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2.4 SENSITIVITY ANALYSIS
Naturally, with the early year cash flow and project IRRs so high, two key variables in our
model to which Buffalo is most sensitive include peak production and oil price.
Our model shows Buffalo remaining robust at very low oil prices, with a project breakeven
price of US$18/bbl. From our base case of US$60/bbl however, oil price increases and
decreases impact our NAV in a broadly linear fashion. Essentially, each US$5/bbl move
deducts, or adds slightly over US$10m to our Total NAV. Therefore, at current Brent levels of
around US$66/bbl, our Total NAV would rise to just over US$146m (8.8p/shr). Conversely, a
reduction in Brent oil prices to around US$55/bbl would reduce Total NAV to just over
US$120m, or 7.3p/shr.
The predominantly fixed operating costs also makes any increase or decrease in production
directly impact profitability, assuming that capital costs are unaffected (i.e. the same number
of wells are required for the project). Our model assumes three development wells produce
a combined 38 kbopd at peak (annual average). Simplistically, this implies that each well
averages just under 13,000 bopd. The chart in Figure 10 shows the sensitivity to production
rates per well (which we assume is directly linked to the ultimate recoverable volumes). Even
at peak rates of just 7,627 bopd per well (declining thereafter), i.e. 40% lower than
anticipated, the project is robust, with an NPV10 of US$73m net to Advance (at US$60/bbl
oil). Should the wells produce more than expected, for example 40% more at around 18 kbopd
per well, the NPV10 rises to US$109m, net to Advance. On our numbers the project breaks
even at a peak field production rate of just over 10 kbopd, or around 3,500 bopd per well.

We have modelled a development scenario assuming the CPR audited 2C resource base of 34
mmbbls. We have assumed peak production of just under 40,000 bopd (gross) in year one,
with the resource drained over the course of five years. Leasing costs will account for the bulk
of operating expenses, and we have assumed a day rate of US$165k/d all-in, implying annual
fixed costs of US$60m and equivalent to US$8.8/bbl over the life of the field. We have
assumed first oil by the beginning of 2024.
The quality of the crude at Buffalo is high, with the API grade in excess of 50°. Accordingly, we
would expect Advance to receive a premium price to Brent. To account for marketing fees
and for conservatism however, our model assumes crude is sold from the FPSO at par.
The fiscal regime in Timor-Leste is attractive. The licence is held under a production sharing
contract with the contractor entitled to 65% of profit oil. There is a flat 5% royalty rate. After
costs are recovered, we calculate a total government take of just 45%.
Based on a flat oil price assumption of US$60/bbl, during the first full year our model suggests
gross annual cash flow of c.US$375m net to the contractors (US$187m net to 50% interest).
Due to its exceptional reservoir productivity, the field cash flows decline relatively sharply,
with all c.US$840m of project cash flow recovered over a five-year period (see contractor cash
flow profile in Figure 7). This results in an impressive project IRR of 106%, with gross NPV10
of US$418m (US$12.2/bbl). At 50% interest, this is worth c.US$209m unrisked, or 12.6p/shr
net to Advance.
Our NPV includes a geological risking of 95% as well as a commercial risking of 50%
predominantly to account for future dilution in raising the US$35-40m of equity to finance
the full development. After accounting for cash, and proceeds from the exercising of nearmoney
options and warrants, we calculate a risked Total NAV of US$132m, or 8p/shr.

2.2 FORWARD WORK PROGRAMME
In preparation for drilling in H2 this year, Carnarvon has already awarded the drilling
management services contract to Petrofac, and has initiated the tender process to secure a
rig. The reservoir itself is at a depth of just over 3,000m, but lies in very shallow water (c.25m),
meaning that a relatively inexpensive jack up rig is sufficient.
The appraisal well, Buffalo-10, is being designed as a vertical well, which will pass through a
previously unpenetrated crest (of the proven Elang reservoir – see Figure 5 above). The well
is also designed to be sufficiently deep to establish the current oil water contact. This will
provide valuable information as to the homogeneity of the reservoir and de-risk the ultimate
recovery factor estimates.
The well is expected to take in the region of 27 days to reach total depth and conclude
evaluation logging. A full production test will be unnecessary given the extensive reservoir
data available from the past. On completion, the well will be suspended in preparation for
development drilling. On full development, the appraisal well will be re-entered, with a
horizontal sidetrack kicking off and running along the top of the reservoir section.
In terms of timing, we expect the well to spud in early Q4, implying initial drilling results in
November. These results will allow for Advance to book commercial reserves which in turn
should unlock development finance for the project. We expect FID in early 2022.
2.3 FUNDING AND VALUATION
The recent US$30m equity raise will cover Advance’s share of drilling expenses (US$20m), as
well as provision for cost overruns and working capital to comfortably see the company
through to FID on the project.
In terms of development costs, we expect a substantial portion of the remaining c.US$125m
(gross) costs to be debt funded. To this end, we understand that Advance has already had
scoping discussions with several potential lenders (including traditional RBL lenders and oil
trading houses), which have indicated strong levels of demand.
For prudence our model is ungeared, however we would expect that as much as 70% of the
gross development costs will be debt funded. Advance has committed to arranging the
finance for the balancing c.US$35-40m of equity required, which is likely to be in the form of
debt to the project, which can be fully recovered from 100% of field cashflow until paid back.

Carnarvon acquired the licence during a permitting round in 2016 and, recognizing the
significance of seismic to the success of Buffalo, committed to a work programme including
3D seismic reprocessing and a single well to be drilled by May 2023.
Historically a major issue in the region related to the quality of seismic, predominantly due to
the thick and cavernous overlying carbonate reef. This reef complicates seismic processing,
and often resulted in inaccurate modelling of the subsurface, as evidenced by a number of
wells drilled by BHP missing the structure entirely (e.g. wells Buffalo-2 and Buffalo-4) and
those drilled by Nexen not delivering on expectations. The past decade or so has seen
monumental improvements in seismic processing, driven by technological advances, in
particular computer processing power.
Carnarvon re-processed the 1996, 1997 and 2008 vintage 3D seismic data over the course of
2016 and 2017, integrating with the log data from multiple wells to form a detailed subsurface
model. PSDM and Full Waveform Inversion work in particular helped Carnarvon build a more
accurate structural model for Buffalo, which show a large attic area which has yet to be drilled
2.1 DEVELOPMENT PLAN
The development plan envisages a simple three well tie back to a floating storage vessel via a
wellhead platform or mobile production unit (MOPU). Importantly, the facilities are being
designed to handle far higher fluid flow rates than the original BHP development, with its
nameplate capacity of 75,000 bbls/d, or more, including at least 40,000 bopd oil capacity,
allowing production to continue at commercial rates later in the field’s life. The facilities will
likely be leased, which has a number of advantages. Firstly, it reduces the upfront capex
required to reach first oil, and secondly, under the terms of the PSC operating costs can be
recovered in the year incurred, which improves the returns to the contractor.
The high nameplate capacity and prolific reservoir will allow the Buffalo partners to maximise
cashflow in the early years, with more than 60% of the total production expected to be
extracted in the first two years. The development wells will be either deviated or horizontal,
which will maximise flow rates (initial rates of up to 20,000 bopd per well) and, with the strong
aquifer in mind, will allow for the most efficient drainage of the field.

2 ASSET OVERVIEW
The Buffalo field is situated in the Timor Sea off the northern coast of Australia. Lying in the
Bonaparte Basin, Buffalo is surrounded by a cluster of developed oil fields, including Laminaria
and Corallina which lie c.10km to the north-west (see Figure 2).
Buffalo was originally classified as being in Australian waters, and accordingly was developed
under an Australian licence. Following the ratification of the Maritime Boundary Treaty in
2019 however, the PSC now lies wholly in Timor-Leste.
Buffalo was discovered in 1996 by Australian major BHP, with the discovery well encountering
a 45 metre light oil column within high quality sands. The reservoir is regionally one with very
high permeability, which contributed to flow rates in excess of 20,000 bopd per well, and in
addition there is a strong regional aquifer that provides for high recovery factors. The
discovery was swiftly developed, with BHP achieving first oil by the end of 1999, 15 months
from FID.
The facilities were originally developed to handle fluid flow rates of c.50,000 bopd. While this
was sufficient in the field’s early life, rising water cut meant that oil production declined
sharply, with the operator unable to increase gross fluid production rates in order to maintain
levels of oil production. Water ingress occurred sooner than anticipated, in large part due to
non-optimal well completion strategy, with perforations too close to the oil-water contact.
This led to a change of operatorship in 2000, as Nexen acquired 100% equity and assumed
operatorship. This triggered fresh investment, with a new well drilled into an attic structure
in 2002 helping oil production rise again above 20 kbopd. The continuing rise in water
production however (in blue in Figure 3), stifled oil production with facilities still incapable of
processing any more than around 40,000 bbls/d.
The field was decommissioned in 2004 at relatively healthy flow rates of c.4,000 bopd and
having produced just 20.5 mmbbls of the initial 106 mmbbls of oil initially in place.
Importantly, despite the naturally declining oil production rates, reservoir pressure did not
decline significantly over the field’s life, implying that the field benefits from a particularly
strong aquifer drive. This, combined with the excellent quality reservoir sands and high crude
grade, imply that very high ultimate recovery factors should be possible. The adjacent and
analogous Liminaria-Corallina fields have produced over 60% of oil originally in place, which
at equivalent recovery factors would imply over 40 mmbbls remaining at Buffalo (based on
the mid-case STOIIP of 106 mmbbls and 20.55 mmbbls recovered to date).

1 CORPORATE OVERVIEW
Advance Energy was established early last year with a remit to acquire or farm into nonoperated
interests in oil and gas projects offering the potential to add significant value over
the short to medium term. The company is headed by CEO Leslie Peterkin, who has a long CV
including senior roles at the likes of Woodside, Shell and MOL, alongside Chairman Mark
Rollins, a former senior executive at BG Group and CFO Stephen West (ex. PetroNor).
Combined, the Directors currently own over 6.5% of the company.
1.1 BUFFALO TRANSACTION
The company secured its first acquisition late last year through a farm-in for a 50% stake in
the Buffalo redevelopment project offshore Timor-Leste in SE Asia. Advance agreed to a 2-
for-1 carry with operator Carnarvon (which holds the balancing interest) – effectively paying
100% of the costs of the drilling of an appraisal well (US$20m, gross), in return for a 50% stake.
In the likely success case, Advance will also arrange funding for the full development costs. A
substantial portion of this (c.70%) is expected to be covered by debt finance, to which end
preliminary discussions have already commenced, and the balance through industry finance,
vendor/offtake finance or equity. Importantly, any equity component of the development
costs will be in the form of a loan to the project, meaning that Advance would benefit from
100% project returns while the development pays back.
The transaction constituted a reverse takeover under LSE listing rules, and as such shares were
suspended from trading on the announcement of the deal (17 December 2020) until the
publication of the admission document (31 March 2021). During suspension, the company
successfully raised US$30m – the top end of the stated US$15-30m target. The funds will pay
for Advance’s share of the Buffalo well cost, which has an AFE budget of US$20m, as well as
a provision for unanticipated cost over-runs and sufficient working capital to fund the
company through to a final investment decision on Buffalo.
1.2 CORPORATE STRATEGY
Once onstream, the Buffalo project generates substantial levels of free cash flow (187m net
to ADV, at US$60/bbl during the first full year of production). This provides optionality with
respect to the redeployment of capital. We expect an element of shareholder returns,
however the company will continue to utilize its experience and relationships to add new
assets to the portfolio and redeploy capital.
In terms of timing of new assets, we understand that the company is looking at assets which
can be brought into the portfolio in the near term with no upfront consideration (i.e. no
dilution for equity holders). We wouldn’t expect any larger transaction – for example one
requiring additional equity funding – to be considered at least until the results are known
from Buffalo-10.

Advance Energy is an AIM listed E&P with a 50% stake in the Buffalo oil field offshore Timor
Leste. Having recently raised US$30m, the company is funded to drill a low risk and high
impact appraisal well alongside partner and operator Carnarvon Petroleum on the field later
this year. Buffalo is a prolific field which produced around 21 mmbbls at peak rates of c.50,000
bopd in the early 2000s, before it was decommissioned due to a combination of low oil prices
and FPSO facilities incapable of handling rising water cut. A redevelopment at today’s oil
prices however is highly commercial. Based on the CPR assumption of 34 mmbbls remaining
unswept, at US$60/bbl Brent prices we value a redevelopment in excess of US$200m
(>12p/shr) unrisked, net to Advance.
Large proven resource base: For a brownfield development Buffalo has substantial remaining
potential. To date the field has recovered under 20% of the estimated 106 mmbbls oil initially
in place, in sharp contrast to local analogues which have produced in excess of 60%. In its midcase,
independent auditor RISC estimates ultimate total recovery at 52%, meaning gross
remaining potential of 34.3 mmbbls (2C).
Audited probability of appraisal well success 95%: Advance plans to reinitiate production
from Buffalo, the first step being the drilling a new appraisal well, Buffalo-10. Given that this
new well will be drilled into a known highly productive reservoir, RISC has estimated a 95%
chance of success on the well, contributing to an overall probability of development at 86%
(which also accounts for commercial factors). This is supported by scoping discussions with
several project lenders which have indicated support in principle for development finance.
Attractive valuation: Based on Carnarvon’s preliminary field development plan, Advance’s
50% stake will yield peak net production of c.19,000 bopd, with annual net cash flow of
c.US$187m at US$60/bbl Brent, and over US$200m at US$65/bbl. This leads to impressive
project IRRs of 106% at US$60/bbl oil. We value barrels in the ground at US$12.2/bbl, implying
net unrisked value of US$209m (12.6p/shr). After accounting for corporate adjustments and
project risks (factoring in future dilution etc.) this leads to a risked Total NAV of 8.0p/shr –
over 3x the current share price.
Major near-term catalysts: Buffalo provides Advance with exposure to a major drilling event,
due in Q4 this year. As an appraisal of an existing discovery, this well is far more likely to
succeed than fail (a 95% chance according to the CPR). Furthermore, the productivity of the
reservoir and light grade of oil should yield impressive indicative flow rates, anticipated at up
to 20 kbopd per well. These events should provide the foundation for unlocking commercial
reserves and development finance for the project.

good idea, hang on

in the broker note by tennyson they refer to the assessments of success as 95% and that the company have had very postive talks for the costs of develpment from banks and oil houses.
If anyone can get their hands on the broker report from Tennyson securities I reccomend it, it was a great read.

I think you are right and alot of money has been made but i also think there is a lot more to be made from here.

Some money going into this already, i bet it will fly to the placing price very soon

Dont expect it to be at these levels for long. Its already all over twitter like a rash

At least we cant complain of low volumes anymore

i bet its still churn from the placing, it will sort its self shortly. after reading that brokers note anyone selling these shares is stupid

ah right, im a level 2 member, i can pm i think just depends what you are

the broker note in short is very detailed and has a buy rating at 8p target

if anyone wants to pm me feel free, i have the note, i can email it

Tennyson have issued a broker note today with a target share price of 8p

they have only announced buffalo, they say they formed the company with 5 prospects they brought with them. If a few more of them come online then that would jack the price up I assume

i think thats the issue with lse lowboy
anything thats either side of the mid price is marked accordingly as a buy or sell when it isn't neccesarily

its tradeable on freetrade