po valley energy: right place, right time?

Source from:

http://www.forexpros.com/analysis/po-valley-energy:-right-place,-right-time%20-123423


Right place, right time?

In relatively short order, PVE has built a portfolio of assets across the Po Valley region of northern Italy that could quickly exploit the current opportunities presented here from both attractive regulatory terms and buoyant gas prices. Modest capital additions are required to access 15bcf of gas, while 20.2mmboe of additional resources offers numerous upside options. Despite robust economics, PVE remains heavily discounted both to our fundamental valuations and to peers.
Existing production more than covers current price

Existing production from Sillaro and Castello more than underpins the current share price, with 2P reserves of 8.9 billion cubic feet (bcf) and production of around 2.85 million standard cubic feet per day (mmscf/d). Meanwhile, subject to development permit awards the company is set to add a further 6.2bcf of resources at Sant’Alberto and Bezzecca with plans to bring these to production by end 2013.

Farm-outs required to maximise upside

20.2mmboe of contingent and prospective oil and gas resources across seven projects provide numerous options for upside. Although some can be funded from existing resources, higher impact opportunities will require farm-in partners.

Low technical risks, but commercial issues remain

Focusing on existing onshore discoveries, PVE is significantly less exposed than most E&P peers to the usual subsurface and environmental risks. However, its economics are dependent on strong gas prices, while successful permit applications and farm outs can be problematic in Italy, given its bureaucratic complexities.

Valuation: Heavily discounted to fundamentals and peers

Based on Sillaro production and cash alone, PVE trades significantly below what we would expect given the attractive economics available. Our core NAV, built up of production and near-term development assets, of 37c offers more than three-times upside to current share prices, while a wide range of exploration and appraisal options targeting 20.2mmboe of resources offer multiple options for further gains.