Oilex - Initiation of Coverage
After several false dawns, credibility is now beginning to return to this Indian energy play focused on multi-TCF gas resources
Dual listed Oilex joined AIM in 2006, focused on developing a strong position in the highly prospective producing basins in India. Expansion elsewhere since then has failed and nine wells drilled in India over the last 10 years have disappointed. Plus, JV partner problems and a looming licence expiry have made investors cautious. However, in 2016 new management took control and are dealing with the issues.
Established player providing access to a booming Indian energy market
India is one of the fastest growing economies on the planet. The country relies on imports for 80% of its oil needs and LNG (Liquified Natural Gas) imports are expected to double by 2020, despite the country having some highly prospective world-class hydrocarbon basins. Oilex is one of a very small number of foreign companies operating in India today.
Drilling to begin in 2018 using state-of-the-art fracking technology
Schlumberger/Baker Hughes has identified the problems in the old wells and have a blueprint for success.
One re-entry and two vertical wells are planned for H2 2018, probably funded by a new JV partner farming in, with Oilex retaining a 30% to 45% stake in the vast well-regarded Cambay block. Given success, a horizontal well could be drilled in December 2018 and crossing over in 2019.
Premium gas price project as production will substitute imported LNG
India relies on imported LNG to fill the energy gap. Oilex is just 15km away from a major high-pressure pipeline taking re-gassed LNG from the port to Delhi and Mumbai, so is well placed to be able to gain a premium price.
Discounted cash flow analysis suggests upside of 680%
Due to legacy problems the stock now has a shell company valuation. By any yardstick, the shares look well-oversold in our view. We initiate coverage of Oilex with a target price of 1.60p and Conviction Buy stance.
Align Research is a commissioned research company founded in November 2015 in order to provide the under-served smaller company space with high quality analysis. We have an initial focus on the natural resources sector, in which we see significant opportunities given the current once in a generation bear market, however all undervalued small caps (sub £100m) are considered by our team. Align was founded by industry professionals with decades of experience in the stock markets, headed up by highly qualified individuals from both fund management and analytical backgrounds.
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