Finncap results overshadowed by reserves update18 Mar 2022 07:39
new Finncap note out this morning, 66p price target unchanged and with reserves update as per below:
IOG’s FY 2021 financial results were overshadowed by its reserves and resources update. The
market knew there was risk attached to the Elgood field reserves, but Southwark and Goddard
estimates were also cut. These resource and reserve estimates alone would have reduced our
risked NAV by ~3p/sh. However, lower year-end net debt and higher tax loss offsets compensate,
leaving our risked NAV and price target unchanged at 66p/sh. The next major datapoint to look
out for, and potentially a key catalyst, will be the initial view on Blythe and Elgood flowrates. No
guidance has been provided at this early stage, but stable production should be achieved in the
coming weeks.
More important, and the reason the shares were under pressure yesterday after the results, was the
year-end reserve and resource update also provided. We always knew there was a risk to Elgood
resource estimates after the development well completed last year encountered the reservoir 39ft
deeper than prognosed. These drilling results have been integrated into IOG’s reservoir models
leading to a halving of Elgood 2P gross reserves, from 28 bcf to 14 bcf. Once initial months of
production data have been analysed, IOG may consider a further refinement to the reserves
estimate.
There have also been adjustments to other fields, notably Southwark where 2P gross reserves were
cut by 28% to 71 bcf, prior to development drilling, due to changes in gross rock volume estimates
from new mapping after 3D seismic reprocessing. Blythe is largely unchanged but overall, 2P gross
reserves have been reduced by 35 bcf to 282 bcf. Goddard’s 2C gross contingent resources have also
been trimmed by 17 bcf to 115 bcf. While this is clearly negative, it is worth recognising that the
confidence level on these reserves and resources should now be much higher. Moreover, our prior
modelled Phase 1 and Phase 2 reserve estimates were already 34 bcf lower than end-2020 figures.
Also, offsetting this to some degree is an increase to the estimated gross prospective resources, but
these are by definition higher risk. Best case prospective resources have increased from 196 bcf to
317 bcf, with the majority of this increase due to the inclusion of the 107 bcf Thornbridge Deep
prospect, although the Goddard Flanks prospective resources have also risen by 30 bcf.
Sign In
Follow the stocks
