Just wondered how long Atzam 5 is due to take.
Also we should hear about Atzam 4 numbers upgrade and completition of storage facilities any day now.
Also the workovers on Tortugas Salt Domes must be well ahead with the planning by now
Any one got any info or heard any whispers ???? Sandra, Kev, Ivan ????
Research note from web site below........
Citation Resources has a ~60% working interest in block 1-2005, located onshore Guatemala in the prolific South Peten Basin. The Company recently flowed 37 degree API oil from its Atzam #4 well at an equivalent rate of >1,000 barrels of oil per day. Current production is restricted to 140 barrels per day due to storage constraints. Several prospective zones remain untested. Resource potential for Atzam is estimated at 20 million barrels (gross). Fiscal terms in Guatemala are favourable, with operating netbacks of ~50% of WTI.
The Company is scheduled to spud a follow-up well, Atzam #5, in September 2013 and may also work-over two wells at the Tortugas Salt Dome, which flowed at historic rates of >1,500 barrels of oil per day and proven 2P reserves of 0.6mmbbl have been certified.
Event & Impact | Positive
Atzam – 20mmbbl Potential: The 600bopd achieved on test at Atzam #4 was from a secondary target, with several other (potentially more) prospective zones remaining to be tested or behind pipe. The implication is that the excellent result to date is just the tip of the iceberg. An historic Independent Reserve and Resource Assessment has indicated 2.3mmbbl based on one well alone, with >20mmbbl potential for the entire field. Net to CTR’s working interest this represents value of up to A$220m or $0.17.
Guatemala – Great Place to Find Oil: The South Peten Basin, in Guatemala, is an extension of the prolific basins found in neighbouring Mexico; however, the region remains relatively underexplored despite a high success rate (58 of 153 wells drilled have produced oil). Attractive fiscal terms mean that the 20mmbbl potential at Atzam alone could be worth ~A$370m (gross NPV10 unrisked).
Tortugas – Proven Reserves: The Company has development potential at the nearby Tortugas Salt Dome where proven 1P and 2P reserves are estimated at 0.3mmbbl and 0.6mmbbl, respectively. Two historic wells flowed at >1,500 barrels per day on the field. We estimate upside potential of ~4mmbbl at Tortugas.
Forward Work Program: CTR has a busy 6 months ahead with upgrade of surface facilities and offtake likely to be completed within weeks. Follow-up drilling at Atzam #5 is scheduled for September and two workovers are also possible by the end of the year at Tortugas. The forward work program is now fully funded via a recent $6m raise.
Recommendation
We have conservatively assumed production of 9.4mmbbl at Atzam, resulting in a valuation of $0.08, net to CTR. Additional potential at Atzam and Tortugas could provide upside >$0.20. It is early days so risk remains high; however, now that the Company is funded, the upcoming newsflow from a Reserve update and drilling at both Atzam and Tortugas is likely to result in a re-rating. We initiate coverage on CTR with a Speculative Buy recommendation and a price target of $0.06.
Current Price Target Price
$0.018 $0.060
CTR Energy
1,031.3 1,201.9 18.6 21.6 5.0 16.6
$0.044$0.009 4.00
RiskedUnrisked $/s$/s 0.0780.17 0.0100.03 0.0090.09
0.004104.0.00
Ticker: Sector:
Shares on Issue (m): - fully diluted (m): Market Cap ($m): Market Cap Diluted ($m) Net Cash ($m)*: Enterprise Value ($m): * estimate
52 wk High/Low: 12m Av Daily Vol (m):
ValuationRisked $m
Atzam 94.1
Tortugas 12.0
Other 10.5
C$a0s.h050 5.0
Debt 0.0
0.0000.00
$0.045
120.0
Corp Admin-10.0
-0.008-0.01 0.00010.0.00
80.0
$0.040
Options 0.0
$0.035 $0.030
Total 111.6
0.0930.29
$0.025 $0.020 $0.015 $0.010 $0.005 $0.000
60.0 40.0 20.0 0.0
Aug-12 Nov-12 Feb-13 May-13
In A$ unless otherwise stated
Share Price Graph
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 1
Discovered oil reserves with appraisal and exploration upside onshore Guatemala – 1,000bopd equivalent rate achieved from first well from one of several prospective zones
60% interest in 2.9mmbbl 2P Reserves with 20mmbbl Contingent Resource as well as exploration upside
Rigs, camp, airstrip and other equipment all part of the original acquisition
Extension of prolific Mexican geology and nearby to analogue field that has produced 30mmbbl
First up success from Atzam #4 well from a zone that had not been tested historically
Followup drilling at Atzam #5 scheduled for September
Overview
First Up Success in Guatemala
Citation acquired a right to acquire its interest Block 1-2005 in Guatemala in July 2012. The block has two existing discoveries with flow rates from historic wells of up to 1,500 barrels of oil per day. One of these discovered fields, Atzam, was successfully appraised by the recent Atzam #4 well, which flowed at an equivalent rate of 1,000 barrels of oil per day during testing in June 2013.
CTR’s interest in Block 1-2005 is indirect, through an agreement to earn 70% of the shares of Latin American Resources (LAR). Recent conversion of debt funding by Range Resources to equity has reduced CTR’s earning right to 60%. CTR will earn its interest by spending US$13m (US$12m spent to date – part funded by Range) plus a loan carry for an additional US$12m (CTR share US$10.3m, Range US$1.7m) and has issued 160m shares and 80m 4c options on achievement of milestones. In addition to the licences, CTR will own, via LAR, two drilling rigs, a 50 man camp and an airstrip as well as surface facilities and drilling equipment. This represents ~US$18m of sunk capital. More detail on the acquisition is provided in the Corporate Overview section of this report.
Figure 1: Project Locations
Source: Citation
Significantly, the production at Atzam #4 was achieved from a zone that had not been flow tested in historic wells and was considered a secondary target. The primary zone and an additional secondary target, with better log response that the zone tested, remain behind pipe. An analogue field 17kms away, Rubelsanto, has produced ~30 million barrels from 8 wells since 1976 and is still producing at 800 barrels per day.
An historical Independent Reserve Assessment estimated 2P Reserves for Atzam #4 at 2.3mmbbl, with 20mmbbl of 2C Contingent Resource potential in the rest of the field. A followup well, Atzam #5, is scheduled for September. In the meantime, the Company is progressing an offtake agreement and upgrading surface facilities to handle the likely
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 2
Upgrade of surface storage should see increase from current constrained rate of 140bopd to 400bopd
Second discovered field on block has re-entry potential on two wells, possible prior to year end
Atzam history characterised by identification of significant potential that was not effectively exploited
production volumes (we estimate 400 barrels of oil per day per well on a stabilised basis).
Additionally, the Company plans to appraise the Tortugas Salt Dome (nearby to Atzam on the 1-2005 permit), which produced at >1,500 barrels per day each from two historic wells that are considered re-entry candidates. Estimated 1P Reserves for Tortugas are 0.3 million barrels with upside potential of 2.5 million barrels.
The Company’s forward work program is fully funded as a result of a recent $6m equity placement.
Figure 2: Nearby Producing Fields
Source: Citation
1-2005 - Atzam (CTR 60%*)
History and Overview
The history of the Atzam field is detailed below: Atzam #1A discovered the field in 1988, drilled by Hispanoil. The discovery was
on the edge of the structure and considered non-commercial at the prevailing oil price. This well is now used for water disposal.
Atzam #2 was drilled in 1993 by Basic Petroleum to a depth of ~1,400m and was completed in the C-18 and C-19 formations with an initial test of 1,386 barrels per day of 34 degree API oil. To date, the well has produced approximately 120,000 barrels of oil and is still producing at ~20 barrels per day.
Atzam #3 was drilled by Quetzal Energy Ltd to a depth of 450m after failing to reach the primary target due to pipe stuck in the hole after experiencing a heavy gas kick whilst drilling. Tests run over the shallow C-13 horizon recovered high quality 36 degree API oil; however, commercial flow was not established.
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Atzam #4 flowed 1,000bopd equivalent rate from 7ft section in C-17 horizon – many additional zones with similar or better log response to be tested
Atzam #4 producing at 140bopd constrained by surface storage
Offtake agreement and upgrade to surface facilities underway
Atzam #4 was drilled by Latin American Resource (CTR earning 60%) to a depth of ~1,300m, targeting the C-18 / C-19 formations. Heavy mud weight, deployed to safeguard against the kick experienced in Atzam #3, is thought to have caused well bore washout, preventing logging or testing of these deeper horizons. The well has been completed in a 7ft section in the Upper C-17 horizon and flowed naturally at stabilised rates of 250-600 barrels of oil per day on test with minimal water. Logging indicates good quality reservoir and oil saturation in several other zones, including an additional 13ft zone in the Upper C-17 and also the C-13 and C-14 (which are the main producing zones in the nearby 30mmbbl Rubelsanto Field).
Figure 3: Log Data from Atzam #4 Well
Source: Citation
Current production at Atzam #4 is 140 barrels of 37 degree API oil with little to no water, constrained on an 8/64th inch choke and well head pressure of 360psi. Productivity on open choke is estimated at >1,000 barrels per day; however, stabilised production is likely to be closer to 400 barrels per day in order to maximise ultimate recovery. Production will be increased once an offtake agreement is signed and an upgrade to surface equipment is completed.
So, in summary, significant encouragement is evident in several horizons; however, drilling issues have prevented conclusive testing of this potential. As described in more detail in the Geology section below, conditions are not simple due to overpressure and fractured reservoir. Modern day drilling and completion techniques with use of an appropriate mud system should help overcome these complexities.
*There is a 3% overriding royalty interest on the permit (excluding Atzam #4), Atzam #2 working interest is 46%, Atzam #4/5 working interest is 54%, Quetzal has a right to participate for a 10% working interest in all future wells
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 4
Historical Reserve estimate of 2.3mmbbl – based on one well - 20mmbbl potential for the field
Updated Reserve assessment underway
Geology characterised by stacked pay in fractured carbonate reservoirs
Shallow marine source rock with anhydrite and salt seal
Nearby Rubelsanto Field has produced 30mmbbl and is still producing at ~800bopd
Reserve and Resource Potential
An historic Independent Reserve Assessment by Oilfield Data Services (ODS) identified 2.3 million barrels of 2P Reserves at Atzam based on one well alone. Internally identified potential for the entire field has been estimated at 20 million barrels on a 2C Contingent basis. These numbers are based on data from 4 wells, including Atzam #4, vintage 2D seismic as well as analogue production data from nearby fields.
An update to this report is currently in progress and will be completed in the near term.
Geology
The main formations of interest for CTR are the Coban horizons, which are Cretaceous in age. These horizons consist of interbedded limestone and dolomitised limestone, with most oil reservoirs being found in fractured dolomites in the B, C and D horizons.
Figure 4: Atzam Oil Field Cross Section
Source: Citation
Source is considered to be at various levels within the Coban B and C members, which were deposited in a shallow marine environment behind a lagoonal bar. This has not been conclusively proven, however. Seal is provided by interbedded anhydrites, allowing for stacked reservoirs within the Coban formation.
Production from nearby analogue fields can be seen in the stratigraphic column below. The main analogue for Citation is the Rubelsanto field, which produces mainly from the C-13 and C-14 horizons but also from deeper horizons, including the C-17. The Upper C- 17 horizon is productive in Atzam #4 and logs indicate that an additional zone in the Upper C-17 as well as the C-13 and C-14 are also likely to be productive. The primary targets in the field were thought to be the C-18 and C-19 due to the high flow rate achieved in the Atzam #2 well from these zones. These were not able to be tested in the Atzam #4 well and remain prospective.
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 5
Figure 5: Stratigraphic Column with Analogue Fields
Source: Guatemala Ministry for Mines and Energy
Forward Program
The Atzam #5 well is scheduled for drilling in September at a cost of US$3.5m (dry hole, $4m completed), and will make use of recent lessons learned and operational risk should decrease with each well drilled. Seismic is also likely and may cost $2-$3m.
The Company also plans to increase surface capacity from the current 7,000 barrels and finalise offtake before increasing production from Atzam #4 to ~400 barrels of oil per day (from the current rate of 140 barrels per day). This activity should be completed by the end of August.
Figure 6: Atzam Potential Drilling Locations
Several fields nearby produce from the same zone that are interpreted to be productive at Atzam
Atzam #5 scheduled for drilling in September – US$3.5m dry hole cost
Increase in surface capacity and offtake agreement likely to be complete by end of August
Source: Citation
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 6
1-2005 - Tortugas Salt Dome (CTR 60%*)
History and Overview
The Tortugas Salt Dome is located ~3kms to the north of Atzam and was originally a target for sulphur exploration in the 1970s. Three wells drilled on the northern flank of the salt dome flowed 28-32 degree API oil from the C-17 horizon at depths between 1,300-1,800ft. The 63-4 and 63-5 wells both flowed oil in excess of 1,500 barrels per day in the 1980s before being suspended. Combined production from the two wells was ~80,000 barrels over total production time of 6 months. These wells are considered re- entry opportunities with 1P reserves of 0.3mmbbl estimated.
Activity at Tortugas is expected to commence in the near term with initial focus on the workover of the 63-4 and 63-5 wells.
*working interest in two existing wells (63-4, 63-5) is 48%
Figure 7: Tortugas Location in Relation to Atzam and Rubelsanto
Source: Citation
Reserve and Resource Potential
Historical Reserve estimates (ODS, 2006) at Tortugas have indicated 0.3mmbbl of proven 1P reserves, 0.6mmbbl of 2P and 3.8mmbbl of 3P Reserves. These estimates are based on well data, including the production history mentioned, and vintage 2D seismic.
Additional upside potential is also possible from features identified on surface expression that require additional seismic to firm up before drilling.
Geology
The Tortugas Salt Dome is a typical salt dome feature, formed by the vertical migration of a thick salt layer through denser overlying sediment. The structure is evident on the surface with a 200m relief and 3km2 in area at its base (Tortugas means Turtle). In the
Tortugas discovery remains undeveloped after two historic wells flowed at high initial production rates – 1,500bopd – but were never fully drained
Surface access has delayed development but is likely to be granted in near term
1P and 2P Reserves independently certified 0.3mmbbl and 0.6mmbbl
Other salt dome features can be identified from surface expression
Typical salt dome geology with same target horizons as at Atzam
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 7
Stacked pay in carbonate reservoirs with traps and seal created by the salt dome feature
Two wells had been produced intermittently but with little science – significant Reserves remain with workover prior to year end at little cost
Busy forward program with Reserve update, surface upgrade, offtake agreement, spud of Atzam #5 and workover of two Tortugas wells
subsurface, sediment layers abut the flanks of the salt, forming a seal and allowing for trapping of oil and gas.
Figure 8: Tortugas Salt Dome Feature
Source: Citation
Forward Program
Recompletion of the 63-4 and 63-5 is planned in the near term, once surface access has been finalised. Each of these may cost as little as $375k. Additional wells are also likely, with cost estimates of $2.5m. Seismic to cover the structure would cost in the order of $2.5m.
Figure 9: 2013/14 Work Program
Source: Citation
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 8
Country Overview - Guatemala
Oil and Gas History
Oil was first discovered at Tortugas in 1971 whilst exploring for sulphur. Since that time several relatively small oil fields have been discovered, the largest of which is the 11,500 barrel per day Xan Field, operated by Perenco. The second largest field is Rubelsanto, which has produced ~30mmbbl since 1976 from 8 wells and is still producing at ~800 barrels of oil per day. Both fields produce heavy oil (15-16 degree API) with low sulphur content.
Current total in-country proven reserves are estimated at 83 million barrels of oil with gross production of 14,000 barrels of oil per day. Usage per day is 71,000 barrels.
Guatemala completed an oil and gas bid round in Feb 2013, where 6 companies were granted exploration rights in July 2013 for 6 exploration blocks, with estimated work commitments of ~$180m. An additional 2 blocks are expected to be released later this year.
Fiscal Regime
The fiscal regime in Guatemala is a Production Sharing Contract that is attractive by global standards and is summarised below:
Royalty of 20% +/- 1% for every degree API increase / decrease in oil gravity from a base of 30 degrees API. E.g. 34 degree API equates to a 24% royalty 30% state take for production under 20,000 barrels of oil per day – after full
deduction of all operating costs and capital costs but excluding royalties 100% cost recovery 31% corporate tax
Pricing
Most oil in Guatemala is sold at a ~30% discount to WTI due to low API (on average 16 degree API) and the presence of sulphur. The oil flowed from CTR’s Atzam field historically was 34 degrees API with low sulphur and, more recently, 37 degrees API in Atzam #4. Current sales to local users command a premium to WTI (as much as $20 per bbl); however, these small end-users may not be able to handle the likely increased volumes. Given this, we would expect the oil to be sold at close to parity with WTI. Offtake agreements are currently underway.
Infrastructure
Whilst there is a pipeline with capacity at Rubelsanto, ~17kms away from Atzam, the plan is to truck the oil ~300kms to the Puerto Barrios on the East Coast. Pipeline access is complicated by differences in the quality / API of the oil as well as access and ownership issues. Trucking capacity will handle the planned peak production rate of 3,500 barrels of oil per day with cost estimated at ~US$8 per barrel.
History of under exploration despite significant potential and several medium sized field discoveries
Oil and gas bid round recently completed
Competitive fiscal terms result in 45% operating margin whilst cost recovery in effect
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 9
Board and Management
The following excerpt has been taken from the Company website.
Board
Mr Brett Mitchell - Executive Director
Mr Mitchell is a corporate finance professional with over 20 years of experience in the finance and resource industries. He has been involved in the founding, financing and management of private and publicly-listed companies in both executive and non- executive directorship roles. He has held various roles as an executive of the Verona Capital group, over the last 9 years.
Mr Mitchell holds a Bachelor of Economics from the University of Western Australia. He is currently a Director of Transerv Energy Ltd, Erin Resources Ltd, Tamaska Oil and Gas Ltd and Wildhorse Energy Ltd. He is also a member of the Australian Institute of Company Directors (AICD).
Ms Sophie Raven - Non Executive Director
Ms Raven has practised corporate law for over 20 years both in Australia and overseas. Since January 2007, Ms Raven has been a non-executive director of the offshore funds managed by a European futures funds manager. Ms Raven is currently also the company secretary for the Company and various other ASX-listed oil and gas companies, including Wildhorse Energy Limited, Transerv Energy Limited, and Sunbird Energy Limited.
Mr Michael Curnow - Non Executive Director
Mr Curnow brings extensive experience in the resources sector in gold, platinum and mineral sands exploration to the Company. He has been involved in the ownership and management of a wide range of businesses in South Africa and Australia. He was a founding director of Gallery Gold Ltd and AGR Ltd. Mr Curnow is also founding Director of Adamus Ltd (Mongolia), Gallery Gold Ltd (Botswana), and Adamus Ltd (Ghana), with all three currently in production. Mr Curnow is currently a Non-Executive Director of ASX listed African Energy Resources Ltd and Energy Ventures Ltd.
Key Management
Mr Michael Realini
Mr Michael Realini serves as the Chief Operating Officer of Guatemala and President of Guatemala at Latin American Resources (LAR). Mr. Realini served as President of Petro Latina Bahamas (formerly, Mexpetrol of Taghmen Energy Plc from June 2004 to 2006. He served as President and Chief Operating Officer of Quetzal Energy Ltd.
Mr. Realini has 20 years of experience in the oil and gas business, the last twelve of which have been based in Guatemala. Before joining Mexpetrol of PetroLatina Energy PLC in 2001, he was Vice President of Exploration at Pentagon Petroleum, Inc. from 1992 to 1998, and involved in El Condor Resources, the minerals division of Pentagon from 1998 to 2004. He has also worked as an exploration and development geologist with KCA Baron/Firecreek Petroleum, Sunmark Exploration Company and Amoco Production Company. He served as Director of Quetzal Energy Inc. since 2007. Mr. Realini holds both Bachelors and Master of Science degrees in Geology from the University of Northern Illinois.
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 10
Corporate Overview
Structure
Post the final conversion of the Range debt to equity (via shareholder approval) the Company will have 1,202m shares on issue, including the 300m shares recently issued at $0.02. There are 221.75 listed options (CTRO) on issue with a strike price of $0.04 and an expiry date of 31 December 2015. An additional 75m options, with the same terms, will be issued post shareholder approval as part of the recent placement. The Company has net cash of $5m.
Acquisition Overview
In July 2012, Citation entered into an agreement to earn 70% of Latin American Resources (LAR) by funding 100% of the drilling and completion costs of two wells on the Atzam Oil Project, at an estimated total cost of US$7m, and then an additional finance carry of US$18m total for total expenditure of US$25m. The agreement was recently amended so that the 70% earn-in milestone will vest upon total project expenditure exceeding US$13m (~US$12m spent to date), with a finance carry on the US$12m balance.
In addition, 53m ordinary shares and 26.5m 4c (Dec 15) options were issued as consideration upon execution of the agreement. Other milestone shares and items are summarised below:
Upon commercial testing of Atzam #4, in excess of 200bopd, an additional 53m shares and 26.5m options were issued.
Upon election to participate in a second well 54m shares and 27m options were issued.
A 3% gross overriding royalty on production (pre-existing) – excludes Atzam #4 Cash payment of US$1m on spudding of a second well or seismic to be paid by LAR as final acquisition cost of the project (paid in Q1 2013, part of current
project expenditure total funded by CTR)
A subsequent agreement with Range Resources resulted in a loan to CTR, which was converted to shares at $0.02 (212m shares). Range also has a 10% carried interest in LAR and a 10% funding interest.
In addition to the initial project financing and recent CTR working capital funding by Range, CTR has spent US$4.55m and has issued 160m vendor shares and 80m vendor options. Additionally, CTR has issued 212m shares to Range, as described above. Range has spent US$7.6m to date. The remaining US$12m to be spent as part of the acquisition will be split 6/7 to CTR and 1/7 to Range. This is a loan carry, which will be paid back as a priority out of the majority of the carried parties’ share of production.
So in summary, upon completion, CTR will have paid $12.3m in cash plus shares and provided a $3.6m loan carry for its 60% interest in LAR.
As part of the consideration, CTR will earn indirect ownership in the following equipment:
Tubulars and other equipment in place to drill and complete 3 development wells
Treatment and storage facility built with 7,000 barrel capacity Fully functional airstrip at Tortugas camp Full working camp with 50 person capacity
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 11
Fully reconditioned 500 hp Harold Lee trailer mounted drilling rig
Refurbished Wilson 38 Service Rig Funding
The planned work program for the Atzam #5 well, upgrading of surface facilities and workovers at Tortugas is likely to cost in the order of $5.5m gross. CTR will fund 85% (Range is paying the other 15%) of these costs or $4.7m. Early cash flow from Atzam #4 at 400bopd is likely to generate $0.5m per month in net cashflow to CTR (whilst cost recovery and tax losses are in effect). The recent $6m placement means that CTR is well funded.
Valuation
The fiscal regime in Guatemala is set out in the Country Overview section. Our base case project assumptions for Atzam are detailed below:
Initial production per well of 400 barrels per day Estimated Ultimate Recovery per well of 1.2mmbbl Capex per well of US$5m (completed) Opex per barrel US$18 (US$8 lifting cost, US$8 trucking cost, US$2 oil tariff) Number of wells = 8 Total reserves recovered = 9.4mmbbl Long term oil price of US$90, FX $0.85
These assumptions, combined with the fiscal terms, result in gross project NPV of A$165m. Net to CTR’s working interest, this equates to A$94m or $0.08.
If we model the full 20mmbbl potential for the field, this results in valuation (net to CTR) of A$210m or $0.18.
The implied NPV10 per barrel at Atzam is $17.50, which we have used for notional valuation for Tortugas and other exploration potential.
We have assumed 3.8mmbbl of potential at Tortugas with a 30% chance of success, resulting in a valuation of $12m or $0.01. The upside potential is $0.03.
Several Salt Dome features and Atzam look-a-likes have been identified on early analysis and we have assumed potential of 10mmbbl (gross total) for these with a chance of success of 10%. This results in value of $10.5m or $0.009 with upside of $0.09.
Well-funded post recent equity raise – strong demand resulted in upsize from $5m to $6m
Low opex / capex in favourable fiscal regime -> base case valuation for Atzam of $100m (net to CTR) based on 9.4mmbbl (gross)
Upside from 20mmbbl potential at Atzam is $0.18 for CTR
Tortugas adds risked value of $0.01 with upside potential of $0.03
Additional exploration potential adds risked value of $0.01 with $0.09 upside potential
Valuation Summary
Atzam Tortugas Other Cash DeTbottal unrisked upside potential is
Corp Admin
$0.31
Options
Speculative Buy with price target
Total
of $0.06
Figure 10: Valuation Summary
Source: Argonaut
50.00
00.00 -10-0.01
$m$/sh
940.08 120.01 110.01
The unrisked upside potential is estimated at $0.31.
00.00
Our price target is a qualitative1d1i2scount t0o.0o9ur valuation based on perceived takeover
premium, size and liquidity. In the case of CTR, the appropriate discount is considered to be 35%, resulting in a price target of $0.06. We are initiating coverage on CTR with a Speculative Buy recommendation.
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 12
Risks
Technical
The main producing reservoirs at Atzam are fractured carbonates, which by nature have variability in composition, requiring natural fractures for high productivity. Extensive faulting in the area increases the chance of fractures but also increases geological complexity. Areas of overpressure also require heavy mud weights that can damage reservoir. Operational risk is considered a key risk in light of these factors; however, we note that operational performance has improved (although not perfect) for the drilling of the Atzam #4 well.
Country
Guatemala has had a relatively stable democratic government since 1985 and has oil production since the 1970s. The oil and gas regulatory framework is relatively mature and the Country recently completed a bid round. There is a strong drive to develop the potential of Guatemala’s oil and gas sector and the fiscal regime is favourable. Country risk is considered low – moderate.
Funding
The forward work program is currently unfunded; however, given the quantum of funds required and the success achieved to date, we are confident that this will be resolved in the near term. Planned seismic next year may be funded from cashflow (~$1m per month net cashflow to CTR is possible from two wells at Atzam) and it is likely that debt funding will become an option once more wells are on production.
Commodity
Commodity price risk is subject to risks related to global growth outlook and political factors, for which ongoing uncertainty remains; however, we view the longer term fundamentals for the complex as strong. There is currently a lack of visibility on the likely received price until offtake has been finalised; however, we view the risk of a substantial (>$5 per bbl) discount to WTI as minimal.
Commercial
Citation has a 60% indirect interest in the 1-2005 block through its ownership in LAR, who retains operatorship. Whilst the relationship with LAR is considered strong, the existence of a majority ownership without operational control is not ideal.
Corporate Advisers | Stockbroking & Research | Special Situations Financing | Page 13
Statistics: Posted by AndyHope — Sat Sep 21, 2013 7:44 pm