Stock Research: Incremental Petroleum (IPM)

Strategy: Acquire low risk oil and gas assets and apply technical expertise to develop the assets and their productivity.

Main asset: Selmo oil field in Turkey. 500 million barrels in place with 83 million barrels produced to date. Expected to generate around $20m cashflow per annum for next 2-3 years.

Shares out: 79m
Recent Share Price (24th July 2008): $1.05
Market cap: $83m
Dividends -> 6 cents in past 12 months.
Net cash balance at 30th June 2008 -> $9.5m
Financial year ends 31st December

2007

Revenue $40m
NPAT $10.7m
EPS 16 cents
P/E 6.6


Q2 2008 (to June 30) report
http://www.asx.com.au/asxpdf/20080724/pdf/31b9sq4wyjkr68.pdf

Q2 2008 Q1 2008

Net Production (BBL) 113k 116k
Ave Daily Prodn (BBL) 1,247 1,295
Ave Price (US$) $118 $90
Revenue ($A) $14.0m $11.6m

BJ estimates

Selmo 2008

Ave Daily Prodn (BBL) 1,300
Oil Price $110
Annualised revenue $50m
Net Profit Margin 30%
NPAT $15m
EPS 19 cents
P/E 5.5

Tricom report 30th June 2008
http://www.incrementalpetroleum.com/reports/IPM_EDIRNE_DRILLING_080630.pdf
2009 revenue estimate: $70m (includes Erdine revenue at oil at $120/ BBL - may be optimistic)

Verdict:
2009/10 cashflow ~$30m, equating to a P/cashflow of around 3.
Exploration prospects on top
Little or no debt
Risks
- Lower oil price
- Delays/downgrades to Erdine project
- Exploration disappointments


Erdine Gas Project, West Turkey (IPM 55%)

7 gas discoveries from 7 drilled wells.
Production planned mid 2009
Potential cashflow to IPM of around $10m, based on 9mmcf/d

Exploration, Turkey

8 exploration licenses awarded in May 2008

USA Projects

5 projects totaling 19,000 acres in San Joaquin Basin, central California.

1) Kettleman Middle Dome (IPM 10%)

Operating and producing field. Revenues cover US costs. Royalty of 25% of gross proceeds applies.

Significant production from new wells planned to commence in 2009.

2) Shallow Gas Project (IPM 50% and operator)

Rig slots booked in Q4 2008. If successful, begin production by end 2009.