Half-year results from Rose Petroleum (ROSE) saw it concluding “the board is looking ahead with confidence and is excited about the group moving from being an oil explorer to an oil producer in the next quarter”. The shares responded higher, but at still little more than a £5 million market cap we see much more excitement to come…
The company listed in June 2004 as VANE Holdings, with interests in mineral projects in Mexico and having negotiated access to a vast exploration database. However, by 2013 the name was changed to its current “to more accurately reflect the new focus of the company” and in 2014 it announced a “strategic decision to focus on Utah”. From this history, there remains some legacy mineral interests though, for our purposes, we attribute no value to these. There now looks tangible excitement, at last, from Utah though. The company’s primary asset is in approximately 80,000 acres in the prolific oil and gas producing Paradox Basin where it is earning into a 75% working interest. Here a Competent Persons Report focused solely on a single reservoir, the Cane Creek reservoir, of the multiple prospective reservoirs within the Paradox Formation has reported, net, a 2C Contingent Resource of 9.25 million barrels of oil and 18.50 billion standard cubic feet of gas and an unrisked pre-tax NPV10 of $122 million. Additionally broker Cantor Fitzgerald currently has a 9p target price and a risked DCF valuation of a 30 well development of the Cane Creek interval only, of 12.4p per share.
However, as always, the proof will be in the drilling. This risk is with also the drilling “subject to rig availability and concluding project funding” after results for the first half of 2018 showed administrative expenses of $1 million and cash (net) of $2 million. The company though emphasises “the team designed, managed and implemented a nine-well drilling programme in the Paradox Basin for Fidelity Exploration and Production Inc., directly to the south of the group's acreage. Eight of these wells were commercial and production grew from circa 100 barrels of oil per day to over 3,500 BOPD from 2012 to 2014” and that the proposed appraisal plans comprise a “combination of horizontal drilling steered by high quality 3D seismic data… A similar approach has proved very successful in the development of the Cane Creek Field analogue directly south of the group's acreage”. Those provide confidence – and it is also noted “as the group's activity in the Paradox basin has intensified, Rose has been approached by a number of third parties about potential partnering and investment opportunities in the region”.
We met the management team last year but been watching from the sidelines until now. But with news on funding and drilling likely within months we reckon the time to buy is now - with these imminent potential catalysts for increased interest and news flow looking to have the potential to see the shares double or more from here. There are also clear risks, but at the current valuation - and up to 4p, the shares are a buy with a target to sell of 6p+ by Christmas.
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Filed under: Rose Petroleum, Mayan Energy, Neill Ricketts, Versarien, First Derivatives, Greggs, AIM
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