Petro Matad is set to kick off its 2019 exploration and appraisal campaign targeting a series of low-cost, near-field and low-risk targets. Drill sites for the three Block XX wells have been constructed and management expects drilling to begin in July 2019. Prospects Heron-1 and Gazelle-1 are analogous to producing fields to the north-east in Block XIX, while Red Deer-1 is more material at 48mmbbls and is located further away from known oil. Petro Matad is funded for 2019 from the net proceeds of equity raised in 2018. However, additional funding would be required to commit to additional exploration and to support G&A in 2020. We update our valuation based on the company’s increased estimate of Heron-1 prospective resources at 25mmbbls (gross) from 16mmbbls. Our risked valuation stands at 21.6p/share (+6%), which we expect to revisit post-drill.
Block XX’s location immediately south of existing production in Block XIX is the target of three low-cost, low-risk drill targets in 2019. The first well, Heron-1, is an appraisal of the T19-46 oil field located on Block XIX. Petro Matad is targeting 86mmbbls across Heron-1, Gazelle-1 and Red Deer-1. Based on our analysis, the threshold for commerciality for Block XX is low, with development of small discoveries (c 10mmbbl) generating an IRR in excess of 10%.
In the Block XX success case, we expect Petro Matad to emphasise the appraisal of prospective resource de-risked by the 2019 exploration programme. In this event, drilling in frontier Blocks IV and V will likely be postponed to 2020. Management expects the higher risk/reward Block V exploration programme to start with the 201mmbbl Velociraptor prospect.
Our updated base case risked valuation of 21.6p/share (+6%) assumes a 50% value dilution through farm-down. A 6% increase in RENAV from our last published note is driven by Petro Matad’s recent upgrade of Heron prospective resource. The company increased its assessment of the mean prospective resources from 16mmbbls to 25mmbbls following mapping of reprocessed seismic. Petro Matad is fully funded for 2019 and we assume a farm-down to fund future development. However, further issues of equity at the current share price could be significantly dilutive to our per-share valuation.
