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| Share Name | Share Symbol | Market | Stock Type |
|---|---|---|---|
| Jupiter Energy | JPRL | London | Ordinary Share |
| Price Change | Price Change % | Share Price | Last Trade
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| 0.00 | 0.00% | 4.75 | 01:00:00 |
| Open Price | Low Price | High Price | Close Price | Previous Close |
|---|---|---|---|---|
| 4.75 |
| Top Posts |
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Posted at 18/3/2013 23:44 by last of the mohicans This document should be viewed in conjunction with the 30 minute Oil Barrel conference video presentation of 7th Feb 2012 and the broker research reports & ASX/AIM announcements which can be found on the company's website In this posting I'm going to make some very bold predictions, but first I will state for the record that these are my own views & predictions and how accurate or not so accurate they turn out to be; only time will tell. Best to do your own research, however some of my views might lead your own research in some interesting directions. Risk Assessment All investments carry a degree of risk. Oil & gas investments by there very nature, carry an even greater degree of risk. Jupiter Energy, unlike most small oil & gas exploration & production company's, doesn't have a problem finding oil. Having discovered 2 oil fields since early 2010, with a 100% success rate from the 7 wells it has drilled thus far. So the risk with Jupiter is not actually about finding oil, it's the political risk associated with its only asset's being in Kazakhstan. The longer this remains the case, the more that risk increases with time. However I currently view Jupiter Energy as a 15-18 month investment, because a sale of the company or the underlying asset's is likely to occur within that timeframe, thus capping the political risk. If a sale hasn't occurred within that timeframe then I'll carryout another assessment of the situation and act accordingly. Current Situation We are currently waiting on the flow-test results from a number of wells J-53, J-55, J-58 and then J-59 after that. So there will not be a great deal of production history for the end of March's, Competent Person's Report (CPR) to be based on. By that I mean a lack of long-term flow-rate and decline curves, so it will be done on a best estimates basis rather than factual data. So if wells perform better than predicted, ie have shallower decline curves etc, then in time the recoverable reserve number will increase, conversely if the wells underperform then in time the recoverable reserve numbers will be lowered. I will be adjusting my predictions as more information becomes available on the flow-test results etc. So far Jupiter seems to end up with wells that fall into 2 categories, troublesome ones like J-50, J-53 & J-55 or easy to complete ones like J-51, J-52 & J-58. As yet, we don't know which group J-59 will fall into. J-50 & J-55 were from Jupiter's point of view, the discovery wells for Akkar East & Akkar South as I call it. As such it has taken time for the company to learn the best techniques to get the most out of its wells, ie frac technique and correct level of acid stimulation etc. I spent last weekend going back over block 31 from 2008 onwards and its amazing when you look at all the presentations and announcements since then of just how much the structural view of the block has changed in that time. Obviously having well data to tie into the 3D data has made a big difference in interpreting the overall picture. Existing Well Data Here is a summary of the wells that have been drilled thus far based on a 3.8% porosity cut-off and a 50% oil saturation cut-off as well, for reference. Akkar East J-50 found 120M gross & 55M net in the T2B sands, it flow tested @ 350 bopd on a 8mm choke. J-51 found 123M gross & 83M net in the T2B sands, it flow tested @ 630 bopd on a 9mm choke, 440 bopd on a 6mm choke and 164 bopd on a 3mm choke, it is located 2.0km SE of J-50 and 1.7km NW of J-52. J-52 found 108M gross & 60M net in the T2B sands, it flow tested @ 750 bopd on a 10mm choke with a flowing pressure of 600PSI, it also tested @ 516bopd on a 8mm choke & 849 bopd on a 12mm choke. The Z sand's in this well were 29M gross & 5M net. It is located 3.6km SE of J-50 and 2.0km N of the old NWZ2 well. J-53 found 87M gross & 56M net in the T2B sands, Thickness of the Z sands currently unknown. Its located 2.8km SE of the J-52 well. Akkar South J-55 found 112M gross & 60M net in the T2B sands, Thickness of T2A sands currently unknown, Thickness of the Z sands currently unknown. J-58 found 158.2M gross & 75.6M net in the T2B sands. The T2A sands are 120.1M gross & 52M net. Thickness of the Z sands currently unknown. It is located 3.8km SE of J-55. J-59 found 102.8M gross & 42.8M net in the T2B sands. The T2A sands are 64.6M gross & 40.4M net. Thickness of the Z sands currently unknown. It is located 4km SE of J-58. Current Reserve Numbers The current 2P reserve number's for Akkar East are 24.21 MMBO on a P1/P2 basis & 37 MMBO on the C1/C2 classification method. The Story Akkar East covers around 14km2 and the current projection is for 14 development wells, even although this doesn't seem to cover all of the productive area. In the commentary with the Oil Barrel presentation @23:50mins in Geoff Gander talks about only 12 development wells being required at Akkar South. Bearing in mind my earlier comments and the fact that the wells at Akkar South are spaced much further apart, I'm not sure that in the initial new CPR that the 2P number will be as high as it might otherwise be. Especially when you consider that Jupiter themselves originally saw J-55, J-58 & J-59 as being on separate structures. So the 3P number is going to be very important at this stage, in determining the longer term 2P and 1P numbers. There is some really interesting information in the Oil Barrel presentation, the key slides to me being 7, 9, 10 & 11. Starting with slide 9, look at the small diagram on the bottom left hand side and note the shape of Akkar South. When you then look at slide 11 you will see the black fault lines very much mark the boundary of the field (ps the arrow for J-59 is way out when you compare it with slide 7 it's about 1cm south of where it should be). Slide 7 just shows a simplified curve shape to Akkar South. Its all to the same scale though, so print off page 7, draw in the block 31 boundary line and remove the excess part of Akkar South that extends over the boundary. Cut out the Akkar East field that lies within block 31, including the possible extension area north of J-51, J-52 & J-53. You'll find that the total area you now have very much matches the aerial extent of Akkar South. So I have to disagree entirely with Geoff Gander's expectation of 12 development wells for Akkar South. By the looks of it, the possible Akkar East extension area will require at least 8 development wells to drain it, if it turns out to be successful. So I'd say at least 20-25 development wells will be required at Akkar South unless each individual well is able to drain a much larger area, than is envisaged at Akkar East. The current STOIIP for Akkar East is 104 MMBO @ the 2P level & 119MMBO @ the 3P level so there's not that great a difference between them. The section containing the J-53 well prior to its drilling had STOIIP P50 numbers of 42.75MMBO & P50 prospective resources of 9.92MMBO. I'm going with 2P reserves of 35MMBO for the whole of Akkar East & a STOIIP of 140 MMBO @ the 2P level, 160MMBO @ the 3P level. Which translates to a 25% recovery factor at the 2P level. Apply that to the company's Akkar East extension area projection of 20MMBO's and you get a STOIIP for it of 80MMBO. From all the earlier well data, you will see that the T2B reservoir at Akkar South is about the same net thickness as it is at Akkar East (it is marginally thinner, more so towards J-59). Add in the fact that J-58 managed to produce at a significant flow-rate without acid stimulation, at 349 atmosphere reservoir pressure. The T2B reservoir is 300 metres deeper at Akkar South than at Akkar East, which equates to a 10% depth increase. So I'm happy to suggest that the T2B sands at Akkar South have a STOIIP of 220MMBO and in time will be assigned 2P reserves of over 50MMBO. Now go back to slide 11 and look at the text, it states "the total structure could contain recoverable reserves of ~40 MMbbl in the Mid Triassic" (Yes my 50MMbbl prediction is well above that number). Slide 9 refers to the T2B horizon as the "M Tr" layer, all the way from J-50 to J-59. In the presentation Geoff Gander @12:40mins into it talks about this slide & the T2B being the Mid Triassic. The T2A zone is referred to separately as the "Tr A" layer, again all the way from J-50 to J-59. However the quality and thickness of it changes remarkably from J-55 onwards. I believe this was an unexpected bonus, pre the drilling of J-55. In the presentation Geoff Gander @13:15mins into it talks about the T2A being much more prospective at Akkar South and by 13:40 is debating which will be the more productive, the T2B or the T2A! So I believe the T2A will have its own resource assignment separate from that of the T2B Mid Triassic. We don't have any official thickness details as yet for the T2A @ J-55 although slide 9 would indicate 100+ metres gross. We don't have any flow rates at all from the zone to go on thus far either. However it's around the same depth as the T2B zone at Akkar East. Going by the comparative net thickness of the Akkar South T2A sands, compared against the net thickness of the T2B sands at both Akkar East & Akkar South, I'm going to suggest a near 2/3 ratio. Therefore I believe the STOIIP for the T2A sands at Akkar South to be @ 140 MMBO & in time expect them to be assigned 2P reserves of over 25MMBO. We then come to the Z sand's which are barely productive at Akkar East (J-53 may prove to be an exception), yet on slide 7 are again much better defined at Akkar South. As yet they have had little mention & yet appear on the logs to possibly be 70M gross in thickness spread over 2 or 3 sub-sands. They could easily have STOIIP of 35MMBO & eventual 2P reserves of 5MMBO+ In Summary Akkar East STOIIP 140MMBO 2P 35MMBO Akkar South T2B STOIIP 220MMBO 2P 50MMBO Akkar South T2A STOIIP 140MMBO 2P 25MMBO Akkar South Z Sands STOIIP 35MMBO 2P 5MMBO Total's STOIIP 535MMBO 2P 115MMBO Still Possible J-54 Prospect STOIIP 160MMBO 2P 40MMBO Akkar East Extension STOIIP 80MMBO 2P 20MMBO New Lease Extension Area STOIIP X 2P X Monetary Valuation Having gone that far, I thought I should then try and place some sort of valuation on Jupiter based on the above. It is important to remember that any sale of an oil field ('s) or exploration licence ('s) in Kazakhstan requires government approval. The government also has the right to acquire the asset themselves at the agreed sale price should they choose to do so. So any potential bidder for either Jupiter directly or the Akkar East or Akkar South field's needs to find not only a price that Jupiter will find attractive but at a price that the Kazakhstan government will find unattractive compared to other potential assets that it could buy. Yet retain an acceptable profit margin for themselves, thus a fine balancing act is required by any potential purchaser if they want to actual own the asset. Looking through some of the research reports, a figure of $5-7 per barrel of 2P reserves seems to be quite a common way of working out a valuation. The closer you are to (or actually being able to export existing production) the higher the price. A couple of the reports used a price over $6 per barrel. As it might be a little time (6-9months) before any of my prediction become fully certifiable by Senergy or any other independent reserve analysts, I thought I should stick very much to the low end pricewise and go with $5 per barrel of 2P reserves. On 115 Million barrels that works out at $575M, as I think quite a lot of the next stage of the fields development will be debt financed, I'm going to deduct $25M to cover future outstanding debt, then divide the rest by 160M shares in issue. That gives a valuation of just under £2.35 a share with considerable upside still possible from the likes of J-54 for example with $1+ per share possible from that prospect alone. Obviously as construction progresses & the company moves near & near to export production the $5 per barrel price tag will move higher, thus increasing that £2.35 valuation all the time ($6 per barrel for reference would increase it to @ £2.80 a share.) That's one way of looking at it, another is by NPV10 (Net Present Value discounted by 10% per annum, which is a little steep given the current economic climate maybe a 5% pa discount is more appropriate). This is where the old Southern Cross research report (3rd March 2011) comes in handy, as it showed how different flow-rates and oil price's affected the NPV and the natural underlying gearing that was in place for Akkar East, ie a 10% rise in flow-rate's over the base rate of 450bopd resulted in a 15% increase in the NPV. A 10% movement in the oil price from the base price of $90, moves the NPV by 25% up or down. So far we only have a tiny glimpse of what Akkar South might be capable of. Jupiter have only perforated a 5.5M section of the T2B sands in the J-58 well, out of a possible 75M of net pay, yet this small interval on a very short test flowed at an equivalent rate of 1200bopd on a 9mm choke. Far superior to any test results achieved on Akkar East. It was also the first of the 6 wells drilled thus far to be able to do this without the aid of an acid stimulation. Make no mistake Akkar South is in a completely different league to Akkar East. The ability to co-mingle production from various reservoirs makes a massive difference to the NPV of a field, because you are draining multiple reservoirs at the same time rather than having to wait until each individual reservoir is depleted before you can start to produce from the next one. If they can co-mingle production from the T2B, the T2A and the Z sands all at the same time then it will take maybe 25-30 years to drain the entire field instead of say 85+ years. As a consequence comingled production obviously enhances the flow-rates of your well. As Jupiter think the T2A sands at Akkar South are potentially going to be as productive as the T2B sands, I'm going to suggest that when the Z sands are also added into the equation, that the J-58 well will be capable of initially producing around 2000 bopd on a comingled basis. Having viewed the seismic data on slide 11 around the J-58 well location, I'm confident that they should be able to get 8 to 10 comparable wells in that section of the field, with lower production rates on other wells as they move outwards towards the J-55 & J-59 well locations. Jupiter envisage Akkar East having peak production of 5000bopd, I can currently envisage Akkar South having peak production of 25,000+bopd. Once the flow-test results are in for the current Akkar South well's, it wouldn't surprise me to hear Jupiter announce plans to immediately drill 4 more development wells close by J-58. With a view to having them ready for export production in mid to late 2014. That would give Jupiter 5 highly productive wells, capable of delivering around 10,000 bopd. The 4 Akkar East wells plus J-55 & J-59 from Akkar South could easily deliver another 2,000+ bopd. That would mean a minimum of 10,000 bopd for export sales & a maximum of 2,000 bopd for domestic sales. Geoff Gander in the Q&A section of the Oil Barrel presentation discusses the netbacks on Domestic & Export sales @27:35mins. He put's the netback on domestic sales @ $23 a barrel & @ $45 a barrel on export sales, less opex (lease operating expenses) which in some of the broker reports are listed as $8 per barrel. The following table gives you some idea of how long it will take for an individual well costing $6M to reach payback (pay for itself) via either domestic sales or from export sales. Domestic Sales 500 bopd = 500 x $23 netback less $8 opex = 500 x $15 = $7,500 a day = 800 days or 27 months to payback. 1000 bopd = 1000 x $25 netback less $8 opex = 1000 x $15 = $15,000 a day = 400 days or 13months to payback. 2000 bopd = 2000 x $25 netback less $8 opex = 2000 x $15 = $30,000 a day = 200 days or 6.5 months to payback. Export Sales (with 20% of sales via Domestic Sales) 500 bopd = 400 x $45 netback less $8 opex = 400 x 37 = $14,800 a day plus 100 x $23 netback less $8 opex = 100 x 15 = $1,500 a day, for a total of $16,300 per day = 368 days or 1 year to payback. 1000 bopd = 800 x $45 netback less $8 opex = 800 x 37 = $29,600 a day plus 200 x $23 netback less $8 opex = 200 x 15 = $3,000 a day, for a total of $32,600 per day = 184 days or 6 months to payback. 2000 bopd = 1600 x $45 netback less $8 opex = 1600 x 37 = $59,200 a day plus 400 x $23 netback less $8 opex = 400 x 15 = $6,000 a day, for a total of $65,200 per day = 92 days or 3 months to payback. So at Akkar East a development well with an initial flow rate of 500bopd will take about 2 years & 3 months for payback of your initial investment to occur from domestic sales once you factor in the natural 5% annual decline curve or about 1 year from export sales. At Akkar South a prime development well initially flowing at 2,000 bopd would reach payback in under 7 month's from domestic oil sales and just 3 months from export sales. The outer wells at Akkar South will obviously take longer than those timeframes to achieve payback. It's these potentially high flow-rates with shallow decline curves and significant free cash-flow from Akkar South, which is going to force any potential bidder, to have to offer much more than the normal, $5-7 per barrel of 2P reserves, otherwise the government will simply take the deal. How much more is hard to quantify when you have to average Akkar East into the equation as well (unless they were sold separately of course). On my earlier plan, for production of 12,000 bopd (10,000 bopd from export sales & 2,000 bopd from domestic sales), Jupiter would receive a staggering $391,000 a day in free cash-flow, which translates to $142M in the first year or cash-flow of nearly£0.60 per share. By the same token peak production of around 30,000 bopd would mean free-cash flow of just under a $1M a day or $357M for that year, or £1.48 per share. This show's you just how cash generative good flow-rates can be for a company. I'm no expect and it will be really interesting to view what the research brokers come up with from there computer models, but at this time I don't think $9-10 per barrel of 2P reserves is out of the question, when you look at the cash-flow numbers above. If a potential buyer truly wants' the deal rather than it going to the government. The GMP broker report of 18th September 2012 (page 25), states that in March 2011 the Korea National Oil Corp paid Altius Holdings $515m for a 95% interest in 54MMbls of 2P reserves, which works out at $9.53 a barrel, Brent crude was priced @ $114 at the time, similar to today's price. Unfortunately we don't know what sort of flow-rates those wells achieved nor how much low risk exploration upside was potentially there either, but it gives you an idea of what's possible. There are limits to the upside because of the high taxation rates that apply in Kazakhstan. Future Funding I think the events at Akkar South, will have changed a lot of things. Many seem to believe a large equity raise is on the cards, which is perhaps one of the reason's the share price has underperformed for a while now. I don't, I think they will try and debt finance this as much as possible, if not entirely. The cash-flow from Akkar South as I've already shown is going to be massive, so lenders are not going to be very concerned about Jupiter's ability to repay the debt in a timely manner. So Jupiter should be able to borrow at reasonable rates & only for a relatively short time period. The effect on market sentiment will be dramatic. The sudden realisation by institution investors that no large placing or rights issue is going to happen should have them scrambling to get in, if they want to reap the benefits of what's going to happen in the next 15months. Summation Did you know that Jupiter is actually valued at the same price now, as it was before it got the existing southern extension area to block 31. That means no value is being attributed to the J-55, J-58 & J-59 discovery's, how crazy is that? When you consider the amount of 2P reserves that have already been proven up there. This thesis wasn't meant to be this long and nor was it intended to do anything other than show how I reached my conservative valuation of £2.25 per share based on the simple valuation method. Yet by going in an unexpected direction afterwards I now find myself knowing that Akkar South doesn't conform with the simple valuation method because its commingled flow rates are just too cash generative for it work realistically. Even although I want the simple valuation method to work, as it's much easier to explain and calculate a value with, it now doesn't. Personally until the market understands Jupiter and its assets better. It's like having a licence to print money. For each $ or £ invested now, you know your going to get a fantastic return on your investment in a reasonably short period of time (under 15 months), with only the political risk that needs monitored. How fantastic? Well that depends on when the bidders make there move and just how much more exploration drilling Jupiter has done by then, at the various prospects listed earlier and how successful the drill bit is. The ultra conservative base case in my opinion is 60MMBO of 2P reserves @ $5 per barrel or £1.33 per share. The base case for me is 115MMBO of 2P reserves @ $5 per barrel or £2.33 per share. My best guess scenario currently is a take-out price around the $850M to $1 Billion mark or @ £3.66 - £4.33 per share, which is 9 or 10 times the current share price. Possible upside, well if the drill bit was kind to us, then it's possible, in time we could see reserves reaching 200MMBO and a take-out price reaching $10 per barrel, which is £8.65 per share or nearly 20 times the current share price. However I don't think this scenario will ever be allowed to happen. So all eyes first of all should be on the well flow-test results over the next few weeks. As part of the 3 month test process, the company is required to conduct test's using different choke sizes and then submit the data to the government. So the headline number can be misleading, as happened with J-51, where the initial flow-test was done using only a 3mm choke and people read it as a poor result because they ignored the choke size only to discover later that J-51 is the most productive well at Akkar East thus far. After that we come to the initial CPR, which should have a major impact on the share price. Other's have already said they think the company is underplaying it's hand a little. I totally agree with them, Jupiter seem to be waiting on the independent CPR numbers doing the talking for them, as they've been very conservative with what's been said about Akkar South thus far. I'm certain the initial CPR will upgrade the 2P reserves to at least 60-65MMBO, I'm hoping it might even go so far as to confirm 75-80MMBO at this stage. However I'll be keeping a very close eye on the STOIIP numbers because they ultimately will determine if my 115MMBO for Akkar East & Akkar South is eventually going to be close to the mark or not. That would mean the company currently has a market capitalisation that valued it at less than $1M for every 1MMBO of 2P reserves it had. Incredible to say the least. I expect Jupiter by the end of April or early May to be capable of producing somewhere between a very conservative 4,000 and 5,750 bopd. Whether the domestic traders can handle that sort of volume right now I don't know, but those sorts of production levels should mean that the company has passed the breakeven point. I'll be shocked and amazed if the share price hasn't reached £0.66 per share shortly after the CPR is released. LOTM |
Posted at 05/10/2012 11:46 by alnorton2 I wonder if this company will be sold before it gets attention of UK investors. |
Posted at 13/1/2012 06:19 by intouch 12th January 20129:00 am, Geoff Gander Jupiter Energy One2One Investor |
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