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Rose Petroleum may grow to mid-tier status, Allenby says

Rose Petroleum may rapidly make a transition from junior to mid-tier E&P status by unlocking two new shale plays, says Allenby Capital.

Rose Petroleum (LON:ROSE) may rapidly make a transition from junior to mid-tier E&P status by unlocking two new shale plays, says Allenby Capital.

Analyst Peter Dupont believes Utah shale acreage, acquired at just US$110 per acre, could plausibly be worth around US$2,000 an acre following initial de-risking activities – that would give the projects a US$344mln (£208mln) price tag.

Not getting too carried away too soon, the broker says Rose is currently worth 4.3p per share - which in itself is almost double today’s price of 2.25p.

The Rose share price has already marked up a rather impressive ascent, rising as high as 4p from as little as 0.4p at the start of the year.

A key catalyst for the move was an independent resource assessment, by consultant Ryder Scott, which estimated that Rose’s interests in the Mancos and Paradox shale plays could contain 1.45bn barrels of oil and 4.79tln cubic feet of gas.

“Ryder Scott’s CPR points to a substantial resource base while the locations of Rose’s two projects are well endowed with infrastructure,” Dupont said in a note.

“We believe that Rose may be on the cusp of unlocking two new shale plays which could rapidly lift Rose from junior to mid-tier E&P status.”

Rose subsequently capitalised, with an oversubscribed placing, issuing new shares to raise £6.5mln to pay for initial exploration work in Utah.

By Dupont’s estimates, Rose will have to spend around US$16mln to sufficiently de-risk the acreage to the point that the US$2,000 per acre valuation would be plausible.

As such his 4.3p view takes into account further dilution, otherwise he reckons the assets’ current value would be as much as 13.9p per share.

“Lease costs and Rose’s initial work programme inevitably implies heavy financing needs.

“Our forecasts call for capital spending of US$4mln in 2014, US$11.8mln in 2015 and perhaps US$30mln in 2016.

“Longer term, funding is likely to be supported by joint-venture partners while debt finance is currently readily available at attractive rates for US shale projects post de-risking.

“Significantly, Rose has indicated that a number of oil and gas companies have expressed an interest in establishing joint ventures at the project level.”

The reported third party interest and the need for future financing are two reasons the competent person's report (CPR) was significant.

Beyond Rose’s package, both shale basins are being actively developed already, and the infrastructure available is excellent with road, rail, pipeline and power all readily available.

The leases, meanwhile, are also in an ideal location being only about an hour's drive to Grand Junction, which is the region's oil and gas services hub offering drill rigs, fracking equipment.

Underlining the potential of this highly attractive shale play is regional player Fidelity Exploration & Production, which is owned by New York-quoted MDU Resources.

Since 1963, it has produced 5.2mln barrels of 44 API oil and 4.2bln cubic feet of gas from 20 wells. Currently, 18 wells produce at a total average rate of 4,563 barrels a day and 2.4mln cubic feet of gas.

Rose, meanwhile, is on record as saying it wants to be producing by the end of the year and it is expected the first well will target the Mancos using existing 2D seismic data and information culled from historic wells.

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