Incremental news in FY 2011 results is modestly positive
26 April 2012
FACTS: Petroceltic has released (April 26th) its preliminary financial results for the year to end-December 2011.
ANALYSIS: At this point, Petroceltic's balance sheet is more important than its income statement. Net debt at year-end 2011 was $15m but more importantly, net cash at end-March 2012 was $64m after the receipt of over $100m from ENEL following the approval of ENEL's farm-in to the Isarene licence in Algeria. The company believes it is now well funded for the remainder of 2012, and that the anticipated bonus payment from ENEL, coupled with a probable second farm-out in Algeria, puts it in good shape to develop the group.
The FY 2011 results also contain an operational update. In Algeria, Petroceltic, along with its partners ENEL and Sonatrach, continues to progress the final discovery report (FDR) on the Ain Tsila field. The partners have given themselves an additional three months to July 24th to finalise the FDR and submit a declaration of commerciality for approval to the Algerian authorities. The most recent agreed plan of development for the Ain Tsila gas-condensate field includes a slight reduction in the amount of recoverable reserves as well as a lower production plateau. Sales of gas and liquids over the 30-year lifetime of the development are now estimated at 2.2 TCF of gas and 180 mmbbl of liquids (previously 2.4 TCF and 215 mmbbl respectively) while the wet gas plateau production rate is now in a range of 350-400 mmscfd. However, the better-than-expected productivity of the wells drilled in the latter part of last year’s appraisal campaign mean that it will take fewer wells to achieve plateau production. This is estimated to reduce the capex to first production by some $200m. The period for plateau production will also be longer (13-15 years as opposed to previous guidance of 11 years). Management considers the net result of changes to the field development plan to be modestly value accretive. A second farm-out in Algeria is progressing and is expected to complete in Q4 once the pre-emption period unwinds.
In Kurdistan, the group has recently begun the acquisition of 2D seismic data over its two blocks (PCI has a 16% participating interest in each block). Drilling targets should be delineated by end-2012 with drilling on schedule for 2013. In Italy, drilling on the Carpignano Sesia (formerly called Rovasenda) prospect onshore Po Valley is still anticipated for end-2012 / early 2013.
DAVY VIEW: We do not anticipate any material changes to our valuation on the basis of Petroceltic's FY 2011 results. Our valuation stands at 25.7p per share and we have an 'outperform' rating on the stock. We believe that the recent M&A backdrop, including Shell's offer for Cove's equity in a large gas resource offshore East Africa, is encouraging for negotiation of a second farm-out of some of Petroceltic's interest in Algeria and the resulting implied valuations.