viewCaspian Sunrise

Kazakhstan-focused oiler Caspian Sunrise is sitting on "something special", says chairman

The company's BNG Licence covers an area equivalent to that ringed by the M25, London’s giant orbital motorway

Work on the company's deeper lying targets could yield spectacular results

“We are sitting on something pretty special,” says Clive Carver, chairman of Kazakhstan-focused oiler Caspian Sunrise PLC (LON:CASP).

He is talking about the BNG Licence, which covers an area equivalent to that ringed by the M25, London’s giant orbital motorway.

BNG has ‘nearology’ on its side, sitting around 40 kilometres from the giant Tengiz field, host to 9bn barrels of crude.

What it doesn’t have is a reserves report that really underscores the huge potential of BNG.

Deep re-entry 

That should change once the company has completed the re-entry of two deep wells, which it is hoped will set in motion a process that could lead to a huge re-rating of the company.

“We think BNG is a potential world class asset, but we need to prove that,” Carver told Proactive Investors.

Okay, so before we drill down into the investment proposition it is worth a quick introduction to a new name on the AIM scene that’s actually been on the junior market for more than a decade.

Before the change of moniker, Caspian used to be called Roxi Petroleum. The re-branding reflects some corporate house-keeping that gives the company full ownership of BNG.

The licence is host to two oil plays – one shallow, easy to tap and cheap to drill, the other is much deeper and technically more difficult to commercialise.

Shallow play

Current output comes from the shallow play, where it is producing gas from a structure developed during the Soviet era along with around 1,200 barrels of oil production for which it receives the local rate of US$16 per barrel.

Even at that this price the output is cash generative and drilling is so cheap at U$1.2 to $1.3mln per well that the payback is around a year.

These shallow wells go down to between 2,500 and 2,7500 metres. The deeper lying oil is found down to around 5,000 metres through a salt layer. 

Wells tend to come in at around US$10mln, though anywhere else in the world a hole of that depth and complexity would cost upwards of US$60mln.

The lid is being kept on the overhead by the bargain basement rig rates and the weakness of the local currency.

Success eyed  

To date Caspian has sunk three deep wells (801, A5 and A6) with mixed results.  The problem has been with an excess of drill mud.

Carver is confident the problems can and will be rectified. The plan in the coming quarter is to re-enter A6 with a side-track planned for A5.

If one or both can be put on production for a week or more (the IP rates are expected to be 2 to 3,000 barrels a day), then the company can hand the data to its consultant Gaffney Cline Associates, which will update the company’s reserves report.

That report will be important when it comes to renewing the BNG licence in the middle of next year.

If the company can demonstrate it is sitting on more than 730mln barrels of proven and probable (P2) reserves it will be awarded a 49-year licence, says chairman Carver. Anything less and it gets 29-year exclusivity over the area.

Renewing the licence would also allow the company to sell its oil at international prices.

Licence renewal 

Looking at what’s planned, this year’s work programme is likely to cost around US$15mln. It has bankrolled previous drilling from the proceeds of an asset sale and cash advances and from local oil traders.

It is keeping its options open on future funding, including issuing shares. 

“So we are probably looking at equity at the moment,” Carver said.

“It would help with the free float and dilute down some major shareholders who won’t mind having a smaller stake in a larger company.”

Punchy price target

A recent note from WH Ireland estimated the stock was worth 20.8p, or roughly double the current share price.

“[This] has potential to grow to 70.5p per share in an upside case based on successful drilling and production testing of reservoirs that have already been successfully discovered,” said analyst Brendan Long.

“Additionally, we believe the company has potential to build further on its exploration success given the underexplored nature of its world class licence area.”

The transformation in the company’s fortunes could occur in a matter of weeks or months with work with work on A6 set to get underway imminently.

"Even if it is just the shallow areas that are successful there is more than enough there to cover our share price,” says Carver.

"If we can get the deep areas working it would be a multiple of where we are at the moment.

"It really just takes one or two of these deep wells to come to prove to the world, and in particular the larger oil companies, that we are sitting on something pretty special."

Quick facts: Caspian Sunrise

Price: 8.1 GBX

Market: AIM
Market Cap: £152.5 m

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