Iona Energy to see “massive” cash flow with UK oil field now producing, says Casimir analyst
Casimir Capital analyst Ryan Galloway kept his strong buy rating on Iona Energy (CVE:INA) Monday, after the company said the Huntington oilfield in the U.K. was successfully placed on production last week.
Galloway also maintained his $2.25 per share price target on the oil and gas company, predicting that Huntington production will result in “massive cash flow generation” for Iona.
Iona is focused on oil and gas development and exploration in the UK's North Sea, where the Huntington field – in which it has a 15-per-cent working interest - is located. The company also owns royalties equivalent to 2.55-per-cent of total gross oil and gas production from the joint venture partners at Huntington.
The operator of the field, E.ON Ruhrgas UK E&P, also has a 25-per-cent working interest, while Premier Oil (LON:PMO) has a 40-per-cent working interest and Norwegian Energy Co. has the remaining 20 per cent.
The production facilities have a capacity of about 30,000 barrels of oil per day (bbls/d) of oil and 27 million cubic feet of gas per day (mmcf/d), noted Galloway in an afternoon research report.
Previously, Premier disclosed that three of the four wells drilled have already seen flow rates of about 10,000 bbls/d of oil, exceeding expectations of 30,000 bbls/d from the entire field, he added.
“Initial declines are expected to be low as peak production is to be capped by the Floating Production, Storage and Offloading’s processing capability,” remarked the analyst.
“We see the project set to churn out about $140 million of cash flow in the first year, and should have price certainty with the company downside hedged on approximately 65-per-cent of oil production from Huntington, and with a structured product similar to a written call at about $100/bbl, on which Iona received a $60 million payment from BP (NYSE:BP) (LON:BP).”
Casimir also noted that Iona submitted a re-engineered field development plan (FDP) for the Orlando block in the North Sea in October of 2012, where it has a 35-per-cent working interest, and expects to receive approval during the second quarter of 2013.
“Orlando is expected to add 10,000 bbls/d, bringing Iona’s total production to 15,000 plus barrels of oil equivalent per day (boe/d) by mid-2014,” the firm said in its report. "On FDP approval, it is possible to see the full $250 million bank line unlocked for multiple development uses.”
Iona’s shares were lately down 4.55 per cent, trading at 63 cents.