Stock Research: Tap Oil (TAP)

Share price: 60 cents
Shares out: 156,487,000
Market cap: $94m
Cash as at 31st Oct 2008: $60m, down from $100m at 31st Dec 2007. No exploration success. Spent $32m in Sept 08 quarter on exploration for no return.

Summary

- Generating ~$40m to $50m cashflow per annum, in steady production state, but production steady to falling.
- Shares are very cheap. Market cap $90m less cash $60m = EV $30m.
- Requires drilling success for major share price catalyst.
- Downside very limited. Upside significant.
- Near term catalyst valuation only and/or uplift in oil price (currently US$60 or A$85 with A$1 = US$0.70) as major exploration prospects don't drill for another 9 -12 months.

Major Exploration Prospects

- Block M onshore Brunei (Tap 39%, Operator). Two appraisal wells called Mawar-1 and Mawar-2) to be drilled in April/May 2009.
- Carnarvon Basin:
* WA-351-P (LNG, Tap 25%). Drill late 2009. Non-operator risk.
* WA-191-P. Fletcher 3 (Tap 10.93%) appraisal well drilled Nov 08.

Full drilling programme on p6.
http://www.asx.com.au/asxpdf/20081031/pdf/31d9t1k4yqnprv.pdf

Why are the shares cheap?

- Falling oil price
- No recent exploration success...does it suggest future exploration will also be disappointing?
- Varanus Island incident on 3rd June 2008 meant production shut down. This is subject to an insurance claim, plus production will be back to normal by end 2008.
- Caught up in the general equity and energy stocks sell off.

Production

Wollybutt (Tap 15%, ENI Operator)

Production stable at 12,000 bopd (1,800 net to Tap)

31st Oct: "Field going into natural production decline in the coming months"
http://www.asx.com.au/asxpdf/20081031/pdf/31d9ygx37w60pv.pdf

Harriet (Tap 12.23%, Apache operator)

Potential production 10,000 bopd (1,223 net to Tap)
Gas 115TJ per day

John Brookes (Tap 100%)

Gas resale, gas bought at 2005 prices.
Generates $25-30m revenue per annum.