RE: Broker Note14 Dec 2018 12:15
Hi Lucky, see below.
Whilst California drilling has seen a small delay of c2 weeks, Wick is due to spud imminently, and Reabold has managed to secure significant optionality around Danube funding. We remain with our BUY recommendation and increase our RENAV from 3.5p to 3.8p.
As part of the overall funding of the Curlew well, which Corallian plans to drill in H219, Corallian has raised £912.3k by way of an advanced subscription agreement. Reabold is participating with an investment of £300k, maintaining its 32.9% interest. Corallian has a 90% interest in Curlew. We had included 0.2p in our RENAV for Curlew, assuming Corallian had farmed down to a 30% WI to get carried on the well. Now that the key permits have been approved, we expect Wick to spud imminently, with results pre year end. Colter will be drilled straight after.
Heavy rain has impacted operations in California, rendering access to the Monroe Swell site difficult. As such, it makes sense for the rig to go to the W.Brentwood site first before returning to Monroe Swell immediately afterwards. The operator doesn’t expect any access issues in W.Brentwood. In the event of success at Monroe Swell, Reabold will consider high grading the access route (c$300k), which should be easily funded from cash flow.
Given progress in securing long lead items and permitting for two wells, Danube is on track to spud one firm well in Romania in Q119. Discussions with ADX regarding ADX’s commitment to invest £375.9k either directly or via a third party, at £1/share, are ongoing. The deadline has been extended to 15 March 2019. In the event ADX do not complete the ADX investment by then, ADX agrees to grant Reabold the right to subscribe to the shares at an issue price of £0.80/share (vs £1/share investments done to date in Danube). Reabold also has the option to subscribe for a further 375.94 Danube shares at £1/share prior to March. Reabold and ADX have also discussed funding for a second well, which would take place at an issue price of £1.2/share, if done within six weeks of receipt of well logging date from the first Parta well, or £1/share any time prior to spudding the first well. If the second well is subscribed for, Reabold would hold at 45% interest in Danube. The set up means that in the event of a successful first Parta well, Reabold has locked in a very attractive price for funding the second well at only a 20% premium to investments done to date.
We adjust our NAV to reflect a higher WI in Curlew given Corallian’s fund raise (Corallian 40%) and we also assume Reabold participates in a second well in Romania at a higher equity stake (45%) than we had previously assumed (25%). Adjusting for cash outflow (£300k for Corallian, £2.3m for Danube option and second well), our RENAV increases from 3.5p to 3.8p.
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