Under the radar
Investor sentiment has been severely tested in recent months, with ongoing global equity market concerns over a wide range of issues including sovereign debt issues in the Eurozone, weak employment data and budget deficit issues in the U.S., and emergent inflation in China.
In Australia weak retail, manufacturing and construction data is exacerbating sentiment issues, despite ongoing strength in the resource sector where commodity prices remain at elevated levels.
Against this backdrop smaller resource companies are struggling for attention from investors, creating deep value opportunities. One such opportunity is emerging oil producer Raisama.
Raisama is an emerging energy junior that was formerly focused on the uranium sector, but has been restructured following the acquisition of unlisted company Peak Oil & Gas which holds a range of exploration and development opportunities in the Asia-Pacific region.
The acquisition of Peak includes an opportunity to make a rapid transition to becoming an oil producer via the redevelopment of the modest scale, but low risk/low cost Cadlao project in the Philippines – with the promise of significant near term cash flow to support the company’s broader growth ambitions.
This project is part of SC6 located in shallow water offshore in the Palawan Basin, with Raisama holding a 50% participating interest.
The Cadlao oil field was originally discovered by Amoco in 1977 and subsequently developed for production using a floating production, storage & offloading (FPSO) facility in 1981.
Two wells produced an aggregate of around 11 million barrels (mmbbl) of premium (47° API) crude oil by natural flow over the ensuing eleven years.
The field was shut-in and decommissioned in 1991 when the low oil price environment (around US$19 per barrel) made it uneconomic.
The Cadlao permit has subsequently been remapped using 3D seismic to define significant up-dip structural potential of the field to host un-developed oil reserves. Independently certified (2P) reserves based on this work are 6.05 mmbbl.
The redevelopment plan centres on the proposed drilling of 3 new production wells (Cadlao 4, 5 and 6) to access attic oil up dip from previous production wells (Cadlao 1A and 3) which were sub-optimally located, as illustrated on the 3D seismic plan below:
Source: Company
The base case financial parameters appear attractive, with Raisama’s share of capex to first oil likely to be in the order of US$25 million and operating costs forecast at US$22 per barrel.
Initial high flow rates in the order of 20,000 barrels of oil per day (bopd) indicate project payback could be just 2 months around current spot pricing – although the oil rate very rapidly declines to around 500 bopd by 2016.
Nevertheless, financial modelling at spot pricing and using a 10% discount rate indicates the project worth to Raisama is in the order of $100 million – which compares favourably to the company’s current market capitalisation of less than $30 million.
Management is hoping funding can be finalised in the near term for a syndicated debt facility, possibly including convertible instruments as well as timely financing arrangements with potential offtake parties.
However, the fallback position is an existing A$20 million equity facility (which would be expensive/dilutive for shareholders).
The company is well advanced in its tendering and permitting processes, and expects to be in a position to announce a final investment decision (FID) in the next month or so – with development drilling to commence in early 2012, first oil a few months later and full field development some 6 months later.
Beyond Cadlao, Raisama has exercised an option for a 32.2% interest in SC6B Bonita block which surrounds SC6 Cadlao and provides opportunities to tie-back incremental oil production to Cadlao.
This includes further modest scale, low risk targets such as Cadlao East (potential 4 mmbbls recoverable oil located 3.5 kilometres from Cadlao) and Bonita (potential 2-3 mmbbls recoverable oil located 15 km from Cadlao).
While Cadlao is just one of a number of exciting opportunities in the company’s portfolio, it does have the added appeal of providing a timely, low risk transition to producer status.