A leading Research Analyst (DJ Carmichael) has put out the below...

A leading Research Analyst (DJ Carmichael) has put out the below note this morning. Note that selling CTP after a negative vote may be pretty hard to do so perhaps people should re think their vote!

Switch CTP to BRU: We believe there is an opportunity for clients to switch from CTP to BRU. The companies have similar market caps but very different asset bases. BRU is a WA oil based producer while CTP is a NT gas producer with the potential to take advantage of the gas supply issues on the east coast.
Reasons to sell CTP:
• The takeover offer from Macquarie is unlikely to be improved in our opinion as Macquarie hold all the CTP debt. Even though dissident shareholders may believe the offer does not reflect fair value, CTP will need substantial capital to achieve its full potential. It is our view that Macquarie understand that the equity markets are unlikely to support a large dilutive raising and the balance sheet is stretched which limits the opportunity to raise new debt to fund development.

• In our opinion without a deep pocketed funding partner, CTP will be capital constrained. It is also unrealistic to assume that profits from gas sales will generate excess cash to fund future development. It is expected that that the transport charges from the new pipeline that will link the NT to the east coast market will be north of $4GJ and these transport costs will result in CTP achieving a relatively low realised well head price. This low well head price will limit the amount of free cash CTP will be able to reinvest in exploration and development.
• If the dissident shareholders are successful in scuppering the current Macquarie offer on the table, the share price is likely to fall sharply. Richard Cottee has also indicated he will step away if the bid fails.
Reasons to buy BRU:
• 100% ownership of permits: BRU has recently swapped its 50% owned gas permits for 100% ownership of its oil permits with its partner Mitsubishi. This has allowed BRU to exit its commitments to explore for unconventional gas and focus on its oil business. While there is no doubt there is a lot of gas in the Canning Basin, it will be difficult to commercialise due to the lack of infrastructure in the Basin.

• Production restart: BRU has restarted production from the Ungani oil field and is currently producing 1,250 barrels per day. BRU are planning to install downhole ESP’s at the end of the year to lift production to ~3,000 barrels per day. The oil is being exported via road haulage to Wyndham Port and then onto refiners in Singapore. The Ungani field has a 1C contingent resources of 2.08 m barrels and 2C contingent resources of 6.6m barrels. We believe that at the 1C level the field could produce for circa 5 years and have a NPV of $26m to BRU. If we use the 2C contingent reserves number, the field could produce oil for north of 10 years and could have an NPV of circa $50m. We believe on 2C basis BRU is well valued at an EV of circa $50m and undervalued on the 3C contingent resources of circa 18m barrels.

• Drilling upside: BRU have several infield drilling targets that could increase the recoverable oil in the Ungani field as well as several large regional targets along the Ungani trend. The regional targets have been identified by 3D seismic and are drill ready. BRU are planning to side track the Ungani 3 well as it believes the original drill missed the productive portion of the reservoir. If the thesis proves to be correct a successful outcome will materially upgrade the recoverable hydrocarbons in the field.