Empyrean Energy plc (EME.L) announced this morning that rig NH9 had arrived on site at the Jade Prospect drill location, with operations underway to anchor the rig in place.
More crucially we also learnt that the spudding of the well over the Jade Prospect is anticipated to start on or around Sunday 10th April. The well is expected to take about 26 days to reach a total depth (on a trouble-free basis) and then around 2 weeks to test if a hydrocarbon zone is intercepted.
First Equity Comment – Empyrean’s share price remains behind the curve on the potential of the Jade Prospect and very near-term high impact news-flow. Investors seems to have overlooked the high geological chance of success at Jade at 41% and potential of a discovery at Jade then de-risking the nearby and much larger Topaz prospect. This is all against the backdrop of stubbornly high oil prices near $100 per barrel.
A discovery which confirms the P50# estimated oil in place of 187m barrels at Jade, assuming a discovery value of $10 per barrel, with an estimated 55% recovery rate and on the basis that CNOOC backs in for its 51% interest, could be worth we estimate a net US$388m. This computes to a value per share of 58p per share. Confirmation of a P10# discovery of 395m barrels would increase this figure further to 123p. Indeed, given the CNOOC discoveries nearby, a P10 or better size discovery seems more likely.
A drilling success at Jade, would focus investor attention on the potential of the Topaz prospect, which has a P50# estimate of 434m barrels, which therefore adds even more potential value to Empyrean Energy and strengthens the investment case (+135p to +278p per share on a P50 or P10 discovery basis respectively).
With these thoughts and calculations in mind, the possibility for the shares to accelerate from the current share price of around 11p, to above 100p on drilling success at Jade and de-risking at Topaz, we recommend the shares as a ‘Buy’.
# P10/P50 estimates of independent consultants Gaffney, Cline & Associates.
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*First Equity Limited acts as Joint Broker to Empyrean Energy plc
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