rbs research note

Just released by RBS. Unedited by me, so any recomendations aren't mine. DYOR etc etc: RichE


• Texon has announced an initial flow rate of 1751 bopd and 1537 mcfgpd (2,007 boepd) from its Texon-Hoskins 3H well in the Eagle Ford. The well was drilled to 17156ft (Measured Depth) or 11,267ft (True Vertical Depth) and was fracced with 24 stages. This is the highest number of fracs that TXN has achieved in a well since the start of drilling in its Eagle Ford acreage.

• We believe this is an excellent flow rate, one of the best in that county. TXN is maintaining an active drilling program during the period, which further enhances the value of the Eagle Ford acreage.

• We are looking forward to the results of the 7th well, which is part of the new JV with offset lease owners. Good flow rates here add significant value to acreage that was previously deemed to have lower value due to its configuration and resulting inability to drill full length wells. This well has been fracced in 19 stages, and will begin flow back operations later this week. We should hear initial flow rates over the next few weeks.

• The 6th and 7th wells are expected to contribute to production in late Feb-early March, and resulting oil sales.

• TXN has drilled an 8th well which will be fracced during the first part of February and will be flow tested in late Feb/early March.

• We believe that the continued cost reduction with respect to the drilling and fraccing of the 6th well (to
• Overall, in our view, the acreage continues to perform extremely well and these ongoing results increase the value of the acreage. Clearly the driver of the share price currently is the merger, which we like, but the real upside will come once the merger goes through.

• We note that at current relative share prices, no value is being given by the market to Talon and TXN shareholders will also own ~30.7% of SEA following the merger. The combined entity will have ~47.8mmboe of 3P reserves. We maintain our Buy recommendation.

• Key dates to watch for the merger are:
o January - the first court hearing
o February - the Scheme Meetings for TXN shareholders
o February - the second court hearing to approve schemes
o March - Implementation date