Lansdowne Oil & Gas Plc’s (LON:LOGP) stake in the undeveloped Barryroe oil field, in Ireland’s Celtic Sea, is worth considerably more than the market value of the group’s AIM quoted shares, according to broker Brandon Hill Capital.
The 20% stake in Barryroe is the company’s main asset.
Analyst William Arnstein, in a note, acknowledged that whilst the absence of a farm-in partner for Barryroe may continue to weigh upon Lansdowne shares, the company is now better placed to either hold out for the ‘right’ deal or take proactive approach to add shareholder value.
Arnstein’s assessment comes after Lansdowne raised £2.1mln of new capital in June, and as Barryroe operator Providence Resources PLC (LON:PVR) also strengthened its balance sheet with a US$76.6mln funding.
Barryroe is estimated to host some 310mln barrels of oil and 169bn cubic feet of gas and, whilst testing of previous wells has shown the field’s economic potential, Arnstein says further r appraisal is considered necessary prior to development sanction.
Significant exploration and appraisal upside has also been identified by Providence and Lansdowne, he added.
Arnstein gives some 10.3p per share for his net valuation Lansdowne’s stake in Barryroe, including 6p per share for an initial development which would target 70mln barrels of the field’s contingent resources. He notes that the exploration and appraisal upside is excluded from his valuation.
“When and on what terms a farm-out might be agreed remains the big unknown and the key value driver for the company,” the analyst said.
“The recent US$68m capital raise by the operator, Providence Resources, did not include funding for an appraisal well at Barryroe and may indicate confidence that ongoing discussions with counterparties will result in a satisfactory outcome.
“With Lansdowne trading at just 0.12x total NAV, it is clear that the market is taking a far more pessimistic view, providing a very significant upside potential if an agreement is reached.”
Lansdowne shares currently change hands on AIM for around 1.12p each.