ProactiveInvestors – UK – 01/03/2012
(MENAFN – ProactiveInvestors – UK) The story of ASX-listed Pura Vida Energy (ASX:PVD) is starting to be picked up here in the UK with City broker N+1 Brewin initiating coverage of the stock with a buy recommendation and an 80 cents a share price target.
This is a significant premium to the recent listing price of 20 cents a share, but underscores the potential of its assets in Morocco, the up and coming oil address.
Total, Repsol and Anadarko are just three of the larger operators in the country, while smaller E&Ps Tangiers Petroleum and Longreach are also making a splash there.
Morocco has become a magnet to these companies because of its favourable fiscal regime, which is one of the most accommodating in the world.
The government take is minimal when compared with hydrocarbon-rich neighbours Algeria and Libya.
The state receives 25 per cent of any project and a 5 per cent royalty if gas is produced, which rises to 10 per cent for oil. An unprecedented ten-year corporate tax holiday is offered upon discovery.
This means the government take is never more than 35 per cent. Contrast this with Algeria, where the authorities take 92 per cent and you can see why foreign investment is flooding into Morocco.
Under this regime, the economics of even the smallest projects look very attractive.
Not that Pura Vida’s interest could be placed in this category. It has 75 per cent of the Mazagan Offshore Area with a gross prospect inventory totalling 1.1 billion barrels of oil.
This is a mean estimate (the high estimate is 2.3 billion barrels) and is based on an 11 to 23 per cent chance of success.
By far the largest feature is the Toubkal stratigraphic trap, with mean unrisked prospective resources of 790 million barrels and an estimated chance of success of one-in-five.
N+1 Brewin (formerly Brewin Dolphin) said its closest comparator company is ASX and AIM listed Tangiers.
However Pura Vida is valued at a significant discount to Tangiers and many of its rivals in Morocco when assessing their respective resource bases.
“We would note that Pura Vida is at a more advanced stage than Tangiers, in having 3D seismic over all of its prospects,” said Brewin analyst Tracy Mackenzie.
“However, Tangiers has recently completed a 3D seismic survey aimed at de-risking and delineating the areal extent of three prospects.”
Pura Vida scores well for a small-cap E&P in that it has an experienced management team culled from some of the industry’s bigger operators including BHP, BP and Woodside.
Brewin said there is potential for “near-term high impact events” to move the share price higher and narrowing the valuation gap with its peers.
They include the “recognition of additional resources” following completion of the seismic reprocessing, which is currently underway, a farm-out deal on Mazagan and acquisitions.
“Whilst high risk given the frontier nature of the acreage, its rating is attractive versus its peers and could provide a cheap entry point for those looking for exposure to North Africa where larger players are moving in (Kosmos is operator of adjacent acreage),” Mackenzie concluded.
