Eromanga Hydrocarbons SMARTER people than Garimpeiro have long struggled to get a fix on the prospects of Melbourne-based Eromanga Hydrocarbons (ERH), an oil producer in Brazil.
The company is not a spruiker like most in the junior sector. Its reports are by the letter, and come across as overly technical. Dense is another description that comes to mind.
It came as no surprise, then, that the group's latest update on its Brazilian adventure did not exactly fire things up in the stock, which, in fact, shed 1.5¢ to 14.5¢ on Friday, albeit on thin volume.
Not to worry. Garimpeiro sends off reports from Eromanga to his code-breaker, and the report back is that Brazil is coming along nicely for the group. Strip the latest update back to its bones and there is reason to believe Eromanga's 40 per cent-owned Block 330 in Brazil's Sergipe-Alagoas Basin is on its way to becoming a 2000-barrels-a-day producer.
The Block 330 joint venture is about to complete the PACA 2 well as a future daily producer of 60-150 barrels of oil.
It's not the biggest onshore flows you'll see, but drill another 15 or so low-cost wells and a combined 2000-barrels-a-day is a reasonable near-term target, particularly as the Block 330 oil "resource" has just been upgraded to 24 million barrels.
At Friday's closing price, Eromanga was being valued by the market at $33 million, which is not particularly challenging, compared with the sort of valuations applied to other juniors with similar production/resource profiles.
The trick for Eromanga is to capture some of the implied upside in the share price. The planned drilling of a potentially high-impact appraisal well (Tatu 2) on the joint venture's adjacent Block 430 might just be the trigger, after interpretation by the code-breaker.
ERH Price at posting:
13.9¢ Sentiment: None Disclosure: Not Held
