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Buy Curzon Energy at 8p - target 17p or 37p

By Tom Winnifrith | Thursday 12 October 2017

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Zac "the Knife" Phillips is, of course, the City's No 1 oil analyst and as we own shares in Curzon Energy (CZN) I see no problem in highlighting this most excellent piece of research. Okay, SP Angel is a retained broker so feel free to ignore this as PR marketing hogwash but Zac "the Knife" is no fool and is a man who writes what he thinks. Over to "the great one"

Curzon Energy’s recent IPO has provided it with the cash resources to undertake its appraisal programme, the results of which will enable it to declare commerciality on its assets. Given Oregon’s differentiated gas market price and supportive regulatory environment, the barriers to commerciality are lower than would otherwise be expected. We have used a success based DCF valuation, accounting for the risks associated with the appraisal programme using EMV methodology, and we value Curzon Energy at $32.5mm (37p).

Coal Bed Methane (“CBM”) Asset Appraisal Programme

The Curzon Energy Coos Bay CBM project lies in the Coos Bay Basin (“CBB”), which is made complex by the extent of folds and faults. The CBB is located in the southwestern part of the Oregon Coast Range. Coal Bed Methane (“CBM”) is naturally occurring methane (CH4) with small amounts of other hydrocarbon and non-hydrocarbon gases contained in coal seams. The widely reported presence of methane gas in the target coal seams from historic mining and gas production from pilot wells, means that CZN’s Coos Bay assets are categorised as a appraisal, opposed to higher risk exploration.

Infrastructure Plan in Place

In advance of its appraisal programme, the Company has applied for, received and installed the intra-field flow lines on 5 wells, and now only now requires the installation of gas compression facilities, a short pipeline connection to the grid and water disposal to commence the appraisal programme, and monetise gas produced from the existing and planned wells.

Supportive Regulatory Environment

Given the limited Oil & Gas activity in the state versus other activities such as logging and mining, the segment is encouraged and well supported. Furthermore, the permitting process is relatively quick and we have been told relations with the environmental authorities are positive, due to the relatively low environmental impact of Oil & Gas operations in the state in comparison to the wider industrial activity.

Higher Value Differentiated Market

While Oregon sits between a number of significant gas hubs, given the lack of local production, the project’s gas market is deemed to be relatively isolated. As a result, Oregon gas prices, save for periods where Henry Hub prices have experienced short term spikes, have traded at a premium to the benchmark Henry Hub.

Valuation – $32.5mm (37p)

We have valued Curzon Energy’s assets at $32.5mm (37p) using DCF valuation methodology; the un-risked valuation is $61mm (70p). we have also assessed the impact of a number of key variables such as gas price, SPE PRMS category and well spacing. Given the market NAV(D) multiple of 0.47x, suggesting a fair market value today of 17p, implying the shares should be trading 105% above the current share price.

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