Increasingly gearing towards the 3P case

 We are increasing our target price on PetroTal from £0.45 per share to £0.50 per share following the strong result of the BN 95-4H well. In our view, the initial flow rate of 6.2 mbbl/d combined with lower than expected drilling costs demonstrates the potential of horizontal wells to develop the field with better economics, shorter pay back and potentially more reserves.  With current production of already 7.8 mbbl/d constrained by surface facilities, PetroTal is well on track to deliver 10 mbbl/d by YE19.  We are incorporating the additional capital recently sanctioned to drill more wells and enhance further surface production capacity and increase our YE20 production forecast from 14 mbbl/d to 18 mbbl/d. This new profile and capital programme look increasingly similar to the 3P reserves case, which recovers c. 80 mmbbl (twice the company’s 2P reserves). A increase of 2P reserves at YE19 looks increasingly possible in our view.  We are now incorporating into our Core NAV a risked value for the company’s possible reserves (@60%), resulting in our Core NAV increasing from £0.23 per share to £0.54 per share. The shares trade at c. one third of our new Core NAV and at EV/DACF multiples of 1.0x for 2020 and 0.5x for 2021.  PetroTal continues to be a deep value name also offering production, cashflow and reserves growth.