here ya go Hartleys Research - Perth HOG.asx Recommendation: Buy...

here ya go

Hartleys Research - Perth
HOG.asx

Recommendation: Buy





Hawkley Oil and Gas Ltd

Four Fold Increase in Estimated Resource

Hawkley Oil and Gas Limited (?Hawkley?, ?HOG?, ?Company?) has announced an updated resource estimate by an independent expert from the State Committee of Reserves of Ukraine. The estimate of 46 billion cubic feet of gas and 1 million barrels of condensate is four times higher than the pre-drill 2P reserve estimate determined by RISC.

The new report is based largely upon information obtained from the initial test results of the #201 well and does not incorporate all the data from the last 90 days of production history. The methodology used to estimate the resource is not consistent with SPE reporting standards and the Company will now commission an independent expert to incorporate the latest data and come up with a certified 2P reserve. This process is expected to commence in June and should take 2-3 months to complete.

Strong Cashflow Continues

The #201 well continues to flow at 7 million cubic feet of gas per day and 200 barrels of condensate per day. We had expected that production would ramp up with optimisation of the plant and a subsequent increase in choke size. It is possible that the Company will need to build its own plant, estimated at US$2-3m, in order to optimise production. Under this scenario, we expect that production will decline mildly under the current choke setting, and this has been incorporated into our model. Hawkley has also indicated that it is likely that two additional development wells will be drilled at Sorochynska, the first of which is scheduled to spud in Q4 2011. Our valuation for the field remains unchanged after incorporating these assumptions.

Additional Resource of ~300BCF to be Tested at Sorochynska

The Company has also indicated that it intends to appraise an additional 320-330 billion cubic feet of estimated gas potential from the B24/25 horizon at its Sorochynska licence. This is likely to occur after the next development well, sometime in H1 2012.

Chernetska Drilling Progressing on Schedule

Hawkley is currently drilling its Chernetska #1 well, which is designed to test three oil and two gas zones, one of which is a shale horizon. The oil zones are considered particularly prospective, especially the shallow B20 horizon, which tested at 920 barrels of oil per day from an historic well down-dip. Oil shows in the B21 and B26 horizons were encouraging but were never tested. The large gas potential in the B24/25 horizon will also be appraised; however, higher flow rates from historic wells in other parts of the block indicate that this may not be the optimal location to test this horizon.

Steady Newsflow Over Coming Months Should Re-Rate

The Company is expected to have steady newsflow over the coming months, including: reaching the primary target of its Chernetska well in August, an independently certified 2P reserve also likely in August, spud of an additional development well at Sorochynska in late Q4 as well as strong cashflow from its current production well. We continue to rate Hawkley Oil and Gas as a Buy with a price target of 66cps.






3 Jun 2011


Share Price:
$0.33


3mth Price Target:
$0.66








Brief Business Description:



Oil and gas developer / explorer with core assets in the Dnieper Donets Basin in the Ukraine.






Hartleys Brief Investment Conclusion


Early success from first well to deliver substantial cashflow. Large upside possible.










Chairman & CEO:




Paul Morgan (Chairman)


Michael Earle (Managing Director)


Top Shareholders:




Avenger Investment Holdings (7.2%)



Acetone Limited (7%)




Mr Paul Morgan (6.3%)




Company Address:




45 Ventnor Ave


West Perth,WA 6005








Valuation:

$1.10


Issued Capital:

186.3m


- fully diluted

327.1m


Market Cap:

$61.5m


- fully diluted

$107.9m


Cash Equiv (May '11):

$15.0m


Debt (May '11):

-$1.5m




















Valuation Summary
$m
$/share


Sorochynska B18b @ 10%*
$151.1m
$0.46


Chernetska B24 @ 10%*
$113.3m
$0.35


Chernetska B20 @ 10%*
$27.8m
$0.09


Exploration

$60.7m
$0.19


Cash

$15.0m
$0.05


Debt

-$1.5m
$0.00


Corp Admin

-$13.7m
-$0.04


Options

$8.0m
$0.02








Total

$360.7m
$1.10


























2P Reserve (mmboe)
8.7



EV / 2P Reserve ($/mmboe)
$10.7



EV / Resource ($/mmboe)
$0.8



Source: Hartleys Research




*NPV further discounted by 20-50%



Hartleys has provided corporate advice within the past 12 months and continues to provide corporate advice to Hawkley Oil and Gas. See disclosure on back page for details. The analyst has a beneifical interest in the shares of Hawkley.