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.