Petroceltic has diversified asset base with game changing’ potential, says Daniel Stewart

City broker Daniel Stewart today initiated coverage on Petroceltic International (LON:PCI) with a 13.7p price target.

The broker says the firm has a well diversified asset base that has ‘game changing’ potential, this is reflected by a punchy price target which implies nearly 70 per cent upside from the current price of 8.2p a share.

In Algeria Petroceltic is working, alongside major European utility firm ENEL and Algeria’s national oil firm Sonatrach, to develop the world class Ain Tsila gas field. And the firm will in the coming months start preparing to start its first drilling programme in the Kurdistan region of northern Iraq.

In Italy it is also exploring the onshore Rovasenda exploration project.

“Our target price is borne out by Petroceltic’s development asset in Algeria and its main exploration play in Italy,” said analyst Kate Fisher.

“We see the Kurdistan acreage as pure upside.”

Fisher assigns nearly two thirds of her valuation, 8.7p, to the Algerian assets. She includes 2.4p for Rovasenda and the rest of the valuation is in consideration of the cash due to the company via the farm-out of a portion of Ain Tsila.

Petroceltic expects to receive in the region of US$100 million from the deal in the near future.

There are a number of key events coming soon that will serve as a catalyst for the group’s shares.

Operationally in Algeria Fisher reckons the submission of a field development report, expected later this quarter, and the declaration of commerciality later this year will be important.

 “These two milestones will firm up the progression towards development and should send a clear message to the market. The Declaration of Commerciality will also enable PCI to progress resources into the reserve category which should serve to solicit investor attention,” Fisher explained.

“We note that the development lead time for Ain Tsila is medium- to long-term; first gas is not expected until 2017.”

On a corporate level another farm-out of the Ain Tsila asset could be another catalyst, according to Fisher. 

“This will further demonstrate the ability to monetise assets, diversify risk and crucially, fund the development programme,” she added. “This would go a long way towards mitigating the liquidity risk that we feel PCI faces on this development and would unwind the level of risk we apply to the project.”

Elsewhere the analyst reckons a positive drilling result in Italy could be a game changer for Rovasenda.

The start of drilling in Kurdistan could also have a big impact.

 “The two assets in Kurdistan are in a world-class resource play and thus have clear potential,” Fisher said.

“They are proximate to multiple billion barrel fields and the area has experienced a high rate of success. However, as the areas are completely undrilled, they are inherently risky. Industry eyes are watching this play.”