Key points: * TXN reported net production of 63.7mboe for the quarter ending 31 March 2012 with production averaging 700boepd (net) from 21 producing wells. * The company sold the Leighton Olmos and Yegua production acreage effective 1 February 2012 and consequently production for the month through to 24 April has been 370boepd. * A fifth well in the Eagle Ford is scheduled to commence drilling in early May and the sales process for this asset is continuing. * There are a number of multi-well and resource oil projects being investigated by the company and TXN plans to take on one or more of these leases over the coming months with a view to beginning drilling towards the end of this calendar year * TXN plans to begin drilling its first Mosman Rockingham Olmos well in two to four weeks, with the expectation that operations will be completed within 45 days of spud and could potentially be on production by July 2012
Investment view: Given the expected near term newsflow on the sale of the Eagle Ford assets and the upcoming Mosman Rockingham Olmos well, we maintain our Buy recommendation and $1.04 price target on TXN. We think the recent unconditional On Market cash offer for EKA by AUT is positive for TXN, as it indicates there is interest in increasing exposure to liquids-rich plays. We have looked at the offer, and though we can't determine how much value is attributed to the three different plays which EKA holds in the Eagle Ford and what the ultimate spend will be by AUT, we can assume that it is likely that most of the value has been attributed to the 6.25% interest (1521 net acres) that EKA has in the Sugarloaf AMI. AUT and Marathon are currently in the Sugarloaf AMI and it would make sense that AUT would want the additional 6.25%. TXN operates to the southwest of the Sugarloaf AMI in the Eagle Ford, in the liquids-rich window, but is at an earlier stage of development. We therefore think that a read through valuation is not possible, but remain comfortable with our valuation range for the TXN EFS acreage of US$200m to US$280m.
Additional Details: DISCLOSURE - RBS Morgans Corporate Limited is a Joint Selling Agent for the potential whole or part sale of the assets of Texon Petroleum Group Limited and may receive fees in this regard.
TXN Price at posting:
59.5¢ Sentiment: Buy Disclosure: Held
