Casimir Capital analyst Ryan Galloway backed his $10.00 price target and strong buy rating on Tag Oil (TSE:TAO) Monday morning after the oil and gas company announced that it kicked off its East Coast exploration in New Zealand with the first well set to prove up "billions of barrels".
The first exploration well, Ngapaeruru-1, recently spudded on Tag’s East Coast permits. "The East Coast basin is encouraging for TAG because early evidence suggests the source rock is up to 600m thick, naturally fractured (improves flow rates, and may allow flow without frac), is oil charged, and overpressured," notes Galloway in his morning report on Monday.
"This first vertical stratigraphic test well should better assess the rock for future development potential. If these factors are demonstrated, we see East Coast eventually becoming a premier global shale play."
The analyst says that with resource potential here at 14 billion barrels in-place assessed on just 20 per cent of the acreage, the East Coast shale could be worth at least "$11.64/sh" risked to Tag on uncoventional alone.
Meanwhile, drilling at the Cardiff deep condensate well could also be coming to the Taranaki Basin this summer, Galloway adds.
Drilling at the Cardiff prospect, estimated by Sproule to hold 230 billion cubic feet and 14 million barrels prospective resources, is also slated to begin by early in the second half of this year.
The analyst takes note of the fact that Shell had previously drilled a similar well at a deep gas Kapuni target and post-frac saw 30 million cubic feet per day and 2,000 barrels per day of condensate. "Similar success by TAG at Cardiff could have the ability to double production before year-end," Galloway predicts.
"With TAG trading around $44k/flowing and ~3x EV/CF on current production (estimated around 4,500 boe/d) and near term growth potential above 5,000 boe/d on full tie-ins at Cheal, TAG offers strong near-term growth potential with no value for East Coast Shale or Cardiff," he concludes.
Shares of Tag were trading up by more than 4.2 per cent on Monday, lately at $4.69.