Analysts bullish on Petroceltic after latest Ain Tsila success

Petroceltic International (LON:PCI) shares still have a compelling value even after the stock’s 70 per cent rally in the past month, according to analysts at Canaccord Genuity.

The broker pointed to the positive well result at the end of September as the trigger for the rally. The AT-8 well on the Ain Tsila gas field, in Algeria, beat expectations.

This positive news was followed up with Tuesday’s news of the successful testing of another nearby well, AT-7.

Petroceltic revealed the results of hydraulic fracturing on the well. It showed that commercial gas production rates could be achieved in the south western extension of the Ain Tsila field. 

AT-7 produced gas at rate of 4.9 million cubic feet per day. The commerciality threshold was set at 1.75 million cubic feet per day.

“The result is especially good given the well is located in the southern area of the field, outside the current 3D seismic boundary,” Canaccord analyst Braden Purkis said in a note to clients today.

“The other well located in the South, AT-6, was unable to flow any gas. The good results from AT-7 could partially be due to the company using a different completions technique on the last two wells drilled (AT-8 and now AT-7), both of which have produced commercial rates of natural gas.”

Canaccord Genuity repeated a ‘buy’ recommendation on Petroceltic shares, with a 12p target price. 

“The valuation is still compelling. Petroceltic shares have increased 70 per cent since the end of September on the back of good well results. At 6.70p per share we still believe there is plenty of upside left,” Purkis added. 

“On an un-risked basis, we calculate Ain Tsila to be worth 13p a share.” 

Elsewhere Dublin based broker Davy is even more bullish on Petroceltic’s value. 

According to Davy the group’s shares are worth 28p each. Of that 18p a share comes from the assets in Algeria, it said. The Irish stockbroker rates Petroceltic as ‘outperform’.

“The results from AT-7 provide comfort that the resource base and productive capacity of the Ain Tsila Field is up to best expectations,” said Davy analyst Job Langbroek.

“In fact, the southern part of the field was not included in the 400 million standard cubic feet of gas plateau rate outlined in the recent capital markets day. Well AT-9 should hopefully confirm that a relatively small number of wells will initially be required to achieve the production rates outlined.”

He added: “Having had some more challenging announcements from the Algerian programme in recent months (reflecting the appraisal nature of the drilling campaign), shareholders should be heartened by the current report and rightly look forward to the next one.”

Testing operations are continuing on AT-7. The firm will test the flow of gas while using a variety of different choke sizes so that it can characterise the reservoir in this part of Ain Tsila.

The AT-9 horizontal appraisal well will be tested later this month once the AT-7 testing is complete. AT-9 was drilled to a total depth of 2,494 metres and a horizontal section was drilled for 415 metres. 

The company said that logging results from the horizontal section indicates an uppermost interval of 57 metres. The interval has an average net porosity of 10.6 per cent and a maximum porosity value of 14.5 per cent, Petroceltic said.

Additionally it said there are good indications of natural fractures in the remainder of the horizontal section. 

“This result confirms that commercial gas rates can be achieved in the south of the field after the mixed results of AT-6,” chief executive Brian O'Cathain said yesterday.

“We are very encouraged by the logging results from AT-9, which was drilled on time and within budget, particularly as it extends the presence of this interval of high quality sand, successfully tested in AT-1 and AT-8, further south into the centre of the field. 

“Initial petrophysical evaluation indicates that this is the best quality reservoir encountered in any of the Ain Tsila wells to-date.”

He added: “(Today’s) results improve our understanding of this field and support the current conceptual Field Development Plan in the Final Discovery Report which we plan to submit to the Algerian competent authorities by the end of January 2012."

Petroceltic has a 56.625 per cent stake in the asset. Joint venture partners Sonatrach and Enel own 25 and 18.375 per cent respectively.

Enel bought its stake in the project from Petroceltic back in April. The transaction is expected to close in the coming weeks. Petroceltic will then be due payments of around US$100 million from Enel.