euroz update

Key Points

Blair 1-24H has been on test for 48hrs and recovered oil and gas immediately.

During the last 24hr period, production tested as high as 20bbls/hr of oil.

Additionally, 240,000cu ft of high BTU gas was produced over the 24hr period.

Rates have not yet stabilised and only a small percentage of load-water has been recovered.

McMurtry 1-21H has commenced completions operations.

McMurtry 1-22H awaits completions, Bunch 1-19H and Tasman 1-15H are drilling  ahead.  It is anticipated that these wells will be completed over the next few weeks.

Maiden reserves and contingent resources for the Mississippi Lime are being compiled for delivery early in the Sep Q.

In light of the recent weaker oil price, they have adjusted our oil price assumptions for the next 2yrs (FY’13 WTI @ US$80/bbl and US$90/bbl for FY’14, US$100/bbl long term).

Their adjusted RFE valuation is $1.45/sh (prev. $1.56/sh)
RFE is entering an exciting phase with significant pick-up in development activity and validating production newsflow.

The early results for the Blair well are very encouraging.

The relative implied oil to gas ratio and strength of early production rates auger well for peak rates and early production volumes.

These results are particularly positive noting that very little load-water has been recovered and the fluid level remains high, the Blair well may yet take several weeks to clean-up.

They understand the that the well logs from the wells off-set to Blair, exhibited similar reservoir characteristics.

They are therefore very positive on the early production results from these wells as they are brought on-stream.

The first of the McMurtry wells should be put on pump in the coming weeks subsequent to which, the Tasman, second McMurtry and the Bunch wells will be completed.

The forward programme should bring 1-2 additional wells on production per month.

They stress, particularly in light of Abunda, wells in the Mississippian can take a substantial amount of time to reach stabilised flow and as such, the Mississippi Lime is very much a statistical play.

A spread of results (be it ‘peak’, ‘total estimated’, ‘average’, ‘initial’ etc) can be expected and no single result (as witnessed in SEA and AUT to date) proves or more importantly disproves a play.

Ultimately, acreage quality will be reflected by consistency in terms of statistical variance observed over time from RFE’s wells. 

RFE will need to drill at least 110 wells to hold its acreage by production over the next 5yrs and likely at least 300 to fully develop its interests.

This is without factoring in the underlying potential of its oil prone Woodford Shale interests; a play of increasing focus by Devon et al.

They maintain that well results will drive continued re-rating of RFE’ s acreage position over the medium term in our view. 

Sand Ridge Energy Mississippi Trust II listed in April at an implied $12k/undeveloped acre.

This compares favourably with RFE’s current EV:acre of <$3000/acre (mkt cap $215m, 75k net operated contiguous acres in the oil rich Mississippi Lime).

They flag potential valuation of +$2.50/sh (vs current $1.45/sh) after considering full development scenario of 3 wells per 640acre spacing unit (@ 30 wells/yr from 2013).