In a Jan. 20 research note, analyst Tom Eric Kristiansen reported that Pareto Securities initiated coverage on PetroNor E&P Ltd. (PNOR:OSE) with a Buy rating and an NOK 1.3 target price. The current share price is NOK 0.98.
Kristiansen, noting the company has "high growth ambitions ahead," presented the highlights of the PetroNor story. For one, the energy company "delivered solid production growth" and a 25%-plus return on capital since securing four oil fields in offshore Congo's Pointe Noire Grand Fond (PNGF) Sud block in 2017. Three years later, these fields are expected to produce 2,400 barrels of oil equivalent per day (2,400 boe/d) net in 2020, a greater than 50% increase, at a lower operating expense of US$12 per boe versus $26. This is due in large part to workovers of existing wells being done at a low cost. Thus, late last year PetroNor increased Proven and Probable reserves there by 28% to 11,200,000 boe.
"We estimate that PetroNor E&P will generate an average annual fixed capital outlay of US$18 million in 2020 to the end of 2022 at Brent US$65 per barrel oil that likely will be reinvested info further growth," Kristiansen commented.
Also late in 2019, PetroNor engaged in several transactions to pursue overlooked potential on the Aje block in offshore Nigeria and thereby potentially grow the company further. When the Aje transaction closes, it will increase PetroNor's production base to about 2,600 boe/d from 2,300 and offer further growth potential.
Further, PetroNor has exposure to four disputed exploration blocks in The Gambia and Senegal, which have "a very large, derisked upside potential of 4.9 billion boe gross," Kristiansen described. The company is working to resolve the issues, for which final rulings are anticipated later in 2020.
Looking forward, PetroNor aims to increase production to 30,000 boe/d over the next three years through mergers and acquisitions. "We expect further transactions to be announced in 2020," noted Kristiansen. The oil company will continue to invest in workovers, infill drilling and exploration wells, likely funded by cash flow from production, possibly increased leverage and/or new equity.
Kristiansen concluded that "the company today trades fairly in line with our valuation of its producing assets indicating upside potential if PetroNor E&P is able continue to grow production at the PNGF Sud block, successfully revitalize the Aje partnership and/or secure a positive outcome of the ongoing arbitration processes related to the legacy assets from Africa Petroleum (final rulings expected in 2020)."
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