In a March 14 research note, analyst Bill Newman reported that Point Loma Resources Ltd. (PLX:TSX) has "multibagger return potential" given the future aggregate production outlook from its three plays: Duvernay, Banff and Rex, which was recently acquired.
Newman indicated that in 2018, Point Loma increased its Proven and Probable (2P) oil reserves 19% year over year. The new total, 5.3 million barrels of oil equivalent, has a before-tax estimated net present value discounted at 10% (NPV10) of CA$38.4 million, or CA$0.54 per share.
Accounting for 92% of that 2P oil reserves increase is Point Loma's high-impact, horizontal Rex discovery well, 16-17-48-27W4, in the Upper Mannville oil play in west central Alberta, explained Newman. That well has an estimated 105,000 barrels net (105 Mbbl) of 2P nonproducing reserves plus an assigned 420 Mbbl from three Proven undeveloped and one Probable location. These reserves take the 2P total for the Rex discovery to 525 Mbbl, with an NPV10 of CA$8.8 million, or CA$0.12 per share.
This value compares to Point Loma's current market cap of CA$12 million, and indicates the stock is trading at 32% of its reserves value, excluding the company's Banff and Duvernay plays, Newman highlighted. Point Loma "should be trading significantly higher than the current trading price," which is currently at CA$0.20 per share. Mackie's target price on the company is CA$1 per share.
Once the oil and gas exploration and development firm has regulatory approval, it intends to build production facilities for the Rex well and place it online in Q2/19. In the future, the company expects to drill in 14 more spots on its 3,385 acres at Rex.
The "potential prize" with Rex, Newman pointed out, is that the Rex pool "has the potential to hold 60 million barrels of original oil in place." Its potential net recoverable resource is about 4.2 million barrels, which Mackie estimated using a 10% recovery factor for primary production only. "Valuing [that] at a conservative $5 per barrel results in an unrisked value of CA$21 million, or CA$0.29 per share," he added.
Looking forward, Newman wrote, Mackie expects that with output from the Rex discovery well alone, Point Loma will double its Q2/19 oil production to more than 350 barrels per day, with additional drilling this year potentially driving up the production rate even more.
Mackie has a Buy rating on Point Loma.
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Disclosures from Mackie Research, Point Loma Resources Ltd., Update, March 14, 2019
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