Buru Energy Limited

BRU Details

BRU Secures Full Ownership of Canning Basin Exploration Permits:Buru Energy Limited (ASX: BRU) is an oil and gas exploration and production company. The company recently released an announcement notifying that it agrees to the withdrawal of Roc Oil (Canning) Pty Limited’s 50% interest in Canning Basin exploration permits, EP 428, EP 436 and EP 391. BRU now assumes 100% equity in the three exploration permits. As per the original Farm-in Agreement, signed by both the parties in 2018, Roc was either supposed to earn 50% interest in the permits by carrying BRU through an agreed exploration program by 30 June 2020 or withdraw from the agreement at that time.

Operations Update: On 18^th November 2019, the company updated that production from the Ungani Field went up to ~1,700 bopd, after the completion of the Ungani 7H well.The company also notified that the planned third lateral in the Ungani 7H well could not be completed due to directional drilling equipment’s operational issues, which have now been catered to. Overall, the company reported a substantial increase in production at the Ungani field after the completion of the Ungani 7H well.

Quarterly Highlights: During the quarter ended 30 September 2019, the company produced ~86,000 bbls of oil from the Ungani Oilfield as compared to ~88,000 bbls in the previous quarter. At the end of the period, the company reported ~$46.7 million in cash as compared to $58.8 million as at 30 June 2019. Net cash outflow for the September quarter came in at $12.1 million.


Quarterly Cashflows (Source: Company Reports)

Outlook: After reporting a substantial increase in production post completion of Ungani 7H well, the company is now looking forward to the completion and tie in of the Ungani 6H well to further increase production.BRU is taking all the possible steps to ensure maximum production from the field in 2020. As per the management, both the wells have the potential for a significant increase in oil production rates. During the December quarter, the company expects total cash outflow amounting to $16.7 million.


Forecasted Cashflows (Source: Company Reports)

Stock Recommendation:The stock generated negative returns of 16.28% and 29.41% over the period of one month and three months, respectively. Currently, the stock is trading on the lower band of its 52-week trading range of $0.165 - $0.360. The company now owns a 100% stake in the Canning Basin, which makes the business highly attractive. BRU now intends to commence a wide ranging farmout process in 2020 after the completion of a prospect and regional scale technical review. It will focus on further exploration to identify the potential at the basin. The stock has an EV/Sales multiple of 1.6x, which is lower than the industry median of 19.1x, indicating the undervalued position at the current juncture. Considering the above factors in combination with the outlook, we give a “Speculative Buy” rating on the stock at the current market price of $0.175, down 2.778% on 16 December 2019.

 
BRU Daily Technical Chart (Source: Thomson Reuters)
 

Carnarvon Petroleum Limited

CVN Details

FEED Phase for the Dorado Project to Commence Soon:Carnarvon Petroleum Limited (ASX: CVN) is engaged in the oil and gas exploration and production activities. The company recently provided an update on the Dorado field, stating that Santos Limited, the operator of the Dorado project, released initial ‘concept select’ information in relation to the proposed liquids development for the project. The results demonstrated strong flow rates potential with respect to the project and the company is looking forward to finalising the concept select in the coming months to begin the Front End Engineering & Design (FEED) phase in early 2020. The FEED process will involve the final development and contracting strategy for key components of the liquids development at the field.

Cashflows:During the quarter ended 30 September 2019, the company reported operating cash outflows amounting to $19.94 million. Cash flow from financial activities came in at $78.42 million. At the end of the period, the company had a cash balance of $133.40 million. During the December quarter, total cash outflows are estimated to be around $17.98 million.


Estimated Cash Outflows (Source: Company Reports)

Outlook:To fund the planned development at the Dorado field, the company has commenced discussions with domestic and international banks and received a positive response so far. Moreover, the company has also attracted the attention of the oil traders and plans to commence the formal financing process after finalising the development concept and contracting strategy with respect to the project.

Stock Recommendation:The stock of the company generated negative returns of 12.68% and 16.22% over a period of one month and three months, respectively. Currently, the stock is trading at the lower band of its 52-week trading range of $0.305 - $0.625. In FY19, the company reported significant oil and gas discovery in the Dorado-1 exploration well.Considering the recent developments with respect to the Dorado project, response with respect to funding, price movements and current trading levels, we give a “Speculative Buy” rating on the stock at the current market price of $0.340, up 9.677% on 16 December 2019.

 
CVN Daily Technical Chart (Source: Thomson Reuters)

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