Selan Exploration Technologies-Enjoying A Super Spike In Crude Oil Prices

Selan Exploration Technologies-Enjoying A Super Spike In Crude Oil Prices
BSE 530075; CMP Rs 259

FY09 is likely to turn out to be another year of massive growth for Selan Oil Exploration. Rough estimates place Crude Oil production from the three operating Gujarat onshore fields of Bakrol, Indrora and Lohar at 128,000 barrels in FY08. This was a near 30 per cent increase in production, over the 100,000 barrels Selan produced in FY07.

For FY09, the estimates are, that Selan will produce close to 150,000 barrels but as against an average price realisation of $ 71 per barrel in FY08, the realisations in FY09 would exceed $ 110 per barrel putting FY09 Revenues in the region of Rs 68 crore (Rs 36 crore), accordingly after PSC payments to the GOI, the after tax profits could work out to Rs 25 crore (Rs 13 crore) or an EPS of Rs 15 (Rs 9), a near 100 per cent increase.

Quite significantly, what a $ 122 per barrel price of Crude does to the estimated reserves of Selan is even more staggering. The value of Crude with Selan works out to Rs 22500 crore, which rises to Rs 28000 crore at a Crude price of $ 150 per barrel and to Rs 37000 crore at a Crude price of $ 200 per barrel. The price forecasts for Crude have been made by Goldman Sachs in a recent report, with a time frame of 6 to 24 months.

Investors would recall Goldman Sachs had made prediction of a $ 100 barrel Oil in early January 2007, when the then prevailing price was just $ 50 per barrel and it has taken a mere 15 months to reach their projected price target.

Most Oil Bulls like billionaire T Boone Pickens of BP Capital, believe that Oil may never go below $ 100 per barrel again. While such a prognosis may be bad for the World Economy, it underlines a bright future for marginal players like Selan Oil.

Production and Development thrust

The promoters are making a preferential allotment of 18 lakh shares at Rs 165 apiece bringing in Rs 30 crore into the company. These funds will be used to dig more wells over the 5 dug in FY07, in the existing Oil blocks, and leave some spare money to develop the Oil field at Ognaj and the Gas field at Karjisan, which are still to be leased out to Selan Exploration.

Logistics in place

Recent agreements have been signed with the Indian Oil Corporation to uplift the existing and additional production at the international rates for Crude Oil. The IOC and the State of Gujarat have also agreed to refund the levies on account of Sales Tax and surcharge on Sales Tax.

Institutional Supply in the Counter is about to finish

Merrill Lynch Espana SA which held a stake close to 8 per cent in the company has sold roughly 6 per cent in the Open market during FY08. It now holds a mere 3.74 lakh shares, which too should get extingsuished soon.

There are no major shareholders left in the company except the promoters, which as we can see are raising their stake and not reducing it. So further liquidity in the stock may just dry up.

Higher Production in FY09

Selan's Crude Oil Production is set to rise to an estimated 150,000 barrels (128,000 barrels)during FY09. This quantity is double the figure recorded over the past three years and indicates that Selan Oil is ready to scale up its business operations.

Gross Under-Valuation

Various estimates place Selan's Crude Oil Reserves at 45 mn barrels (excluding Ognaj and Karjisan) are worth roughly Rs 13000 crore at the realised market price of $ 71 per barrel and a currency conversion rate of Rs 40 to a US Dollar. The figure goes up to 22500 crore, 28000 crore and 37000 crore at Crude price of $ 122 a barrel, $ 150 a barrel and $ 200 a barrel with a Re Vs Dollar rate of 41.

Assuming even 25 per cent of the Oil Reserves are recoverable, a market cap of Rs 419 current crore indicates a massive under-valuation of the Selan stock.

NELP is beneficial to new oil field operators

More importantly, private oil field operators are not subjected to subsidy sharing beyond the Oil equity due to the GOI, and hence stocks like Selan do not carry operative risks like other E&P operators like Ongc.

Background

Following the move by the Government of India in 1992 in opening up the oil sector for private initiative in exploration and production of Hydrocarbons, SELAN was amongst the first private sector companies to have obtained rights to develop three discovered oilfields situated in the state of Gujarat namely Bakrol, Indrora and Lohar, all with proven oil and gas reserves. SELAN was subsequently awarded two more fields in Gujarat namely Ognaj Oilfield and Karjisan Gas field.

All the oil and gas blocks have a well laid out infrastructure. Hence these blocks are easily accessible and are in close proximity to the Government's crude gathering station as well as are in close proximity to a large industrial town.

The various seismic and reserves assessment studies have established substantial amounts of oil and gas reserves in these blocks.

SELAN thus has significant oil and gas assets in its control which require developmental work and for the purposes it would require substantial amounts of Capital investment to augment its development and growth objectives.

SELAN has a Development Plan for drilling of additional wells in these blocks in the next 3 to 5 years. The Plan is intended to be executed in a phased manner and would involve large capital expenditures, to be funded through a combination of external borrowings and internal accruals.

source:- BazaarLive