PetroTal Corp (AIM: PTAL): Potential reserve addition

• The VS1 sand has produced ~320 bbl/d of 18.6 API oil during a brief test of a sidetrack of Well 20H. The oil gravity is similar to that found in the VS2 reservoir.
• The VS1 reservoir has not been developed to date as the company has only focused on the VS2 that has much better permeability.
• The initial oil in place in the VS1 reservoir estimated in the 2P case is ~84 mmbbl. Assuming 20% recovery factor would add ~17 mmbbl additional 2P reserves. Note that this is a long term goal as it will take a few years to achieve this level of reserve booking. A more bullish assumption of ~30% (as is often achieved in Peru) would add ~25 mmbbl.
• If expectations of low production of formation water from the VS1 are confirmed, oil produced from the VS1 conceptually should not require additional water treatment facilities to be constructed. This could have positive implications for the economics of the wells.
• Production from the VS1 and VS2 sands will be comingled at well 20H.
• PetroTal will evaluate the possibility of amending the field development plan for Bretana. The resources in the VS1 could be produced through multilaterals that would target both the VS1 and VS2 reservoirs with comingled production. Converting 17 mmbbl in the VS1 reservoir into the 2P reserves category (assuming 20% recovery factor) would probably require additional sidetracks and well tests in this formation. This is expected to take place during 2025 and 2026.
• Pending confirmation of reserves booking, we re-iterate our target price to £1.40 per share. The current dividend yield is >10%.

Valuation
Our new Core NAV for the company based on the 2P reserves only (including Los Angeles) is £0.98 per share with a ReNAV of £1.43 per share. Everything else being equal, each mmbbl of incremental 2P reserves adds ~£0.01 per share to our Core NAV. 17-25 mmbbl (assuming 20%-30% recovery factor for the VS1 sands) has an unrisked value of £0.17-0.25 per share.