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Growth Portfolio: Carnarvon Petroleum Ltd (ASX: CVN)


Published 04-NOV-2015 00:00 A.M.


2 minute read

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Overview: Carnarvon Petroleum Limited ("Carnarvon", "the Company") is an oil and gas exploration company focused on the North West Shelf of Australia. Carnarvon’s assets incorporate a 100% interest in the Cerberus project (permits covers ~3,700 km2) and a 20% interest in the joint venture exploration project in the Phoenix area (permit covers ~22,000 km2). An independent resource assessment has determined contingent resources of 31m and prospective resources of 72m barrels of oil for the Phoenix project.

Catalysts: Carnarvon’s Roc-1 exploration well is scheduled to commence drilling in the 2015 December quarter. The Company made a significant oil discovery in the Phoenix South-1 well in August 2014, the largest of its kind in more than 20 years. Carnarvon Petroleum is well funded with zero debt and more than $100m cash after divesting its Thailand assets earlier this year. Management has a strong track record in the industry.

Hurdles: There is no guarantee that existing resources can be converted into economically recoverable reserves. Oil prices have declined sharply over the past year and further falls would restrain the Company’s ability to generate future earnings. Carnarvon’s share registry is relatively fragmented and could leave the Company open to takeovers below the fair value of its securities.

Investment View: Carnarvon Petroleum provides speculative exposure to the domestic oil and gas industry. We are attracted to the magnitude of its land package, management track record, and its strong balance sheet. Oil prices remain volatile and there is no guarantee that the Phoenix project will yield economic benefits. With Carnarvon’s current share price tracking close to its cash backing, and the company free carried on the upcoming Roc-1 well, little value has been ascribed to its exploration assets. Whilst the technical chance of success at Roc-1 has been estimated at 42 percent, we favour the balance of risks and initiate coverage with a ‘speculative buy’ recommendation.


General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

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S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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