hartley report

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Adelphi Energy Ltd
WA Oil & Gas: Producer / Developer
Brief Business Description:
Hartleys Brief Investment Conclusion
Chairman & CEO:
Top Shareholders:
ARC Energy Limited (32.5%)
Mr Alexander Forcke (2%)
ANZ Nom Ltd (1.3%)
Company Address:
Valuation:
Issued Capital:
- fully diluted
Market Cap:
- fully diluted
Cash Equiv (31 Dec '09): $6.0m
Debt (31 Dec '09):
Valuation Summary
Value risked unrisked
Asset $m cps cps
Sugarloaf 107.5 73.0 182.4
Yemen 0.3 0.2 3.5
Cash 6.0 4.1 4.1
Debt ] ] ]
O/heads ] 4.0 ] 2.7 ] 2.7
Total 109.7 74.5 187.2
Resource Target (bcfe) 142
EV / 2P Resource ($/mcfe) $0.24
Source: Hartleys Research
Authors:
Dave Wall
Oil and Gas Analyst
Ph: +61 8 9268 2826
E: [email protected]
ADI.asx
BUY
26 Mar 2010
Share Price: $0.270
6mth Price Target: $0.447
Oil and gas explorer / producer with assets
onshore Texas
Highly leveraged to success from current
appraisal program in Texas
Alex Forcke (Chairman)
Chris Hodge (Managing Director)
Ground Floor, 88 Colin St
West Perth, WA, 6005
Hartleys has provided corporate advice within the
past 12 months and continues to provide
corporate advice to Adelphi Energy Limited. See
disclosure on back page for details.
$0.74
147.3m
147.3m
$39.8m
$39.8m
$0.0m
ADELPHI ENERGY LTD
What happened?
Adelphi Energy has reported sustained average 30 day flow rates from its
first two wells at its Sugarloaf project onshore USA. The Kennedy #1H well
has averaged 11.7 million cubic feet of gas equivalent per day* (gmmcfe/dh)
and the Weston #1H well has recorded average 30 day production of
11.4mmcfe/d. These results have been achieved without the benefit of
installation of production tubing, which has been indicated in nearby wells to
result in a decrease in initial decline.
The Company has also reported that it now has three additional wells in the
process of being drilled or fracture stimulated.
ADI is free carried through the current work program.
What does it mean?
At these rates, we estimate that each well is making US$50k-US$65k in
revenue per day, with combined revenue from both wells grossing estimated
US$3-4m in the first 30 days. We calculate that the average gas /
condensate production per well is 3.75 million cubic feet of gas per day with
615 barrels of condensate per day (flow rates will decline significantly in the
first year). With well costs estimated at US$6-8m, payback should be
achieved within 5-8 months.
It is still early days; however, each piece of new information received to date
has increased the potential of the play and estimated ultimate recovery per
well is now likely to be significantly greater than 5 billion cubic feet of gas
equivalent. To give an indication of potential value, there could be over 200
well locations on the Sugarloaf acreage, resulting in over 1 trillion cubic feet
of gas equivalent. We estimate that Adelphifs share of this at current spot
prices (US$80 oil, US$4 gas) is worth ~150cps (using US$2 per mcfe
calculated net present value and 10% working interest post farmout).
At US$100 oil, the valuation potential increases to over 200cps.
Strong newsflow is expected over the next 2-3 months as the additional 3
wells are completed, fracture stimulated and flow tested. Now that the
technical risk has been decreased due to a substantial number of successful
wells being drilled in the play, we view these wells as very low risk (90%
chance of success).
Hartleys Initial View
We recently upgraded ADI to a Buy based on the initial flow rates received
from its first two wells and consistent information from wells in the
surrounding acreage. This new information has increased our confidence in
the potential of the resource and we re-iterate our Buy recommendation and
short term price target of 45cps.
If initial results from the next three wells (expected over the next 2-3 months)
continue to be strong, there is substantial room in our valuation for further
large upgrades in price target and valuation, as indicated by our unrisked
valuation of 188cps.
*mcfe is calculated using a 12:1 conversion ratio for gas / condensate and a 25%
uplift in gas equivalent volume due to high calorific value of the produced gas
Hartleys Limited ABN 33 104 195 057 (AFSL 230052) 141 St Georges Terrace, Perth, Western Australia, 6000
Hartleys does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Apr-09 Aug-09 Dec-09 Mar-10
Volume - RHS
ADI Shareprice - LHS
Sector (S&P/ASX SMALL RESOURCES) - LHS
A$ M
Adelphi Energy Ltd
Source: IRESS
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HARTLEYS RESEARCH COVERAGE LIST
Hartleys Research Coverage Hartleys
Name Ticker Last M. CAP EV Research Industry
Price* (A$m) (A$m) Recommendation
Oil & Gas
1. Woodside Petroleum Ltd WPL 46.47 36,119 40,297 Buy Major
2. Eastern Star Gas Ltd ESG 0.940 825 771 Ceasing Coverage Producer / Explorer
3. Carnarvon Petroleum Ltd CVN 0.465 319 290 Buy Producer / Explorer
4. Nexus Energy Ltd NXS 0.265 254 435 Speculative Buy Developer / Explorer
5. Cooper Energy Ltd COE 0.540 158 62 Speculative Buy Producer / Explorer
6. Tap Oil Ltd TAP 0.980 153 94 Buy Producer / Explorer
7. Red Fork Energy Ltd RFE 0.780 108 80 Buy Explorer / Producer
8. Strike Energy Ltd STX 0.250 82 74 Buy Explorer / Producer
9. Amadeus Energy Ltd AMU 0.205 62 109 Buy Producer / Explorer
10. Adelphi Energy Ltd ADI 0.270 40 34 Buy Producer / Developer
11. First Australian Resources Ltd FAR 0.060 39 20 Speculative Buy Explorer / Producer
12. Sun Resources NL SUR 0.069 23 19 Speculative Buy Explorer / Producer
13. Oilex Ltd OEX 0.100 22 2 Neutral Explorer / Producer
14. European Gas Ltd EPG 0.100 20 84 Speculative Buy Producer / Explorer
Sub-Total 38,225 42,371
Resources
1. Riversdale Mining Limited RIV 8.80 1,658 1,390 Speculative Buy Coal
2. Atlas Iron Limited AGO 2.360 1,056 894 Buy Iron Ore
3. Western Areas NL WSA 5.00 895 1,074 No Rating Nickel
4. Dominion Mining Limited DOM 2.630 272 290 Speculative Buy Gold
5. Gold One International Limited GDO 0.285 229 172 Buy Gold
6. Silver Lake Resources SLR 1.135 203 172 Speculative Buy Gold
7. Jabiru Metals Limited JML 0.365 202 176 Buy Zinc-Copper
8. Focus Minerals Ltd FML 0.051 146 138 Speculative Buy Gold Producer
9. Intrepid Mines Limited IAU 0.325 139 92 Speculative Buy Gold
10. Magma Metals Limited MMB 0.680 111 90 Speculative Buy PGM-Cu-Ni
11. Peninsula Minerals Ltd PEN 0.045 62 55 Speculative Buy Uranium Developer / Explorer
12. Emmerson Resources Limited ERM 0.215 44 31 Speculative Buy Junior Explorer
13. Shaw River Resources Limited SRR 0.190 38 31 Speculative Buy Junior Explorer
14. YTC Resources Limited YTC 0.215 35 23 Buy Junior Explorer
15. Ferrum Crescent Limited FCR 0.185 29 27 Speculative Buy Iron Ore
16. Ausquest Limited AQD 0.120 27 1 Speculative Buy Junior Explorer
17. Orion Gold NL ORN 0.032 24 20 Speculative Buy Gold
18. Hazelw ood Resources Ltd HAZ 0.230 23 19 Speculative Buy Junior Explorer
19. Impact Minerals Limited IPT 0.180 21 17 Speculative Buy Junior Explorer
20. Southern Gold Limited SAU 0.110 15 11 Speculative Buy Junior Explorer
Sub-Total 5,145 4,657
Industrials
1. West Australia New s Hdgs Ltd WAN 7.82 1,812 2,087 Buy Media
2. Monadelphous Group Limited MND 15.060 1,296 1,164 Buy Mining Services
3. Clough Limited CLO 0.900 612 672 No Rating Oil & Gas Services
4. Macmahon Holdings Limited MAH 0.705 517 490 Buy Mining( C& Civtil Cotni str)uction
5. Mermaid Marine Australia Ltd MRM 2.710 504 638 Buy Oil & Gas Services
6. Ausdrill Limited ASL 2.27 475 697 Buy Mining Services (Drilling &
7. Austal Limited ASB 2.52 474 485 Speculative Buy CCapt ital tGMoiodi s )
8. Fleetw ood Corporation FWD 8.580 456 450 Neutral Consumer & Mining Services
9. NRW Holdings Ltd NWH 1.75 438 503 Buy Mining & Civil Construction
10. Cash Converters Limited CCV 0.600 218 175 Buy Retail & Consumer Finance
11. Neptune Marine Ltd NMS 0.450 196 208 Neutral Oil & Gas Services
12. Decmil Group Limited DCG 1.58 193 170 Buy Mining & Civil Construction
13. Southern Cross Electrical
E i i
SXE 1.37 166 150 Speculative Buy Mining Services (Electrical)
14. RCR Tomlinson Ltd RCR 1.165 154 197 Buy Mining & Industrial Services
15. Lycopodium Limited LYL 3.900 151 136 Buy Mining & Industrial Services
16. Imdex Ltd IMD 0.685 133 156 Buy Oil & Gas / Mining Drilling
17. Sw ick Mining Services Ltd SWK 0.435 103 152 Speculative Buy Mining SServiceli s (Drilling)
18. VDM Group Limited VMG 0.435 92 124 Buy Mining & Civil Construction
19. LogiCamms Limited LCM 1.01 61 50 Buy Resource Services
20. Nomad Building Solutions Ltd NOD 0.250 35 58 Neutral Residential & Mining Services
Sub-Total 8,085 8,761
GRAND TOTAL 51,454 55,789
Source: IRESS, Hartleys Research. * 26 Mar 2010
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HARTLEYS CORPORATE DIRECTORY
Research
Trent Barnett Head of Research +61 8 9268 3052
Andrew Muir Senior Resources Analyst +61 8 9268 3045
Mike Millikan Resources Analyst +61 8 9268 2805
David Wall Oil and Gas Analyst +61 8 9268 2826
Nikki Ermongkonchai Industrial Analyst +61 8 9268 2837
Janine Hodges Research Assistant +61 8 9268 2831
Corporate Finance
Grey Egerton-
Warburton
Head of Corporate Finance +61 8 9268 2851
Richard Simpson Director Corporate Finance +61 8 9268 2824
Paul Fryer Director-Corporate Finance +61 8 9268 2819
Dale Bryan Assoc Director-Corp Finance +61 8 9268 2829
Ben Wale Manager - Corporate Finance +61 8 9268 3055
Scott Weir Corporate Finance Exec. +61 8 9268 2821
Registered Office
Level 6, 141 St Georges Tce
Perth WA 6000
Australia
Postal Address
GPO Box 2777
Perth WA 6001
Australia
Contact Details
Telephone: +61 8 9268 2888
Facsimile: +61 8 9268 2800
Website: www.hartleys.com.au
Email: [email protected]
Note: personal email addresses of company employees are
structured in the following manner:
[email protected]
Hartleys Recommendation Categories
No Rating No recommendation.
Buy Share price appreciation anticipated
Speculative Buy Share price appreciation anticipated but it is higher
risk than a gBuyh. For the share price to rise it may
be contingent on the outcome of an uncertain or
distant event.
Neutral Take no action. Stock is already trading near the
share price target and there are no foreseeable
near term catalysts.
Reduce / Take
profits
Stock is trading above the share price target and
there is a near term negative catalyst that could
cause temporary weakness.
Sell Significant price depreciation anticipated
Institutional Sales
Carrick Ryan +61 8 9268 2864
Justin Stewart +61 8 9268 2887
Simon van den Berg +61 8 9268 3062
Steven Boyce +61 8 9268 2867
Nick Wheeler +61 8 9268 3053
Wealth Management
Nicola Bond +61 8 9268 2840
Bradley Booth +61 8 9268 2873
Adrian Brant +61 8 9268 3065
Nathan Bray +61 8 9268 2874
Sven Burrell +61 8 9268 2847
Simon Casey +61 8 9268 2875
Tony Chien +61 8 9268 2850
Travis Clark +61 8 9268 2876
David Cross +61 8 9268 2860
Nicholas Draper +61 8 9268 2883
John Featherby +61 8 9268 2811
Ben Fleay +61 8 9268 2844
John Georgiades +61 8 9268 2887
John Goodlad +61 8 9268 2890
Andrew Gribble +61 8 9268 2842
Neil Inglis +61 8 9268 2894
Murray Jacob +61 8 9268 2892
Gavin Lehmann +61 8 9268 2895
Shane Lehmann +61 8 9268 2897
Steven Loxley +61 8 9268 2857
Andrew Macnaughtan +61 8 9268 2898
Christian Marriott +61 8 9268 2828
Scott Metcalf +61 8 9268 2807
David Michael +61 8 9268 2835
Nicole Morcombe +61 8 9268 2896
Jamie Moullin +61 8 9268 2856
Chris Munro +61 8 9268 2858
Michael Munro +61 8 9268 2820
Ian Parker +61 8 9268 2810
Ian Plowman +61 8 9268 3054
Margaret Radici +61 8 9268 3051
Charlie Ransom (CEO) +61 8 9268 2868
Elliott Rowton +61 8 9268 3059
Conlie Salvemini +61 8 9268 2833
David Smyth +61 8 9268 2839
Greg Soudure +61 8 9268 2834
Sonya Soudure +61 8 9268 2865
Dirk Vanderstruyf +61 8 9268 2855
Marlene White +61 8 9268 2806
Disclaimer/Disclosure
The author of this publication, Hartleys Limited ABN 33 104 195 057 (gHartleysh), its Directors and their Associates from time to time may hold
shares in the security/securities mentioned in this Research document and therefore may benefit from any increase in the price of those
securities. Hartleys and its Advisers may earn brokerage, fees, commissions, other benefits or advantages as a result of a transaction arising
from any advice mentioned in publications to clients.
Hartleys has provided corporate advice to Adelphi Energy Limited within the past 12 months for which it has earned fees.
Any financial product advice contained in this document is unsolicited general information only. Do not act on this advice without first consulting
your investment adviser to determine whether the advice is appropriate for your investment objectives, financial situation and particular needs.
Hartleys believes that any information or advice (including any financial product advice) contained in this document is accurate when issued.
Hartleys however, does not warrant its accuracy or reliability. Hartleys, its officers, agents and employees exclude all liability whatsoever, in
negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law.