Sign up Australia
Proactive Investors - Run By Investors For Investors
Why invest in BRU?

Buru Energy has oil flowing again at Ungani project in Western Australia

Cash on hand should gain momentum as production increases towards the target rate of 3,000 bopd.
Checking oil samples in front of tanks at Ungani project
Analysts at Hartleys view Buru as significantly undervalued with its 61 cent valuation implying substantial upside

Buru Energy Limited (ASX:BRU) has brought the Ungani 1 and 2 wells at the Ungani Oilfield Project in Western Australia back into production with strong results.

After a short initial period of free-flow, the pumps in both wells were restarted without incident.

They are now producing a combined total of about 2,400 barrels of oil per day (bopd).

Water cuts of about 10% to 12% are significantly lower than when the wells were shut-in in January owing to adverse weather which caused closure of the access road.

High-value assets in Canning Basin

Buru’s petroleum assets and tenements are onshore in the Canning Basin in the southwest Kimberley region.

While the flagship Ungani project is a high-quality conventional asset, Buru has an active exploration program aimed at increasing its oil resources.

Analysts at Hartleys view the stock as significantly undervalued with its valuation of 61 cents per share implying substantial potential upside to this morning’s opening price of 36.5 cents.

Ungani 4 and 5

With the field back on production, testing operations have also commenced on the new Ungani 4 and Ungani 5 wells that were drilled late last year before the field shut-in.

Ungani 5 has flow tested at initial rates of up to 1,226 barrels per day of essentially clean oil and is currently shut-in for pressure build-up.

This result is generally in line with expectations and provides important confirmation of additional resources and production from the previously unaccessed Eastern Fault Block of the Ungani Oilfield.

The construction of the Ungani 5 flow line to the Ungani central production facility is expected to be completed and commissioned in about seven days.

Once Ungani 5 is connected it will be produced into the Ungani production facility as part of the company’s long-term operations.

Ungani 4 has been temporarily suspended while Ungani 5 is being tested and connected but operations to maximise production will resume once Ungani 5 testing operations are complete.

Exploration program aimed at multiple targets

Planning for the 2018 drilling program of up to four exploration wells is continuing.

The drilling program will be subject to conclusion of the current farm-out negotiations which are proceeding satisfactorily.

Hartleys analyst Aiden Bradley is of the view that the chance of securing a suitable farm-out partner has been enhanced by the buoyant oil price.

The positive impact of the oil price is evident over the last 12 months (below) when comparing Buru’s impressive share price performance (bottom) with the commodity price movement.

Strong cash flow for remainder of 2018

The planned drilling locations for this program include a range of play types including the proven Ungani Dolomite and the play opening Reeves oil discovery in the Ungani Far West well.

Buru’s cash flows for the first quarter of 2018 were significantly impacted by the unexpected shut-in of the field.

However, management’s projections indicate that it has sufficient financial resources to undertake its ongoing and planned activities which mainly revolve around the 2018 drilling program.

Production cash inflows for the third and fourth quarters of 2018 are forecast to be robust.

Cash on hand should gain momentum as production increases towards the target rate of 3,000 bopd.

Weather interruptions have not impacted fundamentals

Bradley noted that the recent weather interruptions have not impacted his valuation.

He said: “Our 12-month forward valuation and target price remains unchanged at 61 cents per share.

“A small decrease in net present value (NPV) due to the production delay has been compensated by the higher current oil price.

“The NPV10 is based on our base case for the Ungani Oil Field of 3,000 bopd peak production, 6.3 billion barrels of recoverable oil and a $100 per barrel long-run oil price.”

The valuation also contains a heavily risked value for future oil potential along the Ungani Trend.

The broker expects that this prospective play will continue to be de-risked by continued success at Ungani and any positive outcome from Buru’s intended farm-out process.

View full BRU profile View Profile

Buru Energy Ltd Timeline

Related Articles

oil well
June 18 2018
A cash flow model - assuming one new IOsorb plant is added each year between 2019 and 2021 - gives a price target of 35p/share
oil and gas operations
June 04 2018
“I believe that the ENEO issue will be solved as VOG management has prioritised this matter and is focused on achieving a result in the shortest possible timeframe,” chief executive Ahmet Dik
offshore oil rig
May 08 2018
Life has been tough in the oil sector in recent years, but things started to pick up towards the end of 2017

No investment advice

The information on this Site is of a general nature only. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions. You acknowledge and understand that neither the Company, its related bodies corporate, the information providers or their affiliates will advise you personally about the nature, potential value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter. You should read our FSG and any other relevant disclosure documents and if necessary seek persona advice prior to making any investment decision.

You understand and agree that no Content (as defined below) published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person.

You understand that in certain circumstances the Company, its related bodies corporate, the information providers or their affiliates may have received, or be entitled to receive, financial or other consideration in connection with promoting, and providing information about, certain entities on the Site and in communications otherwise provided to you.

You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate. From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

Before you act on any general advice we provide, please consider whether it is appropriate for your personal circumstances.

© Proactive Investors 2018

Proactive Investors Australia PTY LTD ACN:132787654 ABN:19132787654.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use