Nautical Petroleum (NPE) - Net Asset Value

Following success with the drill-bit in 2010 and early 2011, the Nautical share price has risen dramatically. The share price has since fallen to 400p after reaching an all time high of 550p prior to the Catcher North appraisal well. What is fair value for NPE based on the current discoveries?

Shares in issue: 87,745,179

Current share price: 400p (*$1.6) = $6.40

Market Cap: $561,569,146


Key Assets

Kraken - $547.5 million (Heimdal UIII only)

• Gross OIP of 1,182 mmbls
• 35% Working interest
• Net OIP of 438 mmbls  
• 25% Recovery factor
• Net contingent resources of 109.5 mmbls

Scenario	Value per barrel	Value
Low	$4.00	$438,000,000.00
Mid	$5.00	$547,500,000.00
High	$6.00	$657,000,000.00

Value for Kraken is being ascribed based only on the Heimdal UIII sands, which have been tested more extensively than the Heimdal UI sands. I have elected to use a mid-case scenario of $5 per barrel valuation to reflect the low API of the oil found at Kraken and the field development costs.

Two significant questions exist over the Kraken field:

1. Is the internal resource produced by Nautical accurate?
2. Can Kraken flow oil at commercial rates?

Answers to these questions will be forthcoming in Q2 2011 when a competent persons report on Kraken is released and with the horizontal 9/02b-E well test. Should both be favorable to Nautical, then the above figures may need to be revisited.


Catcher - $126 million

• 15% Working interest
• Catcher & Catcher North 60 mmbls gross / 9 mmbls net
• Varadero 40 mmbls gross / 6 mmbls net
• Burgman 40 mmbls gross / 6 mmbls net
• 21 mmbls total net contingent resources 

Scenario	Value per barrel	Value
Low	$5.00	$105,000,000.00
Mid	$6.00	$126,000,000.00
High	$7.00	$147,000,000.00

The contingent resources have been taken based on the information provided by Nautical, Encore and Premier Oil. The main discrepancy is between the size of Catcher, which Nautical estimate at 79 mmbls (gross) whereas Premier offer guidance of 40-80 mmbls (gross). In order to be conservative, I have taken the mid-point of Premier's estimate.

When valuing the contingent resources I have used the mid-case scenario of $6 per barrel. This is a figure that other undeveloped fields have been valued at in recent farm-out arrangements. Given the prospect of further discoveries on the license (hence better cost synergies) and the high quality oil, a strong argument could be put forward for a higher valuation. Once again I have opted to remain conservative with my estimations.


Mariner - $40.6 million

• 6% Working interest

I have derived the value for Mariner based upon the $140 million price that Statoil paid NPE for a 20.67% in the same field in September 2010. Changes to the taxation system in the UK North Sea have put a question mark over the development, however the size of the field means it is likely to be developed once the dust has settled.


Cash - $179 million

Total Core NAV = $893.1 million / 636p per share


Conclusion

Based on the current share price Nautical appears to be trading at a substantial discount to core NAV. The value of Kraken is key and once the questions over the size and viability of the field have been answered, I would expect the share price to be trading in the 600-650p range.

Exploration upside to be added shortly.

Antrim Energy (AEY) – Net Asset Value

Following the recent spate of good news, which has effectively confirmed the farm-outs at Causeway & Fyne, I have decided to revisit my valuation for AEY.

Shares in issue: 183,981,544

Current share price: 73p (*$1.6) = $1.168

Market Cap: $214,890,443

Key Assets

Fyne - $98,160,000

• Gross 2P reserves of 23.3 mmbbls
• 35.1% Working interest
• Net 2P reserves of 8.18 mmbls

Scenario	Value per barrel	Value
Low	$10.00	$81,800,000.00
Mid	$12.00	$98,160,000.00
High	$14.00	$114,520,000.00

I have used the mid-case scenario as this is the price that recent takeovers have attributed to 2P reserves. Given the current oil price and the quality of oil at Fyne, it could be argued that the high-case scenario is most suitable. Alternatively with the recent fiscal changes, one could also argue that the reserves are now less valuable and as such the low-case scenario is most appropriate.

Please note I have valued the reserves as 'developed reserves' as much of the finance is in place via the recent farm-out arrangements.

Causeway - $68,160,000

• Gross 2P reserves of 16 mmbbls
• 35.5% Working interest
• Net 2P reserves of 5.68 mmbls

Scenario	Value per barrel	Value
Low	$10.00	$56,800,000.00
Mid	$12.00	$68,160,000.00
High	$14.00	$79,520,000.00

I have used the same mid-case scenario for Causeway as for Fyne. I have also valued the reserves as 'developed reserves' as much of the finance is again in place via the recent farm-out arrangements.

Cash - $73,000,000

Total Core NAV = $239,320,000 / 81.29p per share

Exploration

I have decided to only include the 2 prospects (Carra & West Teal) that are scheduled to be drilled in Q3 2011 as there are too many variables to realistically value any other prospects.

West Teal – 16 mmbbls (P50 Gross)

Unrisked - $48,000,000

Risked (50%) - $24,000,000

Scenario	Value per Barrel	25% W.I	50% W.I	100% W.I
Low	$5.00	$20,000,000.00	$40,000,000.00	$80,000,000.00
Mid	$6.00	$24,000,000.00	$48,000,000.00	$96,000,000.00
High	$7.00	$28,000,000.00	$56,000,000.00	$112,000,000.00

Carra – 23.5 mmbls (Gross) – Middle Tay target (excluding 9 mmbbls Cromarty target)

Unrisked - $70,500,000

Risked (50%) - $35,250,000

Scenario	Value per Barrel	25% W.I	50% W.I	100% W.I
Low	$5.00	$29,375,000.00	$58,750,000.00	$117,500,000.00
Mid	$6.00	$35,250,000.00	$70,500,000.00	$141,000,000.00
High	$7.00	$41,125,000.00	$82,250,000.00	$164,500,000.00

As the current working interest is yet to be confirmed, I have proposed 3 different scenarios where AEY retains 25%, 50% & 100% equity in the asset. Given the option exercise at Fyne, I have assumed in all likelihood that Premier Oil will also participate in the Greater Fyne Area. The 50% equity is therefore most suitable in my opinion. As the prospects will require finance to be developed, I have valued them on a similar basis to the Causeway & Fyne transactions, using a mid-price of $6 per barrel.

Unrisked upside - $118,500,000 / 40.25p per share

Risked upside - $69,250,000 / 20.13p per share

Exclusions

I have excluded any value from Argentina at present due to the low net-back received. A quick look at the annual accounts shows that the revenue received vs the depletion charge is negligible and as such of little intrinsic value to the company. Should AEY secure Gas Plus or Oil Plus status on the new production, then the valuation will change quite dramatically and should be added to the core NAV.

No value has been attributed for Tanzania operations as the prospective resource is unknown.

Tax losses of $232 million have not been attributed any value.

Conclusion

AEY is currently trading at a 10% discount below its core NAV (based on fairly conservative estimates). Given that I have discounted production and exploration assets in Argentina and a 30% free carry in exciting Tanzanian acreage, I believe significant upside exists.

The exploration upside is largely risk free if Premier Oil exercise their farm-in rights as Antrim will have a free carry. Given the low-risk nature of the exploration targets in Q3, I anticipate a price of 120p-140p is achievable over the next 6 months. AEY offers the prospect of near 100% returns with very little downside risk.

Welcome

I have recently begun investing in equities full time and I have decided a blog is the best means of collating and sharing all my research. I do not know what form or shape this blog will take as of yet, so please bear with me while I develop the site. Initially I will concentrate on adding NAV's for companies I currently hold and will then look to progress the blog from there onwards.

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