LON:ARG | Argos Resources - Opportunistic Falklands Play?

27th Aug '10 by ohisay

3 comments 3681 reads

Just turned up this broker note by HB Markets on last months float of Argos Resources (LON:ARG)

It strikes me that if the Rockhopper flow tests on Sea Lion are successful in September, this stock might get rather more attention.

Argos has a significant acreage and mean un?risked prospective resource of
747mmbls. We can envisage upside as the company advances its 3D seismic programme and as Rockhopper and Desire continue to improve geological knowledge of the area.

The acquisition of 3D seismic will account for the majority (up to £17m) of the £22m
raised here and provide the potential for value enhancement of its own via working?up the project ahead of a potential farm out or further raise.

Valuation: We employ a CPR risk adjusted valuation for the 2 prospects (Zeus and Boreas)
which suggests £155m assuming an NAV of $5/per risked bbl.

Given funds are only sufficient to take the company to pre?drill stage, a farm?out seems likely thus we discount a further 30% to achieve a value of £109m which equates to a near term target of 50p per share on only two prospects.

Current price is around 29p. It's worth keeping an eye on anyway .

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ohisay

17th Sep '10

Evolution note FWIW.

http://www.proactiveinvestors.co.uk/companies/news/21038/evolution-securities-views-argos-resources-as-low-cost-entry-into-falklands-exploration-play-21038.html

“Argos is at a less developed stage than the other four but operates in the right postcode and appears a low-cost entry route into the prospective northern part of the North Falkland Basin,” the broker added.

Can't agree with their assessment of DES over RKH though- rather biased as I hold RKH but why would anyone prefer DES capitalised at 400m£ when they haven't found anything?

Doing some digging around - IC recent mention here suggesting they may be able to piggy back a well next year.

http://www.investorschronicle.co.uk/Companies/ByEvent/Risk/Analysis/article/20100908/cf021134-bb2e-11df-81fc-00144f2af8e8/Back-to-the-Falklands.jsp

Another key advantage of Argos's timing may be rig availability. The inability to secure a rig to travel the long distance to the South Atlantic delayed Falklands drilling by several years until Desire finally secured the Ocean Guardian rig last September. Further exploration and testing of Sea Lion could keep the rig busy in the Falklands until mid-2011, by which time Argos hopes to be nearly ready to drill.

23rd Sep '10

Argos has taken off this morning - currently 51p as I write.

Can't see any news as such to explain this although there was a proactive Inv. article yesterday.

http://www.proactiveinvestors.co.uk/companies/news/21265/falklands-explorer-argos-is-hunting-for-another-sea-lion-21265.html

Last year the company re-processed 2D seismic data acquired as part of a 1998 drilling campaign and identified seven prospects and five leads.
They have a reserve potential of 747 million barrels with an “upside case” of 1.75 billion barrels.
Possibly the most exciting prospect on the licence area is Boreas, which Hogan thinks could be a “mirror image of Sea Lion”.
“We think Boreas is sitting on the western dip slope of the basin, where Sea Lion sits on the eastern dip slope," he explains. “But we’re really pushing the seismic to its limits to handle that, which is why we need 3D.”

The area already contains a significant gas find in the Johnson field, which straddles the Rockhopper and Argos licence areas.

“The plan is to start the seismic acquisition later this year, in the last quarter, probably in November or December,” Hogan reveals.

“And that’s about a 30 – 60 day programme for us. We then go ahead and process it and go into interpretation. As parts of the data became available we will start the processing and interpretation so we will build up an early picture of the geology and prospects, even as the seismic data is being acquired.

“That would get us to the point in quarter three next year where we have a high-graded prospect inventory.

“By then we would also have completed the exploration well designs and environmental impact statements in readiness for drilling.

“So we would be ready to have a drilling campaign starting at the end of 2011 and into 2012. That is our forward plan for this.”

And his take on the tax regime ...

There are advantages to being a Falklands based company, not least the tax regime: the production royalty is only 9 per cent, while corporation tax is a competitive 26 per cent.

“So in terms of net back value to the operator this is top quartile in worldwide return,” Hogan explains.

“My rule of thumb is, one Falklands barrel is worth two North Sea barrels, and one Falklands barrel is worth three Norwegian North Sea barrels.

“The rate of tax in Norway is 78 per cent. So when you find barrels of oil in the Falklands, these are very valuable barrels to have.

Argos Resources - Opportunistic Falklands play?

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Ohisay

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