RE: Expect big rebound to continue next week29 Nov 2019 15:59
i3Energy Drilling setback but still large resources
? The 13/23c-11 well (A2) has encountered 220 ft of Captain sands with 20’ MD estimated to be above the oil-water contact (OWC). This compares with expectations of 70’-80’ of sands being above the OWC at the crestal location.
? While this will have negative implications on Liberator’s Phase I volumes, i3 believes that the small amount of sands above the OWC at the A2 well location does not mean that the net pay has decreased in the west of Liberator. This western area, where the sands thicken, holds the largest amount of resources, with 119 mmbbl prospective resources.
? The main risk in this area was around oil migration. i3 believes that the result of the A2 well somewhat reduces this key risk.
? The company is now considering its next steps, which could include further drilling in the western area of Liberator and at Serenity.
? Given the large potential upside but the increased risk to the story, we maintain our Speculative Buy rating with a target price reduced to £0.90 per share, pending further visibility on the next steps. We note that Serenity could be of a lot of value to RSRUK/RockRose Energy.
What to drill? While i3 indicated that development wells were drilled successfully in 20’ net pay in the area, this is probably not what the company will look to do next. The company would like to drill multiple wells at Serenity and Liberator. However, this will be subject to funding. Appraisal drilling at Serenity is lower risk and could enhance any unitisation discussions with RSRUK/RockRose.
The subsequent development of the field is, however, more in the hands of RSRUK/RockRose than of i3, if the first phase is developed across existing RSRUKoperated infrastructure to the south. Drilling a well in the western part of Liberator (A3 well) would go a long way to derisk the 119 mmbbl prospective
resources in this area but is riskier.
SPEC BUY recommendation with a target price of £0.90 per share
Pending further details on the new volume estimate, we have moved the Phase I development into the risked upside category of our ReNAV. We attribute a 35% chance of development to this area as it will probably require a new appraisal well in a riskier area of the field. Overall our ReNAV has been reduced from £1.46 to £0.88 per share. Our target price has been set close to that level. Our valuation assumes the entire conversion of the loan note into equity. GMP article.
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