Monday, 5th November 2012
Kea Petroleum
Conventional Oil & Gas Exploration Play in New Zealand with Guaranteed Buyer of Gas. Gas Buyer Funding 50% of main prospect Speculative Buy
Price: 9p – 9.5p Target: 20p TICKER: KEA.L (AIM) Sector: Oil & Gas Share Price Performance
11.0
KEA KEA PETROLEUM ORD 1P
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5
4.0
Q4-2011
Q1-2012
Q2-2012
Sourc e: Fides s a
Key Data Mkt. cap: No. of shares: 12 Month Hi/Lo Website: Kea Petroleum has built up wholly owned stakes in the Taranaki basin located in North Island New Zealand. The stakes offer optionality to generate cash and/or cost carry exploration prospects. The conventional nature of the assets lowers the drilling risk and costs associated with drilling. Kea has 9 prospects across four licences, with a P50 of 1.2 Tcf of gas and 96mmboe of oil/condensate. The largest prospect lies offshore in Mauka where a 50/50 costs carry with Methanex has been achieved, with a further equity farm down currently being actively pursued. When completed, these transactions mean Kea will have zero transaction costs on the prospect. The current share price is underpinned by the valuation of Puka 1 & 2, however there is additional upside through Mauka, Mercury, and Douglas all of which may be drilled in 2012/13. Beyond Puka 1 & 2, a further 6‐10 wells are planned for 4Q’13 which could lead to production increasing to 2,000bpd from an initial base of 500bpd. Even excluding these additional volumes, revenues will be able to match projected capex over the next two years with excess cash of £12m by FY’13. £50.70m
Q3-2012
548.07m
10.875p ‐ 4p
keapetroleum.com
Analyst Harry Stevenson (t) +44 (0) 207 382 8384 (e) [email protected] 2nd November 2012 Placing Kea Petroleum plc (AIM:KEA) is pleased to announce that the Company has successfully raised gross proceeds of GBP7 million through the issue of 87,500,000 new ordinary shares (the "Placing Shares") at an issue price of 8 pence per share. The proceeds of the Placing will finance the drilling and testing of an additional two wells in the Puka area and the completion of 50km(2) of 3D seismic over the area. The seismic will help locate further appraisal and development wells at Puka with the objective of increasing production. The Company has recently carried out an internal review of its prospects and leads. The results of this review, which contain revised resource estimates, are included in an updated Company presentation which can be viewed on the Company's website www.keapetroleum.com. The Directors intend to commission a Competent Persons Report on Kea's prospects during 2013 following the completion of the Mauku‐1 and Puka‐2 wells and the interpretation of the upcoming Puka and Mercury 3D seismic surveys. Management Previous Success The majority of the Kea Board previously worked together at Rift Oil plc, a company acquired by Talisman Energy Holdings Ltd in 2009. AIM listed company delivered a three‐fold return on investment over a four year period, while demonstrating the ability to operate in the challenging environment of onshore Papua New Guinea. Same management has now chosen to focus on New Zealand, where it has considerable expertise,
________________________________________________________________________________________________________________________________________________ THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment research, although as a matter of policy HB Markets plc requires its employees not to deal ahead of the dissemination of the report. Kea Petroleum
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particularly in the prolific Taranaki Basin. They have identified a variety of exploration targets and and believe significant further reserves can continue to be found and developed. Kea has identified two particular targets it feels well suited to exploit in its permit areas PEP 51155 and PEP 51153. Historic Work The company have drilled one well on each of the PEP 51155 and PEP 51153 permits in the Taranaki Basin and also carried out initial seismic surveying on the PEP 51339 permit in the Northland Basin. Furthermore a 10% interest in an offshore well in permit PEP 38524 and a wildcat hole in Australia’s Surat Basin have also been completed. Methanex Deal The Company has entered into a conditional funding and participation agreement and a gas off take agreement with Methanex New Zealand. Under the terms of the agreements, Methanex funded the drilling of a well (Beluga‐1) on Kea’s permit PEP 51155 in consideration for Kea granting certain rights to Methanex to purchase the gas discovered and share in the profits from the development of the Beluga prospect. In October 2011 Methanex agreed to 50% participation in the drilling of the Mauku‐1 well in licence area PEP 381204. New Zealand Despite a comparatively small population and abundant natural resources, New Zealand is a net importer of energy, in the form of oil products. The ratio of non‐renewable and renewable energy sources has been fairly consistent from 1995 to 2005, with about 70% of primary energy supply coming from fossil fuels and about 30 per cent coming from renewable sources. Loaction of Asset below. Kea Petroleum
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The onshore Taranaki Basin is home to Australasia’s largest onshore oil field at McKee, Australasia’s highest onshore flow rate wells at Waihapa and at least two gas‐condensate fields, namely Kapuni and Mangahewa. The third offshore well drilled in New Zealand discovered the ‘giant’ Maui gas‐condensate field in 1969. More recently, oil discoveries have been made offshore with the Tui and Maari fields along with the Kupe and Pohokura gas discoveries. Preliminary Results 31 10 2012 Operational Highlights • Successful discovery at Puka 1 following drilling and testing which intersected a 40 metre interval of Mt. Messenger reservoir quality sands with a net pay of between 4.5m and 9m with sampling indicating excellent quality light oil with a density of 43.7 degrees API and a relatively low pour point of 15 degrees centigrade • Testing confirmed that Puka is an oil and gas field of commercial dimensions with maximum flow rates of 310 bopd and 1.8 mmcf/d from Puka 1. Kea intends to drill a second well in the coming weeks that will allow for higher flow rates and flexibility with completion and production. • The directors believe that the Douglas 1 well has implications for a number of the deeper oil and gas plays along the eastern margin of the Taranaki Basin • Farm out discussions proceeding for Mercury, Kea’s seven kilometre offshore field which is expected to be drilled in 2014 • Board strengthened with appointment of Richard Parkes as Managing Director to manage the day to day running of the Group. (See Appendices for biographies) Strategy • Kea intends to complete a 50 km2 3D seismic survey over Puka and the surrounding area following recent geological analysis suggesting the strong possibility of a greater Puka field • Kea’s ambition is to achieve production of 2,000 bopd from the Puka field which is located nearby to the required infrastructure, pipelines, roads and sea oil terminal • Drilling of Mauku 1 is expected to commence in January 2013 • Further testing of Douglas 1 well delayed until 2013 as resources focused on Puka • Mercury is expected to be drilled in 2014 following a 3D seismic study next year • Kea is planning to carry out a further seismic programme jointly funded with Methanex at its Angus site located on PEP 51155 Puka On 10 April 2012 Kea announced that it had made a discovery and subsequent testing, in September 2012, confirmed that Puka is an oil and gas field of commercial dimensions with maximum flow rates of 310 BOPD and 1.8 Mmcf/d and no confining boundaries. Puka 1 was drilled with a small rig primarily designed for exploration but not ideal for production or establishing reliable long term production data. Plans are well advanced for extending the Puka site and the existing Wingrove production facilities are in the process of being moved to the Puka production site in order to commence production and oil sales. Installation work is expected to be undertaken during the drilling of Puka‐2. The Puka 2 well, is scheduled to be drilled in the coming weeks, and will be drilled by a larger capacity rig with a wider diameter production well bore that will allow for higher flow rates and flexibility with completion and production. Kea intends commencing a 50 square kilometre three dimensional (3D) seismic survey over Puka and the surrounding area. Recent geological analysis incorporating data learned from drilling Puka 1, suggests the possibility of a greater Puka field. The drilling of Puka 2 and the 3D seismic will enable the Company to assess if this analysis is correct. Kea Petroleum
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Kea’s ambition is to achieve production of 2,000 BOPD from the Puka field which is located nearby to the required infrastructure, pipelines, roads and sea oil terminal. Chairman, Ian Gowrie‐Smith said: “The discovery at Puka has been a landmark achievement for Kea and a vital step in our ambition to become a major player in oil and gas production in the Taranaki region. Over the next 12 months, Kea will concentrate on moving from a solely exploration led model to a balance of production and exploration. The coming months represent immediate exciting opportunities for the Company with the development of the Puka field and the concurrent drilling of Mauku 1.” Conclusion Without doubt an exceptional opportunity to buy into potential near term producer, having made, not only a discovery, but signed with a major partner to not only buy gas, but fund 50% of the exploration and development costs. SPECULATIVE BUY Strengths and Weaknesses Strengths Weaknesses •
•
•
Successful Oil & Gas Discovery; Near term Producer; Major deal to sell gas to Methanex and 50% funding the cost of exploration; •
•
•
•
In discussions with potential farm in partner in the Methanex prospect. •
Subject to oil price fluctuations; Development risk associated with bringing production on stream; Exploration may not deliver an economic resource; Delays to production may defer expected cash flows. Source: HB Markets Apendix Ian Gowrie‐Smith (63), Chairman & Non‐Executive Director Ian has been a founder and developer of mining and pharmaceutical public companies over the past 30 years. He was the founding Chairman of SkyePharma plc. Prior to establishing SkyePharma, Ian was founding Chairman of Medeva plc and Griffiths Bros. Limited, which listed TiO2 Corporation, a company responsible for the largest illmenite deposit in Western Australia. He was also Chairman of Rift Oil plc prior to its successful sale to Talisman Energy in 2009. Dr David Bennett (65), Director of Exploration Dave Bennett is the former Exploration Manager of NZOG (New Zealand Oil and Gas Ltd), a company listed on the New Zealand Stock Exchange and the Australian Stock Exchange, and former Chief Executive of Austral‐Pacific Energy Ltd, and a past Director of Rift Oil plc. Dave has also been a university lecturer and a government scientist, but since 1982 has been involved in oil and gas exploration in New Zealand and elsewhere around the Pacific Rim. Dave has played a prominent role in a number of successful oil and gas discoveries in New Zealand and Papua New Guinea. Dave is a New Zealand resident. Peter Wright (42), Finance Director Peter Wright holds a Bachelor of Commerce Degree in Economics from the University of Cape Town. Peter was previously Finance Director of Triple Plate Junction plc and prior to joining Triple Plate Junction, Peter acted as a consultant on audit, accountancy and corporate finance matters for a number of AIM listed companies. Peter was also previously Finance Director of Rift Oil plc prior to its successful sale to Talisman Energy in 2009. Kea Petroleum
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David Lees (64), Executive Director David has extensive experience in the management and promotion and financing of public companies. David was a founding Director of Griffiths Bros. Limited, Medeva plc, NamesCo plc, Rift Oil plc, SkyePharma plc and Triple Plate Junction plc, and is, together with his role in Kea Petroleum currently Chairman of Asia Digital Holdings plc, and a Director of Metis plc, Network Estates Limited and Accident Exchange plc. Dr John Conolly (75), Non‐Executive Director Dr John Conolly is the Executive Chairman of Rawson Resources Limited, a company listed on the Australian Stock Exchange. John has over 30 years of experience in the oil and gas industry in Australian and international arenas. Between 1980 and 1988 he was an executive director of Sydney Oil Company LimitedJohn is a member of the American Association of Petroleum Geologists and the Petroleum Exploration Society of Australia and an associate of the Energy & Geoscience Institute at the University of Utah’s College of Engineering. Throughout his career John has published widely and has consulted to Australian government agencies and the oil industry. John Bentley (63), Non‐Executive Director John has over 30 years experience in the natural resources sector in Africa, South America, North America and Europe including 20 years with the Gencor Group and Energy Africa Limited, which he took through the listing process in South Africa. John was Chief Executive Officer of Energy Africa for five years, building it up to be one of the leading independent exploration and production companies in the region. John is currently chairman or director of a number of public companies including Artumas Group Inc, Faroe Petroleum plc, Resaca Exploitation Inc, CDS Oil & Gas Group plc and Scotgold Resources Ltd. John was previously a Non‐Executive Director of Rift Oil plc. Peter Mikkelsen (58), Non‐Executive Director Peter is a geologist with 30 years of upstream oil industry experience, including 15 years at exploration manager level or equivalent. Peter joined Carless Exploration Ltd, working on its UK onshore and offshore portfolio and was primarily responsible for onshore discoveries in the early 1980s. Peter became Vice President of Exploration of Carless’s US subsidiary in 1986 and then returned to the UK to join Brabant in 1988. As exploration director, Peter was involved in a number of North Sea discoveries, including Malory, Hannay and Goldeneye, together with an expansion of Brabant’s international portfolio into Europe and Tunisia. Since leaving Brabant/EDC in 1999, Peter now specialises in the initiation and development of exploration projects at an early stage, particularly in regional evaluation, government negotiation and licence application. Peter was previously a Non‐Executive Director of Rift Oil plc. John Dennehy (60), Commercial Director John Dennehy has an extensive track record in international banking and finance, including as co founder of McAuley, Dennehy & Tolley, one of the UK's leading independent structured asset finance houses. MDT's clients included sovereign flag carrier airlines, major European transportation groups and financial institutions. Apart from having held a number of board positions in New Zealand, John has also advised on a NZ government agency funded alternative energy programme, and on the international funding of infrastructure projects in the Pacific Island states. John is also currently executive chair of Simcro Ltd, a leading NZ agritech company, developing animal drug delivery systems for the major international pharmaceutical groups. Kea Petroleum
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Recommendations
During the three months to end-September 2012, the number of stocks on which HB Markets has published recommendations was 157, and the
recommendations were as follows: Buy - 61; Speculative Buy - 34; Hold - 48; Sell - 14.
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