Independent Oil & Gas’s (LON:IOG) Skipper project is most important, according to VSA Capital, which today gives the AIM oiler a ‘buy’ recommendation.
With a price target of 70p VSA analyst Marc Anis-Hanna suggests nearly 1,000% upside to IOG’s current price of 6.5p.
Success at Skipper accounts for 84% of the target, albeit the company is still working to fund the project and close its agreed acquisition of 50% of the project equity (to make it wholly owned).
IOG revealed last week that it had made strides towards completing the deal and drilling a key appraisal well, which could allow a field development process to begin.
Contractors - such as the rig owner, well operator, subsea equipment supplier and an essential rig services provider – had committed to around £7mln towards the project (in the form of partial-funding, payment deferral or loans), IOG said.
VSA’s Anis-Hanna sees the project as being key to his ‘buy’ recommendation.
“We assume that IOG will successfully acquire the remaining 50% of skipper from Alpha Petroleum before the end of the year,” the analyst said in a note.
“The realisation of this transaction is key to IOG’s valuation.
“We think this heavy oil field holds very low geological risk since oil has already flowed to surface and the company possesses clear 3D mapping. We believe the risk surrounds the securing of funding for the appraisal well to which the company has already made significant progress towards.”
Anis-Hanna adds that IOG’s management team, particularly chief executive Mark Routh, is the company’s key strength and that they had experience negotiating similar deals to those that IOG now needs to bring its projects forward.
“We believe IOG is an undervalued company, in light of its good portfolio of assets, currently suffering from the negative sentiment toward the oil & gas sector due to the sharp decrease in hydrocarbon prices,” he added.
“Bringing forward the Skipper development plan should reassure investors which in return could attract more capital.”