rbs research note

Another new RBS research note. Nice litte summary...:

Texon Petroleum (TXN)
Recommendation: Buy
Target Price: A$1.04
Share price: A$0.50
Subject: TXN progressing on fifth Eagle Ford well also testing the Austin Chalk, progress on M-R Olmos production, discussions continuing on Eagle Ford Shale process



Key points:

* TXN announced the 5th Eagle Ford well will be fracture stimulated on the 10th of July. This well is also testing the Austin Chalk, which is a shallower zone above the Eagle Ford Shale horizon. The Austin Chalk will be fracture stimulated as well in July. Good gas and oil shows were seen through the zones of interest in the well on mud logs.

* The Mosman- Rockingham area Olmos well has produced 193bopd + 160mcfpd of gas after one week on test, and is currently curtailed while tanks and infrastructure are being installed on the field. The Olmos well will go on production after the installation of the tanks. TXN estimates there may be ~3mmboe in its M-R Olmos.

* The monetisation process discussions continue on the Eagle Ford Shale. The company has not been able to add colour to the process - however they continue to state a goal of a mid year announcement. Our interpretation of this, given current market conditions, is that we may hear something at any time now through August. Given the change in conditions, we would think that negotiations have likely slowed and/or additional options may be considered for achieving value, though we have no change to our view that this is valuable acreage. Our view of the oil price is that it will strengthen through the US summer months which would be supportive of the TXN process.

* We think TXN looks undervalued at these prices, but understand the market is nervous due to lack of news flow surrounding the monetisation process. We think that it is important to realise current market conditions and that the acreage is valuable, and therefore patience may be required to get to a deal which recognizes that value.