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Oil and Gas Discussion BB
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Scotiabank on GTE - C$6 target; Outperform March 24, 2017 Play Economics: Round 2 – GTE vs. North America
OUR TAKE:
We look upon Gran Tierra’s strategy in Colombia as one that offers
multi-zone potential over multiple play types that stack up as good as the top
tier plays in North America.
Exhibits 1-3 contain our IRR, Payback, and Break-Even
rankings for Gran Tierra versus various North American plays, while Exhibit 4 highlights
Gran Tierra’s impressive light / medium oil netbacks versus a select group of Canadian
oil players.
Our bullish outlook toward Gran Tierra remains predicated on its above-average
per share production growth profile (+22% exit 2017E), reserves upside, and
relatively low valuation given its ~17% pullback YTD.
KEY POINTS
We reiterate our Sector Outperform rating on Gran Tierra and our one-year target
price of
C$
6.00 per share based on our unchanged Risked NAVPS of
C$
6.11.
The underexplored Putumayo – multi-zone / play potential.
What stands out most
about the Putumayo Basin is the lack of exploration drilling in the area, with only ~85
wells drilled to-date often targeting large structural closures. This has left a significant
untapped resource base in the basin within stratigraphic plays and bypassed zones.
Gran Tierra has estimated its dominate land base in the Putumayo contains unrisked
prospective (mean) resources of 921 mmboe (135 mmboe risked), with a number of
exploration wells this year testing multi-zone potential across the N-Sand, A-Limestone,
U and T Sands (see Appendices 1 and 2).
Reserve upside likely with A-Limestone success.
The highlight for 2017 so far
has really been the success of the A-Limestone, a bypassed zone above the primary
producing U and T Sands. The A-Limestone now has three recompletions on production
at ~4,000 bbl/d, with shows noted in 14 of the existing U / T Sand producers. Our type-
curve analysis indicates per well EURs of 0.5-1.2 mmbbl which could imply reserve
upside this year of 7-17 mmbbl (vs. current 2P of 2.4 mmbbl), with further upside to
20-40 mmbbl with additional results. The first hz wells are also being drilled which could
enhance IP rates and EURs.
Cost reduction leading to impressive capital efficiency.
Our estimated 2017
capital efficiency stands at $20,200/flowing (vs. 2016E at $19,700/flowing excluding
acquisitions), with the A-Limestone recompletions (~$1M/well + IP rates of 500)
achieving an exceptional $550-$1,800/flowing. Drilling cost reductions have been
material at Costayaco at ~25%, Moqueta at 46%, and the initial two wells at Acordionero
trending toward a 40% reduction with AC-9. |
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Msg # | Subject | Author | Recs | Date Posted |
42293 | Re: Scotiabank on GTE - C$6 target; Outperform | xoil | 6 | 3/24/2017 10:28:35 AM |