Hartleys Update:
http://www.adelphienergy.com.au/files/brokerreports/Hartleys Broker Report 26 March 2010.pdf
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* (“mmcfe/d”)
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 Adelphi’s 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
http://www.adelphienergy.com.au/files/brokerreports/Hartleys Broker Report 26 March 2010.pdf
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* (“mmcfe/d”)
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 Adelphi’s 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