Sundance Energy Ltd (SEA $0.57) Buy�� Price...

Sundance Energy Ltd (SEA $0.57) Buy
�� Price Target: $0.80/sh
�� Reason For Update: Company update and completion of capital raising
�� Investment Case:
Given strong production results the lack of geological risk we expect shale sector tailwinds
will gain further momentum over the coming period with companies involved in the
proven commercial shale oil plays like SEA to be the key benefi ciaries. Future reserve,
production and earnings growth are very likely for SEA.
We have increased our valuation and price target by 23% to $0.80/sh this incorporates
further recent outperforming production results into our model (increasing the type curve)
and a more aggressive Bakken drilling program over the next two years (EOG, Hess and Helis
operated). Recent production wells have outperformed SEAs budgets by >100%.
Production is forecast to double over the next year from primarily its Bakken assets, 900-
2,000 boepd, >90% oil.
Following the capital raising (34.2m shares @$0.51/sh, raising $17.4m), SEA is funded for its
Bakken development drilling program going forward (>80 wells in the next 15 months at
5-10% average interests). We expect it will continue to farm down its Niobrara acreage to
crystallize value before drilling commences from the June Q11. The equity raising will also
give SEA fl exibility to move on various acreage acquisitions it has identifi ed, in and around
its existing acreage positions.
We expect SEA will book a large increase to its 1P and 2P reserves (say >50%) and
commission its inaugural 3P reserves in the Mar Q11. Due to the low risk nature of these
resource plays, 3P reserves are a good guide to future 2P and 1P reserves we estimate
SEA will book >45 mmbbls 3P valuing it at a very cheap <$3/boe EV/3P reserves.
The Niobrara oil shale is poised to be the next big oil shale in the US based on recent
transactions and well results SEA has a high quality >13,000 acre position which in time
could well dwarf its producing Bakken acreage.
We are confi dent SEAs strategy of being the early entrant into quality resource plays will
pay off - acreage is king in shale plays and SEA has >90,000 shale acres, at least half of
which is good quality, liquids shale.