Vancouver-based Simba Energy (CVE:SMB) received coverage Friday from Edison Investment Research, which said the Africa-focused oil and gas exploration play holds a "potentially highly" prospective portfolio of onshore assets.
The assets are located in Kenya, Liberia, Guinea, Mali and Ghana, where Simba has plans to potentially start drilling as early as 2013.
However, Edison noted that it is vital that the company finds farm-in partners to be able to carry its projects through to drilling.
According to Edison analysts Krisztina Kovacs and Ian McLelland, Africa is "an exciting upstream play, as underexplored assets are still available to outside investors".
With production sharing contracts (PSCs) still widely available, the region is increasingly attractive to both industry players and the equity markets.
"Simba has an exciting and potentially highly prospective asset portfolio, although assets are largely located in areas where exploration activity has been limited at best," the research report said.
Edison noted the significant experience Simba's management team has in African upstream activities. The company's pre-drill work program is expected to absorb $6 million per year over the next two years.
"Building a portfolio of assets mitigates risk and enhances the company’s ability to attract partners, but finding a partner or funding within a year is vital to carry these projects to exploration. As such we would expect further equity raises over the next year – following a C$10m raised so far- and farm outs within the next 12-18 months depending on the success of preliminary exploration studies," the Edison analysts said.
In Kenya, Simba’s early focus was Block 2A, the 7,801 square kilometre block that covers the southern end of the Mandera Basin and also parts of the Anza Basin in the south-west, and in which the company holds a production sharing contract. Four wells drilled in the late 1980s in the Mandera Basin and 11 wells in the Anza Basin all encountered oil shows, said the report.
North of Simba’s Block 2A, Afren is planning a 1,200 kilometre seismic on Block 1 in 2012 – oil seep has been recorded on Tarbaj-1, 50km from Simba’s Block 2A – but a carbonate cap and petroleum system has yet to be determined. According to Afren’s latest management estimates, there is up to 751mm boe of unrisked gross prospective resources on Block 1.
Edison said the main goal of Simba's Kenyan activity is to improve prospectivity of Block 2A over the next 12 months, both through work programs on neighbouring acreage and from its own passive seismic survey.
Vancouver-based Simba also holds a 60 percent interest in Block 1 and 2 onshore in the Republic of Guinea, as well as has applications for onshore PSCs in Liberia, Mali and Ghana.
In Guinea, the onshore licence covers 12,000 square kilometres of the Bove Basin, which is viewed as an extension to the Taoudeni basin and has relatively mature shales. The company's Guinean blocks have Silurian shales, the major source rock in all North African basins, where Simba has noted heavy oil seeps at surface.
A work program on the asset, including a passive seismic program, will start just after the company receives final approval from the Republic of Guinea’s Minister of Mines and Geology.
The assets are located in Kenya, Liberia, Guinea, Mali and Ghana, where Simba has plans to potentially start drilling as early as 2013.
However, Edison noted that it is vital that the company finds farm-in partners to be able to carry its projects through to drilling.
According to Edison analysts Krisztina Kovacs and Ian McLelland, Africa is "an exciting upstream play, as underexplored assets are still available to outside investors".
With production sharing contracts (PSCs) still widely available, the region is increasingly attractive to both industry players and the equity markets.
"Simba has an exciting and potentially highly prospective asset portfolio, although assets are largely located in areas where exploration activity has been limited at best," the research report said.
Edison noted the significant experience Simba's management team has in African upstream activities. The company's pre-drill work program is expected to absorb $6 million per year over the next two years.
"Building a portfolio of assets mitigates risk and enhances the company’s ability to attract partners, but finding a partner or funding within a year is vital to carry these projects to exploration. As such we would expect further equity raises over the next year – following a C$10m raised so far- and farm outs within the next 12-18 months depending on the success of preliminary exploration studies," the Edison analysts said.
In Kenya, Simba’s early focus was Block 2A, the 7,801 square kilometre block that covers the southern end of the Mandera Basin and also parts of the Anza Basin in the south-west, and in which the company holds a production sharing contract. Four wells drilled in the late 1980s in the Mandera Basin and 11 wells in the Anza Basin all encountered oil shows, said the report.
North of Simba’s Block 2A, Afren is planning a 1,200 kilometre seismic on Block 1 in 2012 – oil seep has been recorded on Tarbaj-1, 50km from Simba’s Block 2A – but a carbonate cap and petroleum system has yet to be determined. According to Afren’s latest management estimates, there is up to 751mm boe of unrisked gross prospective resources on Block 1.
Edison said the main goal of Simba's Kenyan activity is to improve prospectivity of Block 2A over the next 12 months, both through work programs on neighbouring acreage and from its own passive seismic survey.
Vancouver-based Simba also holds a 60 percent interest in Block 1 and 2 onshore in the Republic of Guinea, as well as has applications for onshore PSCs in Liberia, Mali and Ghana.
In Guinea, the onshore licence covers 12,000 square kilometres of the Bove Basin, which is viewed as an extension to the Taoudeni basin and has relatively mature shales. The company's Guinean blocks have Silurian shales, the major source rock in all North African basins, where Simba has noted heavy oil seeps at surface.
A work program on the asset, including a passive seismic program, will start just after the company receives final approval from the Republic of Guinea’s Minister of Mines and Geology.
As potential is identified in its assets, Simba will need to look for farm-in partners to escalate and progress exploration towards pre-drill activities, leading up to exploration drilling, Edison noted.
With no revenues and no cash flow generation, the oil and gas explorer is dependent on markets to raise funds, having raised over C$10 million in equity over the past five years.
However, the Edison analysts said that Simba's current balance sheet is unlikely to cover estimated operating costs and pre-drill activities, which means the company will either come to the market for further funding within a year, or identify farm-in partners over the next 12 to 18 months.
The report said that since the company has no defined resources or reserves, Edison's valuation is based entirely on neighbouring blocks, where there are indications of unrisked gross prospective resources and asset or PSC transfers.
"A relatively modest discovery in only one of Simba’s fields could trigger significant valuation uplift. Should initial seismic interpretation prove to be positive across any of its assets, followed by a potential farm down or sale of PSC interests for a carry, we could anticipate Simba’s value to soar to C$75m," Edison said.
However, the Edison analysts said that Simba's current balance sheet is unlikely to cover estimated operating costs and pre-drill activities, which means the company will either come to the market for further funding within a year, or identify farm-in partners over the next 12 to 18 months.
The report said that since the company has no defined resources or reserves, Edison's valuation is based entirely on neighbouring blocks, where there are indications of unrisked gross prospective resources and asset or PSC transfers.
"A relatively modest discovery in only one of Simba’s fields could trigger significant valuation uplift. Should initial seismic interpretation prove to be positive across any of its assets, followed by a potential farm down or sale of PSC interests for a carry, we could anticipate Simba’s value to soar to C$75m," Edison said.
"Meanwhile exploration success could push the gross value of its acreage into the billion dollar category, consistent with analogue deals such as that of Tullow/Heritage in Uganda."
Simba's current market capitalization of about C$11 million reflects the early stage nature of its porfolio of assets. If drilling in the region over the next year or so points to the potential for recoverable resources of over 500mm barrels in Kenya and Guinea, "the upside in the stock is considerable", concluded the capital markets firm.
Indeed, interest in Liberia, Ghana, Kenya and Guinea exploration is likely to increase following the recent discoveries and the growing interest from international oil companies in the region. Simba’s anticipated survey of existing exploration prospects in Kenya and Ghana is expected to help stimulate this interest.
The company's stock is currently changing hands around 7.5 Canadian cents on Toronto's junior exchange.
The company's stock is currently changing hands around 7.5 Canadian cents on Toronto's junior exchange.
No comments:
Post a Comment