ASX Code: JPR
Market Cap: A$38.1m
Price: 4.3 A cents
Price Target: 22.6 A cents
Westhouse, an integrated corporate finance and broking house based in London, has updated its valuation on Jupiter Energy (ASX: JPR).
Last month, Kazakhstan-focused exploration and production company Jupiter Energy, announced the results of an independent resource assessment and, separately, a quarterly update on activities in Block 31.
Resource upgrade
The independent resource assessment was carried out on Block 31’s Triassic reservoirs by Reservoir Evaluation Services LLP (RES), part of the AGR Group. As a result of the review, Jupiter’s Middle Triassic reserve and resource estimates have increased 180% to 58.2 million barrels.
The newly identified resources are located to the North of the recently completed J-50 well.
At present, test production aimed at determining long term production rates continues at J-50 with flow rates between 350 and 435 bopd being achieved depending on choke setting.
Internally generated estimates of an additional 22.2m barrels of prospective resources in Jurassic formations take the group’s total reserve and resource estimate to over 80 million barrels. An independent assessment of the Jurassic resource estimate will occur in 2012 when the J-52 well is drilled.
Quarterly Activity Update
Highlights of the quarter ending 30 June 2010 include the first commercial sale of oil from J-50 well. Post period end, in July, 10,000 barrels of oil were produced and sold into the domestic market.
Preparation of the application for a Trial Production licence for J-50 is underway.
The previously re-entered, Soviet era North West Zhetybai 2 well was put onto production test. Installation of a submersible pump to maximise production rates is planned for later this month.
Planning has progressed for J-51 well, a step out development well, which will target the same Middle Triassic production horizon as the J- 50. The spud date is now planned for the slightly later date of September 2010.
Cash reserves as at 30 June 2010 stood at approximately $A1.34m.
Post period end, Sanat Kassymov joined Jupiter in the role of Chief Financial Officer. Mr Kassymov brings with him industry experience gained at BMB Munai, a Kazakh oil & gas company listed in the US on the NYSE, and will be based in Almaty.
Valuation
In light of the resource upgrade, Westhouse is updating its target price of Jupiter to A¢22.6. This is based on Westhouse's existing estimated value of oil in the ground of $12.43 per barrel, which it arrived at by using a standard discounted cash flow.
This per barrel valuation was then used to determine the expected monetary value (EMV) of Jupiter’s prospective resources. Westhouse has applied lower risk assumptions to the resource estimates associated with the area where Jupiter’s drilling activity is currently focused.
Higher risk assessments were made with regard to the resources identified by RES and the internally estimated Jurassic resources.
At present there is a significant gap between Westhouse's target price and Jupiter’s share price. However, with production and associated cash flow due to grow substantially in the next twelve months, Westhouse believes more of this existing value will come into the share price.
As such, and given the substantial discount to Westhouse's target price, the broker maintains that Jupiter represents extremely good value. Westhouse's BUY recommendation remains unchanged.