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Innlegg av: Actros (28.01.11 20:03 ), lest 59 ganger
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Karl-101 progressing well
The drilling of the sidetrack in the Karl-101 well, which began on the last day of 2010, is progressing well. The well has intersected already two of the five targeted intervals (C12 and C13) with strong gas shows reported. Over the coming days the company expects to encounter the C14 interval at 3 380 metres and drill to the total depth of 3 520 metres. First results from logging are expected at the end of January, testing operations will follow in February. Transeuro expects to test 5 separate intervals with each targeting 5 mmcf/d per interval and a combined result of over 20 mmcf/d and 1000 bpd of condensate, a total of 4500 boepd.
The risk with Karl-101 is reduced by the fact that all 9 old wells on the Karlavskoye field produced gas and condensate to surface from multiple horizons. Median discovered resources have been estimated by Fekete Associates Inc. at 425 Bcf. The Karl-101 well itself has already shown good results when it was initially drilled in 2007/08, with gas and condensate flared to surface during the tests. Data to 3500m was collected on the target reservoirs, and over 100 metres of net gas bearing reservoir were identified from logs and gas samples. Unfortunately, after encountering a high pressure water zone, a well control incident led to the drillpipe becoming stuck in the well and the well being suspended in Nov. 2008 at a depth of 2750m. Using a more modern Dafora drilling rig now reduces the chances of technical problems while drilling the well (earlier, an older Russian rig was used).
Transeuro plans a second similar to Karl-101 well in Q3 and a third well in late Q4, thus hoping to exit 2011 with 40 mmcf/d and 1500 bpd of condensate.
Meanwhile, Eaglewood’s second exploration well in Papua New Guinea, Ubuntu-1, is now being also drilled. It is expected to reach a total depth of 3600 metres in early February. Transeuro is exposed to Eaglewood through a back-in option to acquire 10% of its four licenses in PNG after three wells have been drilled, and also through 1,6 mill. shares (last reported number).
With the Karl-101 sidetrack being drilled successfully and funding of the testing secured through the CAD 2,15m proceeds of the recent private placement, we lift the success probability of the Karlavskoye field and make some adjustments to our estimates. We now put 10 mmcf/d and 500 bpd of condensate production from the Karlavskoye field from Q2 2011, doubling at the start of 2012. Assuming 60% recovery of the median resource estimates for the Karlavskoye, Krasnapolianskoye and Povorotnoye fields, a peak of Karlavskoye output of 80 mmcf/d and 4000 bpd of condensate from 2014, a 50% success prob. for Karlavskoye and Krasnapolianskoye and a 20% success prob. for Povorotnoye, we derive a SOTP value of NOK 2,3 per share.
The visibility in estimates for Transeuro is low and a range of possible values is high. In an optimistic scenario, assuming a 100% success prob. for Karlavskoye under our estimates, the SOTP would increase to NOK 4,5 per share. We also note that Transeuro’s targeted production rate of 20 mmcf/d and 1000 bpd of condensate from Karl-101, applied to the entire 2012, would yield an attractive P/E of 3,0. The targeted 2011-exit rate of 40 mmcf/d and 1500 bpd of condensate would reduce P/E to just 1,7. Hence, the upside potential in the stock value is large. Risk should also not be forgotten as the Karl-101 well has yet to prove its high production capabilities, and bearing in mind that Transeuro does not have a financial cushion (current cash position seems to be sufficient only for testing Karl-101).
Applying a 20% general discount to our current SOTP, we set the target price at NOK 1,80, although the range of possible values is very wide. We maintain our Hold recommendation awaiting production test results from Karl-101.
Conclusion
The drilling on the Karl-101 well is progressing well and production test results are expected in February. We keep our Hold recommendation at this point, but can see good upside potential in case the optimistic scenario comes true.
Regards
