viewRed Emperor Resources NL

Red Emperor an attractive opportunity to gain exposure to Georgia and Somalia, says broker Old Park Lane


Shares in exploration firm Red Emperor (LON:RMP, ASX: RMP) represent an attractive opportunity for investors to gain exposure to frontier exploration in Georgia and Somalia, said house broker Old Park Lane Capital.

Analyst Barney Gray rates the stock a 'buy' and targets a price of 134 pence (current share price: 26.50 pence), though he concedes the stock is not risk free.

"However, the company provides strong leverage into exciting assets with highly attractive risk/reward profiles at a significant discount,” he added.

Red Emperor has oil and gas interests in the state of Puntland in Somalia and the Republic of Georgia.

It revealed today that the drilling rig that will be used for its two-well exploration programme in Georgia is now on site, with the first well expected to spud next month.

It has a 20 percent working interest in blocks VIa and VIb, which cover around 6,500 sqare kilometres.

Its partner Range Resources (LON:RRL, ASX:RRL), which holds a 40 percent interest, last year funded a 410 kilometre seismic programme.

This identified 68 potential structures containing an estimated 2.045 billion barrels of oil-in-place.

The first well, targeting the Vani 3 prospect, is expected to reach target depth of 3,500 metres within 45-55 days.

Range used the Georgia news to update on the progress of its efforts outside the former Soviet state.

In Trinidad, the firm is on track to begin the shallow target development program involving 15 - 20 wells - to be completed before year-end.

The firm expects the first well in the program to begin around the end of next month.

Range says it is also finalising plans for an initial well to test the deeper Herrera formation target with an indicative proposed spudding date in late in the third quarter or early in the fourth.

The firm also announced that the Ross 3H horizontal well in East Texas Cotton Valley is ready to be fracture stimulated, or "fracced".

"If successful, the Ross 3H well is expected to launch a development program of 15-20 additional horizontal wells, each of which could potentially recover between 200,000 and 500,000 barrels," said the company.

Range has recently increased its interest to 21.75 percent of the field, and it is well positioned to add significant oil production and cash flow to its growing US operations.

Analyst Gray, of Old Park Capital, also recommends a "buy" for Range Resources shares, targeting a price of 28.1 pence (15.75 pence).

"Range’s progress in Trinidad and Texas has de-risked business significantly. However, the company maintains exciting near term exposure to highly attractive exploration upside in Georgia and also Puntland.
"Our valuation of 28.1 pence remains in place given that modest upgrades to our valuation of Range’s Trinidad and Texas North Chapman Ranch assets, coupled with a weaker Sterling/USD exchange rate have offset an increase in the fully diluted equity."

Quick facts: Red Emperor Resources NL

Price: 0.45 GBX

Market: AIM
Market Cap: £2.36 m

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