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Deltic Energy aims to close the value gap

  • North Sea-focused explorer
  • Partnered with Shell of two high impact wells
  • Cash holdings of £13mln
Royal Dutch Shell PLC -

What it does

Deltic Energy PLC (LON;DELT) is a small-cap explorer focussed on the North Sea, where it is targeting gas resources in the vicinity of existing infrastructure. 

The company has a partnership with one of the largest oil and gas companies in the world, and, this partner, Royal Dutch Shell, is committed to drill at least two high impact wells in the coming years.

Success in either well will be an instant game-changer for Deltic.

In the meantime, other catalysts are anticipated and management is aiming to close the value gap (c£13mln cash in the bank).

How it’s doing

Cluff’s rebrand to Deltic Energy PLC was approved at its latest AGM.

It is being led by is essentially a reboot and rebrand of Cluff Natural Resources with Graham Swindells, continuing leading the company progress to elevate a company-building strategy following the 2019 retirement of natural resources veteran Algy Cluff.

In partnership with Royal Dutch Shell Plc (LON:RDSB) the company is advancing the Pensacola and Selene prospects, which are slated for drilling in 2021 and 2022 respectively.

The company is, meanwhile, shoring up its exploration portfolio with a separate farm-out process for the Dewar prospect, along with the Cupertino and Cortez prospects which are still being advancing technically and could potentially be brought into the upcoming farm-out.

Deltic, in mid-August, provided a couple of encouraging project updates. Shell provided new processed 3D seismic data over the Pensacola prospect, which is slated for a possible well in the second half of next year.

The data delivered a robust image over the Pensacola prospect, Deltic noted, and the partners will now update their interpretation of the prospect.

Separately, Deltic announced a material upgrade to gas estimates for the Selene prospect. Here, a well investment decision will take place ahead of a pencilled in drill programme for 2022.

Notably, the estimated chance of success at Selene was lifted significantly to stand at 70%, up from 39% in the previous estimate. The new resource estimate sees some 629bn cubic feet of in-place P50 gas resources, with a range set at 286bn in the P90 (the highest confidence) estimate and 1.02 trillion cubic feet in the P10 (most prospective) estimate.

What the boss says: Graham Swindells, chief executive

“One of the key challenges is the relative value that is attributed to the company,”

“We’ve got the best part of £13mln of cash and we’re trading at a fairly significant discount to both cash and the best part of an 80% discount to net asset value.”

What brokers say

Stockbroker Allenby in a note ran the ruler over the North Sea assets and estimated they could be worth around £146mln, a valuation that dwarfs the AIM-quoted firm’s current market value of just £12.65mln.

Allenby analyst Peter Dupont highlighted that the Selene update points decidedly towards commerciality and noted that the chance-of-success is very high for a pre-drill estimate.

Dupont, in a note, said: “It should also be remembered that in terms of commercialisation Selene lies close to infrastructure owned by its JV partner, Shell.”

He added: “Our risked absolute valuation rises from £116mln to £146mln while the success case valuation for Pensacola, Selene and Dewar increases from £234mln to £276mln.

“On a per share basis our valuation estimates are 10.4p (8.3p previously) and 19.6p (16.7p previously) on a risked and a Pensacola, Selene and Dewar success case respectively.”

Video

Inflexion points

  • Drilling gets underway on Shell-funded wells
  • Rebuffs takeover approach from Reabold Resources
  • Potential for additional licences from next licensing rounds

Quick facts: Royal Dutch Shell PLC

Price: 972.1 GBX

LSE:RDSB
Market: LSE
Market Cap: £75.9 billion
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