HZN - Horizon Oil

And again to-day an enormous number of shares traded ; perhaps to-wards 0.40 cents in the next few days ..anyone have any thoughts ?

research from euroz
Australian Equities Research

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Horizon Oil Ltd (HZN $0.32) – Buy

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Price Target: $0.49

Reason for Update: NZ Appraisal Drilling & Company Update

What We Know:
HZN has announced that a reservoir section of 1524m was penetrated with an approximate net-to-gross of 60-70% at the Manaia appraisal well.
Drilling logs plus gas-ratio analyses confirm the presence of hydrocarbons throughout the net reservoir sands.
Pre-drill estimates indicate that the main reservoir at Manaia contains 58mmbbls of oil in place (OIP).
Operator OMV has indicated that it intends to complete the Manaia well as a producer.
Flow-rates and revised volumetrics will be assessed post the completion phase, in the coming weeks.
In place volumes of 35mmbbls estimated for the M2A zone. The M2A appraisal well will also be completed as a producer; flow rates and volumetrics are expected in the next two weeks.
HZN has announced sale of 50% of its interest in PRL4 (Stanley field) to Talisman (TSX listed E&P) for US$60m, comprising: US$30m cash paid Sept 14 and two tranches of US$8m and US$22m to be applied to development at either/both PRL4 and PRL5.
Talisman has also taken a 50% interest in PRL5 (Elevela-Ketu field) by securing STO’s interest for the US$20m consideration offered originally by P3GE. As a result, HZN’s PRL5 interest has increased to 50%.
An appraisal development drilling campaign for PNG is expected to commence in the Mar Q.
FID for China (Beibu Gulf) is anticipated for mid FY’10.
HZN has cash of US$33m and debt of US$36m as a Sept 30.
What We Think:
Success at Manaia and M2A warrants an increase to our total Maari valuation based upon our estimated increase to recoverable reserves to ~85mmbbls.
In addition, we assume that plateau production of 35kbbls/day is sustainable to 2013 given the horizontal completions (C/F vertical used at Tui) used in the development.
We have also adjusted our cash and debt to reflect HZN’s net debt position of US$3m as at Sept 30.
Our resulting valuation has improved to A$0.39/sh. Our price target has also improved as a result to A$0.49/sh based upon the upside we view for HZN’s gas interests at PNG.
Our recent upgrade to our PNG nominal valuation reflects the US$140m implied by the recent Talisman transaction (US$60m in cash for 50% of Stanley, valuing HZN’s retained 50% at US$60m, plus the US$20m implied value of HZN’s 50% interest at Elevala-Ketu based upon the US$20m paid to STO by Talisman).
We view that the PNG sale largely values the short-term condensate potential. In addition, Talisman’s recent dealings in PNG (Rift Oil for US$177m and NGE) is part of a broader gas aggregation play to improve the economic viability of their proposed Pandora LNG development and/or to participate in future trains at Exxon’s PNG-LNG development.
As such, tremendous upside can be seen crystallising from the gas at Stanley and Elevala-Ketu in the medium term. Using an in-ground price of US$0.25/GJ (broadly in-line with the implied transaction value paid for Rift Oil) for HZN’s independently certified resources, equates to ~A$110m to HZN or $0.10/sh upside to our valuation, underpinning our price target.
We see upside of a further $0.10/sh to our valuation and price target from both Maari and China in the short-term. We believe that the successful development of M2A and Manaia will encourage the Maari JV to consider debottlenecking facilities to increase production by at least 5kbopd. This would add a further A$0.05/sh to our valuation.
Similarly, FID for Beibu Gulf (HZN 14.7%) will de-risk the project (currently we apply a 50% discount to our NPV). This will increase our valuation by US$50m (A$0.05/sh).
Investment Case
HZN remains the most compelling small oil exposure on the ASX, with a strong underlying cashflow to fund an clearly defined, achievable growth strategy. Management continues to execute operationally and corporately to deliver value to shareholders, the PNG transaction no exception. We retain our Buy recommendation with a $0.49/sh price target.

HZN’s Maari asset continues to build as a cornerstone asset that offers strong, stable, long-term cash flow to leverage growth potential of the remainder of its portfolio. In addition, we believe that the Maari development has the capacity to add further upside via increased plateau production rates. Additional catalysts and increases to valuation exist with impending FID at China and crystallization of value from HZN’s material gas resource at PNG.

The market is repricing HZN based on a couple of factors. The Mitsubishi stake in the PNG prospects is another sign that the pieces of the puzzle are coming together to start developing these prospects and puts a look through price on these assets that showed the market cap of HZN was too low. The upgrade of the estimate of the resource at PRL 21. The current (cyclical?) rise in oil prices is no doubt helping push the whole sector along.

My short term, low end target is for $0.42 but I think the potential is much greater than that over the next couple of years. Yet this is a volatile stock and is better suited to trading in and out of over the cycles.

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=28837999-9697-21ED-364287B239DFC3AA

Yes this has been hard even for oil analysts , and in the past week they have admitted that the game is coming together to make sense . Strachan used a header "Horizon of GAS" as he realised the PNG game . By mid April they hope to have more of the game in PNG . The majors are now with it ! This is important .

HZN is looking much better after this week , and can only move on to increase value .

1. China .... progressing ;oil product 9 months away

2. NZ ....... More action in NZ Nov 2012 ; drilling reserves

3. PNG ..... "Horizon" of Gas/Liquids .

Now , the analysts are to play catch-up as so much is happening , most will wait till a result from Ketu-2 well ! A couple have put out new numbers this week , Macquarie Equities =55c ; Stockanalysis =65c .

Late April 2012 will see 5-6 more reworked numbers as all catch-up with the "game".

I hold HZN , I personally see a good game played through to Feb/Mar2013 in areas 1. 2. & 3. above ....

Weak quarterly production figures just in for the Maari field continuing a long stretch of troubles with these wells. That said, the latest forecast EPS figures I have (Reuters Thompson 27/4/12) are still too low IMHO. The market capitalisation is still too low IMHO. Market doesn't seem phased by the lower production, probably concentrating on the promising progress of the Chinese field and of the prospects for production to commence at the Stanley field in the medium term.

These little producers can be quite frustrating to hold. HZN is the twin to MML in my portfolio. Both full of promise, but yet to live up to their potential.

ROC have found oil in the first of three exploratory drills they are conducting in the Beibu Gulf resource and it will be added into the current Beibu Gulf development project.

HZN is hitting resistance at 44c.

Very interesting comments in the chairman's address to the AGM:

Over the last 3 years we have realised a total of US$55 million in pre-tax profits
from the sale of part of the Company’s PNG assets, in the process of managing
our current interests in PRLs 4 and 21 down to 50% and 45% respectively. This is
an example of success arising from continual review and tailoring of Horizon
Oil’s asset portfolio to achieve the appropriate risk/reward profile, in harmony
with the Company’s financial position and funding capacity. Such adjustments
are not “once-offs” - rather, they are an important ongoing means of adding
shareholder value and responding in a responsible way to our company’s
particular circumstances.

With this in mind and against the background of...

 the Company’s substantial future growth and development funding
requirements, particularly as a result of our recent appreciation of the
potential for a large integrated petroleum liquids and LNG project in PNG;
 the relatively high interests we have in the PNG licence areas referred to
above and our objective of achieving a sensible weighting of interests within
the overall asset portfolio; and
 our intention to return part of future cash flow to our shareholders, rather than
invest it entirely in the capital program

...the board has initiated a sale process of a partial interest in our PNG assets with
the intent of introducing a new participant who will add strategic value to our
already strong joint ventures. We believe Horizon Oil has a commanding and
material position in the liquids-rich “sweet spot” of the Papuan foreland basin and
we have had strong interest in the sale from substantive LNG industry players.

Click to expand...

The true value of HZNs assets have been crystallising over the past year or so. First there was Mitsubishi buying an interest in PRL4 and PRL 21 which gave a look-through valuation of HZN's share of those assets of $330m and raised the prospects of seeing the fields going into development. This raised the issue of HZN needing to take on debt should the development go ahead. The chairman's comments above though, suggest that HZN are keen to sell further interest in order to see the development go ahead but at acceptable risk and gearing ratios for HZN. I think this is a great strategy for shareholders. It will realise some of the value in these assets, which, IMHO, have been completely discounted out of the share price! So, relative to the current share price, this would represent a windfall for investors, especially if it ends up being paid out which is the direction HZN is heading in - returning excess earnings to shareholders. In the current economics, a medium sized LNG processing plant should be feasible to exploit production in this area which is described as the "PNG sweet spot".

The current price appreciation has also come on the back of the recent discoveries of substantial additional resources in Beibu Gulf which will be exploited as part of the current development project.

It is tempting to sell at 44c but I don't think the market has caught up yet with the true value of HZNs assets.

52week high today on decent volume so far, analyst mean of 0.51, good assets, it is tempting to buy

Does anyone have an opinion on the deal with Osaka Gas Co? Seems like a good deal to me on first glance. If the look-through value of Horizon's share of PRL4 and PRL21 based on the Mitsubishi deal was around $330m then selling 40% of that stake (with the more recent exploration leases thrown in) for $204m seems like a good deal on the surface.

I don't currently hold HZN.

Looks pretty good to me and gives a look through value of $500m.
Market doesn't seem to have liked the fact that it is predicated on HZN being granted the Stanley Development license and the second payment being paid once a FID is made on a LNG project.

The Osaka deal needs more info , probably why the Market is shy . Expect more clarification on matters of obligation and confidentiality in coming 2 weeks.

Bonk said:

The Osaka deal needs more info , probably why the Market is shy . Expect more clarification on matters of obligation and confidentiality in coming 2 weeks.

Click to expand...

I don't hold HZN at the moment but i have had some success with it over the past couple of years. Let us know when you hear anything

A lot has happened lately . No more info on the Osaka factor . Ofcourse this is a lot better than people know . I am happy to embrace it . HZN has done a CR and retail part is currently open . The Institutional side was fast , and lately it has been revealed the big interest taken on by the Commonwealth Bank. The market just doesn't get it . Sentiment will change next months and we wont have todays values. Lots happening so refer ASXann. for detail

Increased my holdings by 20% last week

Well HZN is certainly a share that has taught me that the share market can certainly disappoint a fundamental analyst or "value" investor. I've been in and out of this stock based on the price action but also with a conviction that this company is a good investment. That's how I do 80% of my stock buying these days - only invest in companies which have decent fundamentals but time entry and exit based on the price action around the perceived value.

Currently I hold HZN and I have found the price action in the past month, and especially yesterday, leading up to today's announcement as quite interesting. The beginning of the month saw big turn-over that pulled the price back down into a tight range through September (quite unusual for this stock). [edit to add that I forgot they did a capital raising]. Yesterday the price really dropped prior to today's announcement of drilling results and a big lift.

Maybe I'm being too cynical. The price of oil has been steadily dropping of late. It does seem, looking at the chart, for whatever reason, that the price has been in an accumulation phase until today's price action.

The recent capital raising would of weakened the SP, often the SP will trade at around the issue price soon after and can stick around at that level for quite a while...i had a 'look' at Horizon for the first time today and subsequently have added it to a watchlist...some potential.

So_Cynical said:

The recent capital raising would of weakened the SP, often the SP will trade at around the issue price soon after and can stick around at that level for quite a while...i had a 'look' at Horizon for the first time today and subsequently have added it to a watchlist...some potential.

Click to expand...

Just wondering what people think of the below announcement? So_Cynical are you still casting your eye over this one?

HORIZON OIL (HZN) ADVISES STRONG GAS FLOWS DURING PRODUCTION TESTING
OF KETU-2 APPRAISAL WELL IN PRL 21, PAPUA NEW GUINEA


Horizon Oil advises that it has recorded strong gas/condensate flows during production
testing of Ketu-2 appraisal well in PRL 21, PNG. The flow test has confirmed the high
deliverability of the Elevala sandstone reservoir and also that the condensate gas ratio
(CGR) is consistent with that of the nearby Elevala and Tingu accumulations (see map
below).

Ketu-2 was drilled in the first half of 2012 and successfully appraised the lateral extent of the
Ketu-1 discovery well at a location 8.9 km southeast of Ketu-1. Ketu-2 was completed for
future service as a production or gas re-injection well with a 5-1/2" completion string and a
Xmas tree installed on the wellhead. The lower 9 m of the Elevala sandstone was perforated
and flowed gas at a rate of over 20 million cubic feet of gas per day (mmcfd) through a
48/64" choke, with an undetermined rate of condensate. A retrievable plug was set and the
well suspended in May 2012, until required for further testing and service.

After the recent flow testing of the Tingu-1 discovery well, announced on 28 October 2013,
the test unit and separator were moved to the Ketu-2 site and test operations began on
2 November 2013. Meanwhile Parker Rig 226 is being moved to the Stanley site in PRL 4, in
preparation for drilling of the Stanley-3 and -5 development wells. The rig is about 65%
rigged down at Tingu-1.

During the comprehensive multi-rate test sequence, the well flowed gas consistently at rates
of 35 - 40 mmcfd through a 56/64" choke, with no produced water and minimal CO2 and H2S.
The CGR stabilized at a rate of 50-60 barrels of condensate per million cubic feet of gas, in
line with the Elevala and Tingu accumulations and about double that of the Stanley field
CGR. The test has confirmed the good flow properties of the Elevala sandstone reservoir at
this location.

The current operation is to set retrievable plugs, pressure test and safely suspend the well
for future use before rigging down the test equipment.

The production test data for Ketu-2, as well as analysis of fluid samples acquired during
testing, will be included with all the other information obtained on the Elevala, Ketu and Tingu
hydrocarbon accumulations and utilised in the FEED study, which is currently underway.
The intention is to submit a development licence application in March 2014 for a combined
development of the PRL 21 fields, which will be of considerable scale.

Hi Flipper,

I let others interpret the announcements and utterings from various analysts; the Market will usually integrate all the pros and cons and arrive at a consensus price where buyers and sellers meet.

Currently, it seems that buyers have returned and sellers demand more than a few days ago.
Yesterday, my chart suggested support may have been established and the fall arrested; therefore, I started buying a small starter pack and added a few more today.

pixel, that is a brave call, I like the phrase "starter pack ".

gg

pixel said:

Hi Flipper,

Currently, it seems that buyers have returned and sellers demand more than a few days ago.
Yesterday, my chart suggested support may have been established and the fall arrested; therefore, I started buying a small starter pack and added a few more today.

Click to expand...

Pixel, the HZN price for weeks was unusually narrow and it looked like it was winding up for a break either way. I hold HZN. I believe that this company has been fundamentally undervalued by the market the past couple of years but because it's share price and the underlying oil price vary so much I have traded into and out of it. I hold at the moment but...

My question to you, as a T/A is what weight do you give to the underlying commodity when looking at a company like HZN? Do you think that the oild price has bottomed out for the time being?

tinhat said:

My question to you, as a T/A is what weight do you give to the underlying commodity when looking at a company like HZN? Do you think that the oild price has bottomed out for the time being?

Click to expand...

TA essentially reflects supply and demand, so the underlying commodity (oil) is already factored into the price movements