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Byron Energy Ltd Under the Radar, Undervalued, Lots of Upside Potential

Stuart Baker - Breakaway Research - 20-Sep-2017

Key Points:

  • Byron Energy is an oil exploration company specialising in the shallow waters of the Gulf of Mexico, where its Board and Management have a long and successful track record. In only 4 years since listing, it has achieved exploration success through the application of advanced seismic tools. Its first commercial discovery was drilled in 2016 at South Marsh Island block 71 (SMI-71). This is being developed for production cash-flow enables development of additional reserves, and drilling on other highly prospective leases.
  • First oil from SMI-71 is expected January 2018. Key operational and financial parameters include:
    • 2P oil reserves of 2 mmbbls net to BYE from a 3 well development, which is our base case.
    • Net capex US$17 m (3 wells) and opex <US$4/bbl.
    • Reserves and value upside in the event of 5 wells to exploit 2.6 mmbbls of 3P reserves (the upside case)
    • Oil price deck in line with the current forward curve
  • Breakaway Research financial modeling key results are:
    • Cumulative net cash flows from SMI-71 base case production of US$76m to y/e 2023, and US%98m in the upside case
    • NPV of SMI-71 = US$65m (base), and US$80m (upside)
    • Payback on initial capex = 9 months
    • EBITDAX in first full year of operations = US$24m (A$31m).
    • Company NAV of US$ 102m (A$136m or 21 cps) including a conservative value for prospective resources and leases.
  • BYE raised A$26.5m via a placement on 14/8/2017 to complete the SMI-71 project and a follow on SPP may raise an additional A$2m. Production cash flows from early 2018 provide funds to enable long term growth from other drill-ready prospects.
  • In mid-2017, BYE was awarded GoM leases SMI-74, 59, and 57 which are nearby and geologically analogous to SMI-71. BYE has mapped 15 prospects in these with a combined gross prospective resource of 27.5 mmbbls of oil and 193 Bcf of gas. Exploration success in these leases could lead to substantial capital growth.

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