United Oil & Gas PLC’s (LON:UOG) deal to buy Rockhopper’s Egyptian business has been enhanced by a better-than-expected well result, in the ASH-2 well, and, one stockbroker has now lifted its valuation for the AIM-share even before the transaction is complete.
This morning, United noted that ASH-2 was drilled to a depth of 4,030 metres into the Alem El Buieb (AEB) formation and was completed in two reservoir intervals, each testing at 7,027 barrels of oil equivalent per day (boepd) and 3,851 boepd respectively.
It added that the well came online on 2 January and has consistently produced over 3,000 boepd, which equates to 660 boepd for the 22% interest being acquired by United from Rockhopper.
“This has exceeded pre-drill expectations significantly and represents very good news for United,” said Barney Gray, analyst at Optiva Securities.
Since the addition of ASH-2 the Abu Sennan field has produced an average of 8,000 boepd, yielding 1,760 boepd net for the 22% stake.
Gray, in a note, added: “We have increased our valuation of United’s interest in Abu Sennan to US$35mln from US$29mln on a risked basis as a function of higher than expected initial production from ASH-2 and an upgraded aggregate production profile for Abu Sennan going forward.”
“At a per share valuation of 4.3p for United’s interest in Abu Sennan, the company’s current market capitalisation is covered by Egypt alone.
“However, with the balance of United’s portfolio lifting the value of the company to 10.4p per share on a fully risked basis, we believe that there is significant upside in the current share price.”
Gray’s ‘unrisked’ view of United Oil & Gas value comes in above 32p per share with opportunities in Jamaica and Italy being “transformational” to the potential valuation.
In Wednesday’s statement, United said that production from ASH-2 will continue to be assessed over the coming months as broader field development planning takes place.
A rig is presently being mobilised for the first well of the 2020 campaign, and, it is expected to spud shortly. In the meantime, the asset acquisition continues to advance towards a close – which the company expects to announce once an approval from the Egyptian authorities is concluded.
Extensions to the 31 January backstop date have been agreed to allow additional time for the government approval.
"As the test results to date on the ASH-2 well demonstrate, Abu Sennan is a producing asset with considerable upside potential,” Brian Larkin, United chief executive said in a statement.
“At the effective date of the Acquisition (1st January 2019), production attributable to Rockhopper's 22% interest in Abu Sennan was c. 800 boepd. Today it stands at c.1,760 boepd.”
Larkin added: “While the interpretation of the data is continuing, it is clear that the intersected reservoirs have excellent production capacity.
“With this in mind, we are looking forward to completing this transformational acquisition and working with our soon-to-be joint venture partners to optimise the field development plan for Abu Sennan.”