Goldman Sachs 2010 Part 29 Jul 2018 23:03
We also apply a 50% discount for medium-term drilling, but still see 160% upside, and believe that with more news flow on the acreage and the approaching of drilling activity, the stock will re-rate vs. peers. Based on our potentially conservative assumptions of 2.5 bnbls of prospective resources, success would result in an uplift of c.3100% to
our price target. A removal of the medium-term drilling discount we apply would almost double our valuation.
Catalyst
Success at a prospect will be the biggest catalyst to re-rate the stock but we do not expect drilling to take place in the short term. We believe, however, that other milestones on the way to drilling could also be positive, including further indications of prospect sizes, farm-outs in the current acreage that BPC owns and, ultimately,
the booking of rig contracts.
Valuation
Our 12-month SOTP-based price target is calculated using a US$85/bl oil price. We currently give value for 2.5 bnbls of prospective resources (substantially lower than the BPC P50 estimates for C1 and slightly bigger than the largest two leads identified by Tenneco) of which we assume BPC retains a 35% stake post an assumed farm-out, with a full carry on drilling. We apply a 50% discount to drilling taking place later than 12 months from now.
Key risks
Risks to our view and price target are disappointing CPRs, delays in or a failure to farm out acreage, a refusal of the application for the Western blocks and, ultimately, failure in the exploration programme.