Newsflash for the Snoozers | Part 3

Tuesday, 14th July 2015 08:42 - by Moosh

Empyrean Energy (TIDM: EME) EME has reported a fresh reserves report for the year ending 31 December 2014 which has evaluated its main asset – Sugarloaf – in Texas and even with the recent decline in oil price, the reserves report still suggests that Sugarloaf has great future potential, with proven reserves (P1) having a net present value (at 10% discount) (NPV(10)) of ~12.8p per share.

Interestingly, the total proven and probable reserves (P2) increased 94% due in part to the ramp-up in Austin Chalk wells being brought to production during 2014, which allowed this part of the reserves to be moved from contingent resources to the P2 reserves. It is useful to be aware of the P2 reserves NPV (10), which comes in on the latest report at ~35.6p per share since it may be used as a potential takeover price for the company. EME is a profitable company and with the current price around 7p as of the close on 13 July 2015, it suggests that the company is massively undervalued. I have been a long term supporter of EME and I remain as such given the strong fundamentals here. I would have much trouble finding any other AIM listed oil and gas company which is profitable, with an undervalued market capitalisation (compared to P2 reserves), with a good relationship with the lender (Macquarie Bank), and where the board of directors are malleable enough to take a pay cut given the recent decline in oil price, to save the company money and keep shareholders happy.

On a final note, the P3 reserves (proven and probable and possible) come in at a price of ~77p per share. It will be interesting to see how these reserves shape up in 2016 in light of the 2015 activity at Sugarloaf with respect to the further increase in Austin Chalk wells as well as initial investigations into the Upper Eagle Ford.

To summarise, for 221.83m shares of EME (non-diluted):

P1 reserves ~12.8p per share

P2 reserves ~35.6p per share

P3 reserves ~77p per share

Current share price (as of market close 13 July 2015) ~7p

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.