nge - rbs morgans initiation of coverage

Guy's,

17 page initiation of coverage research report released by RBS Morgans 14th July. Summary page text below. Not sure how to attach complete document. Great to see some additional in depth analysis by a quality analyst.

Regards

Pihrana


New Guinea Energy (NGE)

Market Cap:
A$119m

Recommendation:
Spec Buy

Share price:
A$0.18

Price target:
A$0.42

Up/(down) to target:
133%

Subject:
New Guinea Energy - Initiation of Coverage


Key points:

* NGE is an oil and gas explorer, with an interest in 6 exploration blocks in PNG

* Whilst PNG has historically been a dangerous country to invest in, it does offer the chance to access high impact oil and gas exploration targets with attractive fiscal terms.

* Two of NGE's 6 blocks are subject to farmout with Canadian energy giant Talisman Energy

* Talisman is planning to drill 2 wells on these blocks later this year, with an option for a further 2 to 4 wells over 2011-12.

* Talisman has been aggressively acquiring exploration blocks and interests in existing gas discoveries, with their aim being to aggregate sufficient gas for an LNG project

* In PPL 267 (NGE 100% interest), NGE is currently drilling the high impact Panakawa well. The well is targeting oil (P90 24 mmbbl, mean 202 mmbbl in the success case). Success at this well would be a company changer for NGE. There are live oil seeps near the well site (flowing at 5 bbl/day). Results should be known within 3 or 4 weeks.

* Our risked value for Panakawa is A$0.81/share, with an unrisked success value in the mean reserves case of A$3.15/share.

Investment view

* NGE is a high risk / high reward play and is not for the faint hearted.

* News flow from Panakawa is shrouding the rest of the NGE story, and there is risk a near term share price weakness if Panakawa well is unsuccessful, with recovery in the price as we get closer to the drilling of the Talisman Energy wells.

* For those that are looking for an investment with high potential returns and near term catalysts then NGE may be worth considering.

* For those less inclined to take a punt on the Panakawa well, you may consider waiting on the results of the well, and (if the well is failure), invest in NGE on any subsequent share price weakness. Exposure to the Talisman wells later in the year is reason enough to look at the stock.

Action

With the high risks associated with Panakawa and probability of share price weakness post the well result prior to future drilling we have set our target price at A$0.42. Speculative Buy.