In a nut shell it is as follows, interesting to note that ABN Amro is assuming long-term WTI oil price of US$38.0/bbl at A$1=US$0.67. Imo ultra conservative valuation.
1. Pre-goodwill amortisation and exceptional items year to Jun, fully diluted Accounting Standard: IFRS Source: Company data, ABN AMRO forecasts Initiate coverage with a Buy given growth and upside potential
We initiate with a Buy on BPT based on a number of near-term catalysts: 1) Significant production and earnings growth: we forecast production will grow by 208% pa (CAGR) over the FY06-08 period (97% pa excluding the impact of Delhi); EPS by 106% pa (CAGR) over the same period. 2) Significant reserves growth: following the Delhi acquisition, BPT clearly stands out as having the most significant reserves base of the junior oils. We anticipate further reserves growth through reserves bookings associated with the BMG gas fields development (following project sanction) and the targeted additions to Tipton West. 3) Core project upside: both of BPT.s core assets, the Cooper-Eromanga Basin and Basker Manta Gummy, offer moderate levels of low-risk earnings and valuation upside through the Cooper Oil Program and development of the BMG gas fields. While Tipton West, with a gas resource of 2,300PJ and a rapidly maturing coal seam gas industry in Australia, offers further value upside longer term for BPT.
Price target of A$1.60, based on our one-year-forward valuation
Our DCF-based valuation of BPT.s shares is A$1.47, comprising A$1.42 for total operations and corporate items, and A$0.05 for exploration potential. BPT.s valuation is highly leveraged to changes in the oil price as a result of Basker Manta’s sensitivity to oil price movements, which more than offsets the company.s product mix and hedging in place. Given BPT is entering a period of significant free cash flow generation, we forecast that our valuation will grow by at least 9% over the next year. Our target price of A$1.60 is based on this one-year-forward DCF valuation.
The Basics
Key assumptions
¦ Long-term WTI oil price of US$38.0/bbl at A$1=US$0.67. ¦ Cooper-Eromanga Basin gas production decline rates of between 7-13% pa over the next five years. Cooper Oil Program increasing reserve recovery rates in the Cooper-Eromanga Basin by roughly 5% - compared with STO.s targeted additional recovery of the full program of around 11% (ie, an additional 75mmbbl of recoverable reserves). ¦ Basker Manta gross oil reserves of 39.2mmbbl, costing A$330m to initially develop, with first oil sales from the full field development in 3QFY07 at maximum production rates of 25kbopd. Basker Manta Gummy gross gas reserves of 379PJ, costing A$611m to develop via an unmanned production platform, with first gas sales in mid-08 with maximum gas sales of 70TJ/d. ¦ Tipton West gross gas reserves of 249PJ (ie, including half of the operator.s targeted reserves additions), with maximum gas sales of 17PJ/a. How we differ from consensus
Catalysts for share price performance
Our Buy recommendation for BPT is premised on the following potential catalysts: 1) Significant production and earnings growth: we forecast production will grow by 208% pa (CAGR) over the FY06-08 period (97% pa excluding the impact of Delhi). EPS is anticipated to grow by 106% pa (CAGR) over the same period. 2) Significant reserves growth: following the Delhi acquisition, BPT clearly stands out as having the most significant reserves base of the junior oils. We anticipate further reserves growth through reserves bookings associated with the BMG gas fields development (following project sanction) and the targeted additions to Tipton West. 3) Core project upside: both of BPT.s core assets, the Cooper-Eromanga Basin and Basker Manta Gummy, offer moderate levels of low-risk earnings and valuation upside through the Cooper Oil Program and development of the BMG gas fields.
Risks to central scenario
The key risks to our investment scenario and target price include: unexpected changes in oil prices and AUD/USD exchange rates; ultimate recovery rates from the Cooper Oil Program; ability to fully control the pace of exploitation of its core assets as non-operator; rising capital and operating costs; BMG gas development risk; and the review of .land rich. stamp duty provisions regarding the Delhi acquisitions.
¦ We have taken a more conservative view on the Cooper Oil Program.s recovery rate than the operator.s target (we model 5% recovery additions compared with STO.s target of 11%). ¦ We have taken a more conservative production profile for the Basker Manta Gummy development than the operator, ahead of full production ramp-up from the full field oil development and project sanction of the gas fields development. Valuation and target price
Our DCF valuation of BPT.s shares is A$1.47, comprising A$1.42 for total operations and corporate items, and A$0.05 for exploration potential. Our target price of A$1.60 is based on our one-year-forward DCF-based valuation. Therefore, we estimate 31% upside from current share price levels, and initiate with a Buy recommendation.
BPT Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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