Petro Matad offers investors exposure to a fully funded 2019 exploration campaign targeting near-field, low-risk prospects as well as basin opening, high-impact potential. 2018’s two-well programme in the frontier Blocks IV and V did not yield a discovery, but data from the first ever exploration wells in the region have already highlighted three new structures in Block V. One of the three identified Block V ‘Raptor’ prospects is a candidate for drilling in 2019, with the alternative 200mmbbl Fox prospect remaining an option. Three wells will also be drilled in the low-risk Block XX analogous to producing fields to the north-east, including the more material 48mmbbl Red Deer prospect in the south-west of the block. Attractive fiscal terms and the scalability of developments enable relatively small oil discoveries to be commercialised in the current oil price environment. Our risked valuation post assumed farm-out value dilution is updated to 20.4p/share (down 34%) at $70/bbl long-term Brent. Our valuation remains highly sensitive to oil price assumptions and exploration outcomes.
Petro Matad’s acreage combines high-impact exploration and low-risk targets. One frontier exploration well is planned in Block V in 2019, and will be selected after incorporating data from 2018’s Snow Leopard-1 well, which provided good evidence of a working petroleum system in the Taats Basin. Potential early cash flow targets are also planned in 2019, with three Block XX exploration wells, two close to proven and producing fields in the PetroChina-operated Block XIX, and the 48mmbbl Red Deer prospect in the south-west of the block.
Petro Matad’s prospect inventory benefits from low well costs, a simple development concept (using Block XIX as an analogue) and attractive fiscal terms that allow for cost recovery. Despite some uncertainty around offtake options, our analysis suggests an attractive risk/reward incentivising exploration. Even small oil discoveries (c 10mmbbl) generate positive returns at $70/bbl Brent.
Our updated base case risked valuation of 20.4p/share (-34%) assumes 50% value dilution through farm-out. This decrease is mainly driven by the outcome of the 2018 drilling campaign. While Petro Matad is funded for 2019 and we assume a farm-out to fund future development, further issues of equity at the current share price could be significantly dilutive to our per share NAV valuation.