In a recent article by Matt Chambers in "The Australian" titled "AWE, Origin chase big oil finds off NZ coast" on 8 March, 2010, regarding the new Hoki oilfield target (250mboe AWEs share 50.0%) in the Taranaki Basin New Zealand, Matt stated that:
"OIL producer AWE is about to start drilling the much-anticipated Hoki well off the coast of New Zealand, hoping for a 250 million barrel oil find -- worth about $US20 billion ($22bn) in revenue at current prices.
The well is characterised as high-risk and industry sources say it has about a one-in-10 chance of success.
Sydney-based AWE will not publicly discuss what a discovery of that significance would mean to the share price of the company.
However, based on the company's 50 per cent stake and how other oil fields are apparently being valued in New Zealand, if everything goes well AWE's market value could increase by about $2bn.
That would represent a more than doubling of the company's share price, which closed at $2.67 on Friday.
Credit Suisse analysts put 36c a share worth of "risked value" on the field as it stands now. Hoki is about 135km off the town of New Plymouth on the west coast of New Zealand's North Island. "
Based on the valuation that Credit Suisse attributes to a "one-in-10" chance of success well, I thought it would be interesting to use this as a basis for valuing NWEs potential value on a barrel of oil equivalent basis.
$AU per barrel of oil equivalent calculation for a one-in-10 chance of success well. $0.36/share x 521,171,941 AWE Ordinary shares = $187,621,898
$187,621,898 / 125 mboe (AWEs 50% share) = $1.50 per barrel of oil equivalent.
If the well is successful, Credit Suisse estimate that it could add about $2bn to AWEs Market Capitalisation
$2,000,000,000 / 125,000,000 boe = $16.00 per barrel of oil equivalent
It would not be unrealistic to apply Credit Suisses valuations to NWEs projects to get a ball-park valuation of their undeveloped assets.
NWE Projects mboe = million barrels of oil equivalent
Australia TP/15 Perth Basin 100.00% share Oil 384mboe in place 115mboe recoverable + shale gas potential.
L14 Jingemia 6.278% share $750,000 to $1,000,000 pa royalty for five plus years.
EP413 adj. Jingemia 55.606% share Net 69710 acres Shale Gas potential. Target shale sequences are up to 1000m thick. AWE JV Partner currently assessing shale gas potential at Woodada in adjacent tenement where target shale sequences to 300 metres thick. The company is well placed to capitalise on the shale gas play in the event that AWE has success with its Woodada Deep shale gas testing program. Success of AWEs shale gas program could add significant potential upside value to NWE at no cost to NWE. (i.e AWE is spending the risk capital to test this resource in an adjacent tenement).
EP368/426 Nth Erregulla 20.00%share Oil potential 28 mboe + shale gas potential (NWE share 5.6 mboe + shale gas potential)
AC/P22 Puffin 1.25% Royalty on estimated reserves of 20.93 mboe Based on the P50 reserves of 20.93MMbbl for Puffin AC/L6, and other information contained in the AED data; and on Norwests industry knowledge, Norwest has conservatively calculated that its 1.25% ORRI has a NPV at 10% of approximately A$15m. This is based on oil at US$80/bbl and an exchange rate of A$1= US$0.90.
AED/Sinopec JV targeting 600 mboe in AC/P22 in the current seismic campaign. If the target resource is achieved and based on approx. 35% recovery, NWEs share of the NPV of the increased reserves could potentially be worth 10 times the A$15m quoted for the current reserves. Very large upside potential for no cost to NWE.
England
PEDL238 Bournmouth 50.00%share Adjacent Wytch Farm (BP) which has produced 400mboe of approx 500mboe. Currently assessing merged seismic and FTG survey results. They have been able to compare these survey results with the seismic results from the Wytch Farm surveys. Six main leads have been identified. The results are encouraging and are expected to be released by the end of March.
PEDL089 Hurst Castle 60.00% share In January 2009, Norwest had an airborne GGI survey acquired over a section of PEDL 089 (in conjunction with surveying the Companys neighbouring PEDL 239 permit). Interpretation of the survey indicates the Hurst Castle area has significant exploration potential and several potential leads and prospects have been identified. Norwest began reprocessing work on key seismic lines in PEDL 089 during the fourth quarter of 2009.
PEDL239 Isle of Wight 75.00% share The PEDL 239 permit is on the Isle of Wight, southeast of Dorset and east of the Wytch Farm oil and gas field. Norwest has acquired an airborne gravity survey over the licence and has also purchased a substantial amount of additional seismic data covering PEDL 239. The Company is meshing seismic and gravity interpretations. The islands geology is complex and assessment of this permits prospectivity is ongoing, but surveys of this block do indicate that large, deep structures with significant potential for oil and gas lie beneath and adjacent to the island. These structures include several four-way closures classic oil and gas exploration targets that could become drillable prospects.
Valuation
NWEs TP/15 Perth Basins 115 mboe estimated recoverable oil is similar in size to AWEs 50% share of the estimated 250 mboe Hoki oil field in the Taranaki Basin New Zealand.
Calculation of TP15s potential value pre-drill of a one-in-10 chance of success well 115,000,000 boe x $1.50 per boe = $172,500,000 $172,500,000 / 587,278,562 NWE Ordinary Shares = $0.2937/share
Calculation of TP15s potential value post-drill if successful 115,000,000 boe x $16.00 boe = $1,840,000,000 $1,840,000,000 / 587,278,562 NWE Ordinary Shares = $3.1331/share
The above $0.29 valuation per share for TP15 based on a pre-drill one-in10 successful well does not take into account:
* cash on hand; * 6.278% royalty from Jingemia ($750,000 to $1,000,000 per annum); * 1.25% royalty for Puffin NPV $15m (could potentially be worth 10 times this value if 600 mboe target achieved); * Shale gas potential over all of NEWs Perth Basin Tenements. 1,000,000 acres footprint (about 4050sq.km) (with 376,211 acres (1522.5sq.km) net to Norwest); and * The potential of the Wessex Basin, England. Peter Munachen, Chief Executive Officer / Director, Norwest Energy NL has already hinted on a number of occasions that the results so far have been very encouraging and that TP/15 could be a company maker, but the Wessex basin could be a monumental company maker. * The impact of a JV announcement.
In my humble opinion, NWEs current market price substantially undervalues the company just based on TP15s potential alone.
I first attempted valuing NWE against its peers. Refer to: http://www.hotcopper.com.au/post_single.asp?fid=1&tid=1037393&msgid=5780554
Since that valuation, NWEs management have made substantial progress adding significant value to the company. AED/Sinopecs current seismic survey of Puffin and AWEs deep coring of Woodada in the adjacent tenement L4 to assess the shale gas potential could both add significant value to NWE in the coming months without NWE having to spend a cent.
The potential of NWE is a no-brainer.
The next few weeks and the coming six months leading up to drilling are going to be an interesting and potentially very profitable ride for the true believers.
As always DYOR before making any decision to purchase!
Good luck to all shareholders
Cheers
GrayNomad
NWE Price at posting:
3.5¢ Sentiment: Buy Disclosure: Held
