Nautical Petroleum (NPE) vs Xcite Energy (XEL)

7th Apr '10 by djpreston

19 comments 11368 reads

I was chatting about this with JPGH last night.

No one seems to have noticed, or at least commented on the RNS from NPE yesterday about securing a rig for their Kraken discovery.

This will see the Ocean Nomad drill an appraisal well, an explo well and testing. Due to start this summer - quite close therefore.

The appraisal well witll be targetting the Southern area that was confirmed by the two wells drilled previously. The first appriasal well (linked to above, caused some what of a stir back in Nov 2007 (Ye Gods, was it that long ago?) with comments such as:

Initial analysis of the samples and the downhole pressure gradients indicate
that the 9/2b- 2 oil is lighter (18.4degreesAPI) than estimated from a poor
quality sample in the 9/2- 1 discovery well, and substantially lighter than the
nearby discoveries such as Bressay.

Reservoir quality is excellent with high porosity and permeability over 79 feet
of net pay. Oil shows were also encountered in Cretaceous Conglomerates towards
the base of the well.

What has been amazing is that nothing has been happening with both kraken and Mariner for so long.

Anyway, we now have the confirmation fo the two new drill slots for Kraken. The upside on the West of the play is a further 114MM bbls gross.

Planning for FDP submission is end of this year and first oil would be 2012.

NPE also put out their Interim results last month. Cash was £16.8m at end of December with £7.5 secured facility available and undrawn - no problems with access to funding.

Their comment on Kraken (and Mariner):

Cornerstone assets

Mariner
Ø   90mmbo (2008: 67mmbo) net best estimate contingent resources (pending
development)
Ø   Field Development Plan (FDP) submission in 2011

Kraken
Ø   29mmbo (2008: 37mmbo) net best estimate contingent resources
Ø   40mmbo (2008: 0mmbo) net best estimate prospective resources
Ø   FDP submission target end 2010

Oh, and then there is the little matter of the Catcher well, where NPE have 15% (partly carried by PMO) which is due to spud next month.

At the moment, Market cap of NPE is just under £30m. XEL is now about £75m having been on a tear and seems to be the darling of the bulletin boards at present. I did like the post by luckyjonah (?)…

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djpreston

7th Apr '10

Forgot to mention that since the Kraken appraisal in 2007, we have of course had the taxation changes for heavy oil developments, the effects of which are in this RNS

Extract:

On the basis of these provisions applying to Nautical and its UKCS heavy oil interests the Directors believe that the New Field Allowance will enhance the value of the Company's 35% share of Kraken by £56 million and also Nautical's 26.67% share of Mariner by £43 million.

JPGH

8th Apr '10

With Barclays dithering with regard to Excite and ISA's (they now will allow me to have im my ISA) meant I missd the XEL rise from 40p when I was ready to 58p. This rise also made me wonder whether to stick with NPE who are also drilling this summer and look as cheap as (insert rude word here).
So added NPE today to SIPP but thought that maybe a XEL vs NPE "fight" thread is required here to get to the bottom of why little old XEL has come from way behind and has overtaken NPE in the valuation stakes and indeed in the race to produce UKNS heavy oil. This is despite the presence of Big Oil (Statoil) on the Mariner development.

JPGH

hornbeam1

9th Apr '10

''I cannot, for the life of me understand the lack of interest in NPE at current levels''

Off radar, yes....

I'll give you one good reason for the lack of interest which may apply to others.

Being heavily overinvested in this stock since 97, a series of disappointing news events and a lack of belief by the market in NPE's projects leaves me greatly 'underwater' as is still the heavy oil they persue.

Whilst averaging down in other portfolio oilies like Serica SQZ & Max MXP rectifiying the situation, have been less than keen with NPE whilst comments like 'hanging onto Statoils coat tails' are being bandied about. The long time span seems never ending, I shall just be happy to claw back my losses.

Hornbeam

Im in the same boat as you with regard to our holding, so Im well aware fo the disappointing drill results and so forth.

However, Statoil and NPE have been working slowly (glacially) behind the scenes with their plans for development (when Statoil is ready) and they do have plenty of cash. I just dont understand the current mad fervour for XEL vs complete ignorance of NPE - surely cant be just sentiment? If it is then Id rgue that there is surely a great possibility that any reasonable results from the Kraken drilling (or Catcher) could only highlight the potential even more. Given the low level fo trades, any arrival of the masses would surely have a very big impact on the shares?

Agree, good to hear Statoil are still on message, trying to get investor excitment in 'sludge' will be critical.

boggins

Also well down on these.

Statoil are definitely working on studies in the background on Mariner - decision time (end 2010?) is going to very interesting.

I was sceptical about yet another Kraken appraisal however I wasn't expecting the Western side exploration well - thats a bit of a bonus.

However, they've got to actually find something with an exploration well one day or there credibility as an explorer (already not great) is going to go out of the window

Via Lactea

If anyone's not seen it, there's a lot of info at this link.

http://www.stockopedia.com/website/nautical-petroleum/1314/LON:NPE

On the subject of being underwater, IEG will be in the biggest paper loss position. To an extent the future of NPE depends on them - giving a steer on strategy to management - possible source of new funding - springboard holding for any bid.

As we know, the big recovery in the oil price, improved taxation for heavy oil, easing of credit crunch will have greatly improved the prospects here. I've averaged down recently in the expectation (being positive!) that Nautical's drill programme will get it noticed. I see no reason why NPE shouldn't have its day in the sun too.

corkboy

I dunno how much use the following comparison is but if we just focus on contingent resources (ignore prospective ones);
NPE have 130.1mm bbls and a market cap of £31m, giving a value of 23.8p per bbl.
XEL have a base case of 122mm bbls recoverable (according to the CPR) and a market cap of £81.5m, giving a value of 66.8p per bbl. (assuming that a comparison of NPE's contingent resources to XELs base case recoverables is appropriate. Am I comparing like with like?)

As tournesol has pointed out in another thread, XEL's CEO said that they believe they have recoverable resources "in the order of 170mm bbls using conventional techniques", which would give a value of 47.9p per bbl. This is still twice the value assigned to NPE's contingent resources. Quite a difference, particularly if the oil in NPE's Kraken field is lighter than the oil in Bressay and so would command a higher price? (which is apparently very similar to XEL's Bentley field)

The interview with the CEO is here:
http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=27908853&l=0&r=0&s=XEL&t=LIST

Arbuthnot say that "Given the current oil price of c.$80/bbl and XEL’s asset base status, we would expect the market to value the company today in the region of $2-3/bbl" which suggests that both NPE and XEL are significantly undervalued?
That note can be found here:
http://www.xcite-energy.com/docs/FINAL%20XciteEnergy271109.pdf

marben100

As noted above, both of these per bbl valuations are very low. They imply that the market is highly sceptical that either company can make an economic go of their projects.

I guess the reason for the difference may relate to momentum (as well as credibility). XEL's plans are to follow up their drilling, slated for mid this year, with an "early production system" in 2011 (though full field development is not expected until 2014). If XEL deliver on these plans, then they will be first to demonstrate (or not!) economic viability of their play with real production. That probably appeals to the market more than the longer wait for NPE to get into production. However, ISTM that the market may warm to NPE's assets if XEL's results are positive.

Cheers,

Mark

13th May '10

Hi,

While I was reading the latest Arbuthnot note on XEL, the following section jumped out;

The UK government incentives for heavy oil are defined as follows: “…the field allowance for ultra heavy oil fields is £800 million for fields with an American Petroleum Institute gravity below 18 degrees and a viscosity of more than 50 centipoise at reservoir temperature and pressure. In any one year the maximum field allowance is £160 million”.

In djp's first post above, he quotes the following from an NPE Kraken RNS in 2007:

Initial analysis of the samples and the downhole pressure gradients indicate
that the 9/2b- 2 oil is lighter (18.4degreesAPI) than estimated.....

As djp pointed out in his second post above, there was an RNS stating that the directors believed that the two fields were eligible for the field tax allowance but I guess we won't know for sure until the results of the Kraken appraisal well this Summer? If the oil does turn out to have gravity of 18.4API then NPE don't get the tax break?

ohisay

There's an Ambrian note on the NPE website which states Kraken api "at least 15 degrees" (on p7).
Elsewhere they seem to be assuming they get the field allowance for both Kraken and Mariner.

http://www.nauticalpetroleum.com/Ambrian%20Oil%20Gas%20Event%20Nautical%2014%20April%202010v2.pdf

Of more interest to me were the capex metrics.

Kraken - gross capex 315m sterling ,breakeven 39$/boe.

Mariner 50$/boe breakeven .

Theres a couple of slides on the Encore prospects Catcher and Merrow too.

15th Aug '10

For completeness, we've now sold out of npe. For reasons see here: http://mobile.stockopedia.co.uk/content/encore-oil-2010-final-results-and-exciting-times-ahead-45975/?submitted=11

16th Aug '10

Just as a follow up, I thought id just point out that, since the thread was started, NPE has outperformed XEL by c230%. As a result, I think that the discrepancy between NPE's heavy oil assets and XEL has now been more than compensated for. Okay, Catcher has played a big part of that but for anyone loking at heavy oil, XEL is now a more attractive play than NPE Id say. The main reason chiefly being the imminent pre-development well (next Month), which, if successful (CoS 70% to 90% - Id go more for the higher figure) will lead to an early production system being in place and possible first oil in 2011 as opposed to the much longer lead time for NPE.

Christopher Williams

19th Aug '10

you could be right but the city seem to think £3

short term till post August 31st issues of share NPE will be lower re share price.

howdidthathappen

23rd Aug '10

<i>you could be right but the city seem to think £3 </i>

No "the city" doesn't.

If it did, it would buy as many shares as it could at current levels or launch a bid.

bugsmunny

6th Oct '10

well hornbeam1, guesss u r no longer underwater. Amazing how unpopular NPE still is/was despite all the good news...talking of the city theres an intersting link to extremely bullish article from a city investor who reckons that north of £6 is easily achievable....

For those of us who bought in the dips and amongsth all the negativity, we have been seriously vindicated

11th May '11

I'm afraid I've never really got on with Stockopedia - I can never actually work out where an interesting discussion is going on.

Or perhaps with the recent falls in oils there just simply isn't much discussion at all.

FWIW...An interesting situation with XCITE - despite the all the ramping elsewhere, reality seems to be dawning with the release of the independent assessment of resources.

Looks like the director sales were a real warning.

Anyway my point is that I'm still a fan of Nautical, which seems to have suffered, in its customary way , at the hands of the cynical market.

Lot's of upside potential - slow and steady and minus mindless ramping as seen on Encore and SLG. Ouch and Ouch again.

Bugs

FWIW about 50% of my portfolio is in SIA and NPE.

Betasurfer

12th May '11

If you go to the Energy Board (assuming that's your sector of interest) and then click "Hot Threads" up the top, that may help you find the most discussed stuff.

Murakami

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Nautical Petroleum (NPE) vs Xcite Energy (XEL)

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Djpreston

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