masterv2 Sep 2011 16:35
one of my previous posts on wsk board
READ this along with Merrill Lynch's post i posted yesterday.........
AIM listed Wessex Exploration [WSX] met with Merill Lynch earlier today and this is their summary
I’ve just met the management of Wessex Exploration. Wessex holds 1.25% interest in the “Guyane Maritime Exclusive Exploration License” (GMEEL) which covers c.33,000 square kilometres off the coast of French Guyane (down near Brazil) with Tullow (27.5%), Shell (45%), Total (25%) and Northern Petroleum (1.25%) holding the rest. Wessex’s 1.25% may not sound like a lot, but then it’s 1.25% of a field which potentially contains between 3.6-9bn boe… and yet Wessex has a market cap of just £17m…
Understanding the Guyane Opportunity
If you’ve met Tullow recently then you don’t need me to tell you how excited they are about this particular prospect!
Why all the excitement? Well… for those of you that follow tectonics you’ll know that once upon a time South America was adjacent to Africa…
…thus you may/may not be surprised to hear the field contains a number of analogues to the Jubilee field off the west coast of Africa including “turbidite fans”, “AVOs” and “four-way dip structures”!
Tullow (as operator) began drilling the “Zaedyus prospect” within the GMEEL in early March and expects to reach target depth (6600m) by June.
Extensive seismic analysis and independent interpretation of this data points towards 260-700m boe P50-P10 Gross Resources for this prospect alone.
So what’s it all worth to Wessex?
Our Tullow analyst currently values Tullow’s 27.5% share in the Zaedyus & Matamater prospects (the latter is a field they’ve also identified for drilling) at $1.8bn (unrisked).
If 27.5% is worth $1.8bn, then Wessex’s 1.25% must be worth $83.3m or £52m… vs a current market cap of just £17m.
However, a successful drill at Zaedyus would open up the whole area and de-risk the chances of future success in the region (think Cove after Windjammer and Rockhopper after Sealion)…
…thus the ultimate uplift would be significantly more.
In my view, if this comes in then we could have a ten bagger on our hands!
Equally, if it doesn’t, then the shares would probably fall back to reflect the value they have in exploration licenses in the South of England and the Mozambique Channel (I reckon about 2p).
In Summary, and with a quality operator like Tullow at the wheel, and with talk of “turbidite fans lighting up like Christmas trees”, I think the potential reward of this trade compensates for the high risk. At the very least I’d expect the shares to have a run ahead of the drilling results. A very speculative BUY