Calima Energy Ltd’s (ASX:CE:1) recent well performance at the core Brooks area in Canada has exceeded type curve estimates by 28%, confirming Auctus Advisors’ view that there is potential upside to the booked reserves figures.
Auctus has reiterated its target price of 3.5 cents per share as Calima continues to offer investors a combination of value and cashflow and reserves growth.
The following is an extract from Auctus’ recent research update:
Strong well performance supports our view that reserves estimates are conservative
- Three recently drilled wells (2 new wells and 1 re-entry) are currently producing a combined ~505 boe/d (80% oil) on an IP30 basis, demonstrating the top tier economics of open hole Sunburst wells.
- The well performance so far exceeds by 28% what the company had budgeted. This also confirms our view that there is an important potential upside to the booked reserves figures.
- The cost of the well was 20% under budget (total of C$2.2 mm).
- Current production is ~2,818 boe/d (69% oil), an increase of 14% from Blackspur Q1 2021 production of ~2,475 boe/d (68% oil).
- Calima has re-iterated its FY21 production guidance of 3,000 boe/d with a YE21 target of 3,400 boe/d.
- Calima shares continue to offer investors a combination of value and cashflow and reserves growth. Our target price of A$0.035 per share is unchanged.
What does it mean for reserves?
Calima was expecting only 393 boe/d from these three wells. A higher IP rate than expected often suggests a better than expected recovery per well. This also supports one of our theses that reserves (based on conservative volumes of hydrocarbons to be recovered by each well) could be higher than what the company has booked. We also note that Calima has not yet booked 185 additional drilling locations. This includes 70 locations in the Sunburst at Brooks. Assuming 200 mboe recovery per well, this suggests 14 mmboe potential reserves upside (+50%) based on the unbooked Sunburst wells only.
Valuation update
Pending further well results, we have not changed our Core NAV (based on the company 2P reserves) of A$0.015 per share (+60% of current share price) nor our ReNAV of A$0.036 per share (representing 4x the current share price).