Chris Brown from RBS has just released a new 7pg research paper. This is the final summary...
Valuation and risks Our risked valuation of TXN shares has declined to A$1.46 (previously $1.64)with the increased number of shares on issue. Our valuation separates the Olmos reserves and Eagle Ford Shale reserves based on the independent valuation by Netherland Sewell Associates International (NSAI).
Our valuation is based on an assumed realised tax rate of 20%. We have risked the valuation of the EFS acreage which is yet to contribute to reserves, and the potential Olmos reservoir in the Mosman-Rockingham leases. We have ascribed a nominal value for the Wilcox target (above the Olmos) in the L-M-R-s leases, and for the Pearsall target (below the EFS). The valuation also incorporates value for the two high-upside gas wells, and for the Seitel Agreement, under which Texon has access to extensive 3D seismic survey data. Our target price is the valuation ? in itself discounted for risk.
Commercial production from the third and fourth Eagle Ford Shale wells within Texon?s leases would add substantial value and reduce the discount currently applied to the valuation. Success in the high-upside gas plays such as Scarborough would also be expected to have a positive effect on share price. With over A$30m in cash and no debt, Texon is adequately funded for its next phase of drilling, expected to demonstrate the commerciality of the EFS and quadruple production from the Olmos reservoir. The risks relate to exploration success, prospect size, and the oil and gas prices in the US, as well as the AUD/USD exchange rate.
TXN Price at posting:
58.0¢ Sentiment: Buy Disclosure: Held
