPIV (“BE’). The BE flowed oil at 180 barrels per day on test from the Cambay-19Z well, which was drilled in 2008.
In place resource estimates for these two zones are 5-20 million barrels for the MBS and 12-72 million barrels for the BE. Using a recovery factor of 30% against the mean in place resource indicates as much as 7 million barrels of potential reserves for Oilex, which could be worth ~$110m, or 62cps, at current spot prices. Upside potential for these two zones is >$300m, or 170cps. This does not include a further 48 million barrels of oil and 304 billion cubic feet of gas in place from other prospective zones.
Indonesia (OEX 45%), Oman (OEX 25%) Advance
Oilex is still awaiting final approval from the regulator at its Pendalian oilfield in Indonesia. We expect first production by the end of Q109, at gross rates of ~1,200 barrels per day from two wells, ramping up to ~2,500 barrels per day by year-end from 3-4 development wells.
In Oman, Oilex is planning to appraise its Al Jumd-1 well in March 2009. In Q408, the well discovered 27 m of net pay with no oil water contact identified. Analysis of the Sarha oil discovery is ongoing.
OEX Price at posting:
25.5¢ Sentiment: ST Buy Disclosure: Held
