ADM Energy Ltd (LON:ADME) is set for a substantial increase in production as its operations are being driven by a new well management team, so says research firm Align Research.
“With a new management team at the helm, there now looks to be a real chance of the company beginning to see a material return on its investment in OML 113 ahead of a substantial increase in production, in addition to a well-planned expansion of the portfolio,” Align said in a note.
OML 113 is host to the Aje field which produces some 2,900 barrels of oil per day from two wells, giving ADM around 248 bopd net for its present 5% production interest (which will imminently rise to 9.2%).
Plans for Aje envisage growth up to 6,000 to 8,000 bopd, subject to new investment in three additional wells.
READ: ADM Energy pays deposit to increase stake in OML 113
Align, which holds equity in its research clients, gives ADM a ‘conviction buy’ rating and sets a 19.21p price target implying some 700% upside to the current price of 2.4p.
Analyst Michael Green noted that ADM’s new team seeks to build a larger investment portfolio of undervalued projects by leveraging an extensive network across Africa.
He expects such deals to emerge for appraisal, development and producing assets that can add production as well as material reserves and/or resources.
Green said ADM looks “grossly undervalued” and his conservative valuation sees material upside.
“ADM is at an important stage in the development of the company,” he added.
“The Aje project has been in production for a couple of years now and there are well-advanced plans to significantly increase production over the coming years.
“The full development of the Aje project will involve an integrated oil and gas development project to maximize NPV. Our model was developed following discussions with management, and we have sought to be highly conservative. Below, we have outlined the assumptions on which our valuations are based.”