|
Buy Kea Petroleum (KEA)
A report by AllNewIssues.com
Background: Penny share tip Kea
Petroleum is a New Zealand-focussed explorer which owns
three oil and gas exploration permits in the country's
Taranki and Northland Basins. Four of Kea's senior
management were directors at Rift Oil, a Papua New
Guinea-focussed explorer that joined AIM in April 2006
and was acquired by Talisman Energy in August 2009
delivering a three-fold return to shareholders.
Following its incorporation in September 2009 Kea
Petroleum raised GBP7.2 million and on admission to AIM
the company secured a further GBP5.2 million in net
proceeds through a placing of 75 million shares at 8p
each. Kea Petroleum's began trading at 9.125p on
February 15th and currently still trade at that price,
capitalising the company at GBP42 million.
|
IPOS are flowing again
After a barren season, companies are floating
on the Full, AIM, & PLUS markets again.
Allnewissues.com is an impartial website
dedicated to UK IPOs and we publish 3 notes per
week covering companies on their way to market.
Our team of analysts will pick apart a new
issue's business model, how it hopes to grow
and how you can buy shares in it. And we always
end with a firm investment recommendation. Once
a month we will also send you a newsletter with
a detailed report on what we consider to be the
top new issue of that month. One year's access to this
amazing site costs just GBP 19.99 and you can
register today by clicking HERE.
|
Operations: Before going into the
permits held it is worth looking at the history of the
two areas in which Kea Petroleum is set to launch
exploration activity and an important agreement held by
the firm.
The Taranki Basin has long been the main focus for
hydrocarbon exploration and production in New Zealand
and is an area in which there have been a number of oil
and gas discoveries. At present there are ten fields
producing from a number of stratigraphic levels (rock
layers) in the area.
The onshore Taranaki Basin is home to Australia and New
Zealand's largest onshore oil field at McKee and at
least two gas-condensate fields. But unlike Taranki,
which has a long history of exploration with the first
well being drilled in the area in 1865 and petroleum
being produced since 1900, the Northland Basin has been
"virtually unexplored". Kea states that the prospect is
of a similar geological origin and style to the
productive Taranaki Basin to which it is the northern
extension and New Zealand's government is promoting
operations in the area.
Kea Petroleum has also entered into an agreement with
TSX and NASDAQ listed Methanex New Zealand, which owns
facilities that produce methanol (a fuel which has
applications in gasoline and biodiesel and is used in a
wide variety of household products) nearby the
company's assets. Both parties have signed agreements
under which Methanex will fund the drilling of a well
(Beluga-1) on Kea's permit PEP 51155 in consideration
for the firm granting rights to Methanex to purchase
the gas discovered and share in the profits from the
development of the Beluga prospect.
Kea Petroleum has full ownership of the following three
licences:
PEP 51153 lies in the eastern central part of the
Taranaki Basin and covers 210.8 square kilometers.
There have been seven wells drilled and 517 kilometres
of 2D seismic data acquired in the permit by previous
operators of the area covered by PEP 51153. Kea
Petroleum hopes to drill the Wingrove-2 appraisal well
on the project in the first quarter of 2010 at an
anticipated capital cost of approximately US$1.64
million (GBP1 million) will be needed ahead of
production which the company believes can be initiated
three months after a discovery. The licence expires in
September 2013.
The 262.6 square-kilometre PEP 51155 project is located
in the north central part of the Taranaki Basin. There
have been seven wells drilled and 1,116 kilometres of
2D seismic data acquired in the permit by previous
operators of the area. Drilling is also set to begin on
the Beluga-1 exploration well in the first three months
of 2010. The anticipated capital cost of the project is
expected to total GBP5.7 million. Importantly the well
is located within six kilometers from a high capacity
gas pipeline which leads to the production facilities
of Methanex . Thus in the event of a discovery at
Beluga-1 a six kilometre pipeline link which will take
a year to be put in place. In addition the firm owns
the Northland Basin asset where exploration work is in
its infancy. Use of the permit is valid until September
2013.
The PEP 51339 licence, valid until September 2014,
covers an area of 2,157 square kilometers. It lies in
the onshore part of the Northland Basin just north of
Auckland. Initial gravity and geochemistry surveys on
the permit area are scheduled for the first quarter of
2010.
According to MBA Petroleum Consultants, which has
completed a Competent Persons Report, the total best
estimate of gross un-risked prospective resources
across the group's three permit areas comes to
approximately 686 billion cubic feet (bcf) of gas and
36.5 million barrels of oil (MMbbl) which is
equivalent, in total, to 160 million barrels of oil
equivalent (MMboe). The expert's low estimate of gross
un-risked prospective resources totals 10 MMboe while
its high estimate comes to 540 MMboe.
Applications have also been made for two other licences
which are being considered by the Ministry of Economic
Development. One of the submissions is for an offshore
of 257 square kilometers to the south of the Taranaki
Peninsula (aPEP 52200) while the other is for a permit
area of 233 square kilometers offshore to the north of
the peninsula (aPEP 52333). These areas lie along trend
to the south and north respectively of Kea's onshore
permits and are intended to extend the explorer's
position along the basin's eastern margin.
|
*The value of investments can go down as well
as up. Past performance is no guarantee of
future success. Investing in equities can
lose you part or all of your capital. The
tips given here are of necessity, general.
They cannot relate to the individual
circumstances of investors. Anyone
considering following the recommendations
contained here should seek independent
advice. Investments in smaller company
shares, by their nature, can be relatively
illiquid and thus hard to trade. And that
makes such investments more of a high risk
than larger company shares.
|
Business Development: Proceeds raised
from the pre-IPO fundraising and the IPO placing will
be used to conduct 30 kilometres of seismic activity
and to drill one well on each of the PEP 51155 and PEP
51153 permits in the Taranaki Basin and to begin
gravity and geochemical work on the PEP 51339 permit in
the Northland Basin. The net proceeds, as well as funds
from Methanex for Beluga's development, are expected to
fund the work programme on the above activities for the
next two years.
Management: Ian Gowrie-Smith will
serve as the company's Non-Executive Chairman. The
61-year-old has founded and developed a number of
mining and pharmaceutical companies over the past 30
years. He is a founding chairman of SkyePharma, Medeva
and Griffiths Bros, which listed TiO2 Corporation a
company responsible for the largest ilmenite deposit in
Western Australia. He was also chairman at the time of
Rift Oil's sale to Talisman Energy in 2009
The firm's Chief Executive Office is Dr David Bennett.
A former university lecturer and government scientist
he has previously served as the Chief Executive of
Austral Pacific Energy, a company with interests in New
Zealand's Taranaki Basin, and a former director of Rift
Oil. In the past Bennet has also worked as the
Exploration Manager of New Zealand Oil and Gas, which
is listed on the New Zealand and Australian stock
exchanges, and has been involved in a number of oil and
gas discoveries in New Zealand and Papua New Guinea.
Bennet holds 3.9% of the company's shares.
The position of Finance Director is held by 40-year-old
Peter Wright who also serves as the FD of AIM-quoted
Triple Plate Junction. Wright has served as a
consultant on audit, accountancy and corporate finance
matters for a number of AIM-quoted companies. He was
the Finance Director of Rift Oil at the time of its
sale to Talisman Energy.
62-year-old David Lees has a number of interests in
public companies across a variety of industries. He is
currently serving as the Chief Executive Officer of
AIM-quoted Triple Plate Junction, Chairman of Asia
Digital Holdings and a Director of Metis
Biotechnologies, Network Estates Limited and Accident
Exchange. He will join Kea Petroleum as an Executive
Director and was a founding director of Griffiths Bros.
Limited, Medeva, NamesCo, Rift Oil and
SkyePharma.
David Lees and Ian Gowrie-Smith each own 14.58% of the
company's shares and thus management's interests are
aligned with shareholders. Renowned investor Nigel Wray
also holds a 5.44% stake in the company.
Assessment: Kea Petroleum has a number
of things working in its favour. Besides management's
experience of the oil and gas sector, particularly
Gowrie Smith's past role in a company focussed on the
Taranki Basin, the team has proven that it can realise
value for shareholders as seen through the Rift Oil
sale.
Furthermore, it operates in the politically stable and
exploration-friendly environment of New Zealand which
has a well-developed oil and gas production
infrastructure in the form of a widespread pipeline
network, a comprehensive road system and established
oil transport, storage and sales facilities.
Another positive point is the firm's agreement with
Methanex. Not only will it fund development work on one
of its wells but it also has a potential client for
reserves Kea's management believe the Beluga Prospect
is potentially of a large enough scale to be capable of
fully supplying the demand of Methanex's New Zealand
operations.
Finally, another advantage is that New Zealand oil and
condensates are classified as light sweet crudes (the
easiest to refine) and the McKee marker sale price of
all New Zealand oils is typically at a premium to
benchmark WTI or Brent crude marker prices.
The firm is well-funded and a number of catalysts to
the share price exist in the form of approval from the
government for further licences and further into the
future the acquisition of other permits. And with two
wells set for drilling investors can expect newsflow
soon.
Investors should be aware of the generic problems
associated with investing in exploration companies.
Namely whether the company can successfully de-risk its
projects through a well-planned drilling programme, the
unpredictability of drilling results, whether oil will
be found in sufficient quantities to be commercially
viable, unexpected items of capital expenditure and of
course the long-term outlook for oil and gas prices.
These doubts are present with any investment in an
early stage hydrocarbon explorer, but, on balance, we
believe the strong management, favourable operating
environment, advanced nature of two prospects and the
strong funding position means the risks are firmly to
the upside. BUY
Key Data
EPIC:
KEA
MARKET: AIM
Allnewissues.com is an impartial website dedicated
to UK IPOs and we publish 3 notes per week covering
companies on their way to market. Our team of analysts
will pick apart a new issue's business model, how it
hopes to grow and how you can buy shares in it. And we
always end with a firm investment recommendation. Once
a month we will also send you a newsletter with a
detailed report on what we consider to be the top new
issue of that month. One year's access to this amazing site
costs just GBP 19.99 and you can register today by
clicking HERE.
|
