fox-davies capital remains upbeat on po valley

Thursday, April 29, 2010
Fox-Davies Capital remains upbeat on Po Valley Energy

In response to Po Valley Energy's (ASX: PVE) recent update, in which the company reported a decline in wellhead pressure at the Castello gas field in Italy, Fox-Davies commented that it believes the share price reaction is not justified.

As reported in the March quarter update Castello produced 5.4 million cubic metres at an average daily rate of 60,000 cubic metreswhich is less than the current maximum pipeline entry rate level of 70,000 cubic metres a day.

While plant commissioning has been successful, and production has been relatively stable, Po Valley is investigating the possible reasons for a larger than anticipated decline in wellhead flowing pressure.

Po Valley said these technical investigations will take time to complete and it will update the market on the timing of both well intervention and the evaluation of the downhole pressure measurements. At this stage, the company expects that the downhole pressure testing will be completed in May and an update on the results will be provided to the market in June.

On 29 April, Po Valley shares fell more than 50% on the Sydney exchange to close the session at A$0.37. In its note to investors, Fox-Davies acknowledged that the news had followed a recent downward revision of resources at Bezzecca, and that both updates have dented investor confidence, however it emphasised that its own estimates, with regards to the negative impact, were more positive.

Po Valley was established with 3 gas development fields in Northern Italy - Sillaro, Castello and San Alberto - which are steadily progressing into production. Castello began producing in December and by mid-January it had reached the one million cubic metre production milestone. The Sillaro gas field is expected to double the saleable gas volumes in January.

As well as the three initial projects, the company has two larger scale appraisal projects - Bezzecca and Fantuzza ? in addition to 10 new gas prospects, and a further two oil prospects.

According to Fox-Davies, it has a risked NAV (net asset value) of A$1.5 per share for Po Valley, after completely taking out both Bezzecca and Castello and discounting the company?s other assets by 25%. ?The Sillaro Gas Field and the up and coming San?Alberto account for A$1.2 of value per share?, Fox-Davies said.

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