dj carmichael report

Central Petroleum Ltd (CTP)
Surprise Reserves Booking Expected in 1Q 2013
CTP has announced that results from the Surprise Extended Production Test (EPT) support
a commercial discovery. We believe this is a significant milestone and highlights CTP s
near term transition from explorer to producer. CTP retains a 100% interest in the Surprise
discovery area (2.4mm acres) which offers investors high leverage to a reserves booking
expected in 1Q 2013. Furthermore, CTP has outlined a structured development timetable
which reduces near term funding requirements. We therefore maintain our Speculative Buy
recommendation and price target of $0.43/sh.
Key Points:
Surprise reserves booking expected in 1Q 2013. CTP has announced that the results from
the Surprise Extended Production Test (EPT) have been encouraging, providing CTP with
confidence that the discovery is commercial. The Surprise EPT has recorded stabilised rates
of between 200bopd and 400bopd without pump. CTP anticipates that when production
commences, substantially higher flow rates should be achieved (potentially 400bopd to
800bopd). A reserves booking is expected in 1Q 2013.
We estimate 2P reserves in the 6mmbbls to 10mmbbls range. We have assumed a
10mmbbls unrisked commercial discovery for Surprise which is at the lower end of the current
resource estimate (4mmbbls to 110mmbbls oil in place). We have also applied a 60%
Probability of Success (POS) implying a risked discovery of 6mmbbls.
Transformation from explorer to material oil producer. We believe the upcoming reserves
booking and the development of Surprise highlights CTP s transformation from explorer to
material oil producer with significant production upside. Recent 3D seismic studies have
indicated the scale of the Surprise structure could support several production wells. There is
also further exploration upside in the deeper Horn Valley Siltstone and Bitter Springs horizons.
Funding via mix of debt and equity. CTP has highlighted that it has nearly 303 million 16c
options due to expire on March 31 2014 which, if exercised, would raise in excess of any
anticipated development equity required. In addition, CTP believe ~40% of a future Surprise
development could be debt-funded following the booking of reserves. Furthermore, the recent
farm-outs to STO and Total ensure CTP will be carried on $80m of first stage exploration over
the next two years. Therefore, first CTP spend on these work programs should occur in 1Q
2014 at the earliest.
Structured development timetable. A decision (FID) on a full scale development of Surprise
is expected in Q3 2013 following discussions with Traditional Owners and the granting of a
production agreement. CTP is also exploring options such as the coordinated development of
Surprise with STO s Mereenie field if an arrangement provides an optimal economic outcome.
Our top pick in the Australian shale space. CTP remains our top pick in the Australian
shale space. The key catalysts going forward include 1) PetroFrontier well results in the
Southern Georgina Basin (4Q 2012/1Q 2013), 2) Surprise reserves booking (1Q 2013) and 3)
Commencement of Amadeus, Pedirka and Southern Georgina work programs (1H 2013). We
therefore maintain our Speculative Buy recommendation and price target of $0.43/sh.