Looks like they are relying on a Hammamet West farmout which is both a good thing and bad thing, good because they wont go blow $25 million on something that may fail, bad becuase farmout may never eventuate, like the elephants in Bargou that they opened up the data room for zero deals.
Good Luck to holders - entry price for me is 35ish Recoop are you still holding
Cooper Energy (COE $0.39) ? Buy
Price Target: $0.69/sh
Reason For Update: Gigir East-1 exploration well dry
What We Know:
? Gigir East-1 (COE 30%), onshore South Madura, Indonesia has been drilled and no hydrocarbons were found
? Attention now moves to the Bargou block in Tunisia
What We Think:
The Gigir East-1 result is disappointing as all dry wells are. COE?s exposure to the well was a modest US$2m.
We have reduced our valuation by $0.01/sh to $0.69/sh after scratching our value for South Madura (from $2m).
The valuation of COE?s cash and 1P developed reserves is $0.45/sh. We are forecasting the $92m cash balance to rise slightly over the next three years based on the forecast exploration spend.
The Bargou Block (COE 100%) in Tunisia looks to be the only driver of material value in COE?s portfolio going forward. A farmout is possible before the next exploration well is due to be drilled in the Dec Q.
Planned activity for the remainder of this FY involves:
Menzel Horr-1 (COE 100%) ? Dec Q likely spud, a 2D delineated onshore prospect targeting 24 mmbbls gross P50 recoverable oil - success could be worth >$1.50/sh (cost ~$8m net to COE).
Seven Cooper Basin exploration wells (PEL 92, COE 25%) to be drilled in the June H?11. We understand the wells are < 0.5 mmbbls oil targets close to existing oil fields (cost ~$3m net to COE)
Four Cooper Basin development wells in PEL 92 in the Mar Q?11 (cost ~$2m net to COE)
Up to three Sukananti development wells / workovers (COE 55%) are planned targeting an increase to the current modest production and reserves
Our FY?10 NPAT forecast is $5m, due to be announced before month end. Our FY?11 forecast is $9m (v?s its current EV of $24m).
The West Hammamet project in the offshore portion of the Bargou Block in Tunisia (COE 100%) is gathering momentum with the acquired high resolution 3D seismic undergoing final interpretation - it will provide greater detail for volumes and well placement for drilling potentially in CY?11. It is an appraisal project that has the potential for 50 mmbbls recoverable oil from two reservoirs intersected by a previous operator. COE has indicated it will only appraise this project with a farm in partner funding all or the majority of the estimated US$25m horizontal well.
Given the quality of the Bargou Block (large upside/moderate risk), we expect a farm out is possible over the next Q to reduce COE?s equity to 50-75% and potentially free carry COE for a well or two - this would put a tangible value on COE?s share of the block (say $10 - 50m or $0.03 ? 0.17/sh) which currently being valued by the market at zero.
Potential growth from Sukananti in Indonesia is incremental and in the order of <1 mmbbls and 500-1000 bopd over the next few years, or say $0.10-0.20/sh value add. The expected cost of US$7m over 4 years is modest and will be largely spent on 3D seismic and workovers, commencing in the current H.
COE recently acquired an option to appraise and develop a gas project in Romania. The minimum spend is $1.2m and on success the venture could cost ~$18m via the (10-50%) ownership of Zeta Petroleum which owns the Bobucu Gas field. Details are scant so far but at this stage it looks to be a low cost potential entry in to the European gas market via a vehicle that has had experience in the region ? other opportunities may arise.
Investment Case:
Upcoming catalysts for COE will continue to centre on its exploration drilling program in Tunisia and possible farmouts. Trading opportunities may arise on the expected share price ramp-up prior to drilling its high impact wells.
COE is very cheap based on forecast cash flow multiples (ex-cash) - our forecast FY?11 operating cash flow is $24m which matches the current EV. We are forecasting a total $21m spend this year on capex and exploration (assuming no exploration success).
Few companies have the leverage to upcoming exploration wells that COE does. In the success case, >$1.50/sh of additional value can be added from Menzel Horr-1 in the Dec Q.
Euroz Securities declares that it has acted as underwriter to and/or arranged an equity issue in and/or provided corporate advice to Cooper Energy during the last year. Euroz Securities has received a fee for these services.
COE Price at posting:
39.5¢ Sentiment: Buy Disclosure: Held
(20min delay)