Carnarvon Petroleum Limited (ASX:CVN) and joint venture partner, Quadrant Energy, are approaching the drilling of the Phoenix South-3 well, with results a potential catalyst.
The Phoenix South-3 well has been designed to evaluate the gas and condensate discovered in the Phoenix South-2 well.
Analysts at Hartley’s note that the appraisal of Phoenix South and confirmed drilling of Dorado-1 could result in Carnarvon being one of the better performers in the oil sector in 2018.
Carnarvon’s exposure to recovering oil price underappreciated
Hartleys is of the view that Carnarvon’s potential exposure to a recovering oil price is possibly underappreciated.
It believes Phoenix South is likely to have a very high liquids content, and the liquids component is so high, the liquids cash flow alone could pay for the development.
Could there be a takeover in the wind
The broker also believes there is the potential for corporate activity given the group is now one of the largest independent owners of uncontracted gas in Western Australia.
Acquisition activity isn’t new to operators in that region.
AWE Ltd (ASX:AWE) attracted takeover interest in 2017 and Hartleys juxtaposed whether 2018 will see the losing bidders on AWE, or even another third party, come to the table.
Share price implies upside of circa 100% to Hartleys target price
Hartleys has a speculative buy rating on Carnarvon based on a combination of an attractive valuation relative to its enterprise value to barrels of oil equivalent and takeover appeal.
The broker has a 12 month share price target of $0.25 on the stock, a substantial premium to Friday’s intraday high of $0.13.