Aurelian Oil & Gas: A good buying opportunity, says Arbuthnot

City broker Arbuthnot says Aurelian Oil & Gas's (LON:AUL) current price represents a good buying opportunity.

Analyst Sam Wahab issued an upbeat note to clients on the stock after the firm updated the market today about its operations in Poland - on the Bieszczady and Siekierki fields.

"With the recent uncertainty in the market, we feel Aurelian's current price represents a strong buying opportunity and continue coverage with a "buy" recommendation and an 84p target," he said (current price: 40.25 pence).

The company's current projects span Poland to Bulgaria with exploration blocks in four countries - Romania, Slovakia, Bulgaria and Poland.

Headlining today was that the firm had completed drilling at its first exploration well in the Carpathians -  the Niebieszczany-1 well - the first of a three well programme - at Bieszczady.

But because of high pressure in the reservoir, drilling will be stopped short at 4,219m, and 60 metres of formation encountered in earlier drill stream tests, where it produced oil, condensate and gas, will be flow-tested, revealed the firm.

This flow test will last up to 14 days and will be followed by further tests up to 28 days.

A follow-up well is to be sunk in the first half of 2012 designed to reach the original Niebieszczany-1 primary target areas containing up to 100 million barrels (gross) of oil.

Aurelian added that its cost exposure on Niebieszczany-1 is limited to €3.5 million as its involvement is in the form of a fixed cost turnkey contract.

In an update last month, the firm had already flagged that progress had been slower than expected due to an over-pressured permeable interval between 3,845 - 3,848 metres which was required to be cemented to control the well, but did say that results from initial drill stem tests had been encouraging.

The company also revealed today that work on Trzek-3, the second Multi Fracced Horizontal Well (MFHW) on its flagship Siekierki gas field in Poland was going to plan and on budget with no material mechanical issues.

Aurelian is currently working on a final frac of a six frac programme and a 14 - 21 day stabilised flow test is expected to begin in the middle of this month.

The first Siekierki South-West well, Krzesinki-1, has last been drilled at a depth of 2,007 metres. Target depth of 4,150 metres is expected to be reached early in the fourth quarter of 2011.

Krzesinki-1 is on trend with producing fields in areas of good permeability and is targeting net resources to Aurelian of 44 billion cubic feet with an upside of 465 bcf.

The Siekierki project is located on the Poznan licences which are 100 percent held by Energia Zachόd, a company owned 90 percent by Aurelian and 10 percent by Avobone NV.

"Whilst it is clear that the company is making good cost-efficient progress in Poland, we eagerly await the results of the company's fraccing operations from Trzek-3 at the end of this month/early September," added analyst Wahab.

Broker Westhouse also highlighted the imminent flow-testing at Sierkierki. It said in a note: "Investors will wait to see the results from the flow testing of this well, scheduled for the end of August, as the key indicator to the technical ability of Aurelian to deliver this project and unlock the value of the tight gas reservoir."

Meanwhile, broker Matrix Capital said the Nieb-1 well was Aurelian's first exploration well in the Carpathians and it had previously flagged various drilling problems.

In a note, analyst Vulgar Aliyev said: "Oil and gas shows from the secondary target are encouraging, but it is very difficult to access the potential before test results and further technical work. In our valuation, we carry 3p risked (24p un-risked) for the primary target on Nieb-1. We maintain our "hold" rating with a 58p target price."