Sintana Energy Inc. (TSX-V: SEI): Initiating coverage

Sintana Energy is a ~C$75 mm market cap TSX listed explorer that provides unique exposure to the Orange Basin, offshore Namibia, one of the world’s hottest exploration spots. Sintana holds interests in 3 blocks adjacent to or on trend with the >11 bnbbl discoveries made by Shell and TotalEnergies in 2022-2023. ~US$1 bn has been spent in the basin in just 2.5 years and the Majors are rushing to acquire licences. Woodside and Chevron have entered into two of Sintana’s blocks over the last 12 months, fast tracking 3D seismic and well planning. Exploration drilling is about to start on Sintana’s blocks, with at least 4 wells expected from 4Q23 to 4Q24. Each well is a potential company-maker. Sintana’s indirect interests are carried by its partners for all these operations, which maximizes the value of the interests. Our C$0.90/sh target price reflects our ReNAV. It implies >3x the current s/p.

Very high impact drilling. Carried interests.
Sintana holds an effective 4.9% interest in block PEL 83, located just north of Shell’s >5 bnbbl discoveries. Shell plans to drill up to 7 additional wells over the coming 18 months. Galp, the operator of PEL 83, will drill 2 exploration wells in 4Q23. Sintana is carried all the way through to production. Block PEL 90 (Sintana: 4.9%), operated by Chevron, is located just to the north of Total’s >5 bnbbl Venus discoveries where a further two exploration wells are planned for 2H23. Chevron spent ~US$30 mm in 3D seismic and is expected to drill one well in 2024. Sintana is carried for this programme. On PEL 87 (Sintana: 7.3%), Woodside funded a ~US$40 mm 3D seismic over a giant fan structure and is expected to exercise an option to acquire 56% in the Block by YE23 and drill one well in 2024. Sintana is carried to development.

Value build-up
Sintana holds indirect interests in its Namibian blocks and does not have direct access to the resource estimates for PEL 83 and PEL 90. Pancontinental, which holds a direct interest in PEL 87, has reported 245 mmbbl to 7.8 bn bbl prospective resources in the Saturn Super Fan. The resource potential of each block must be very significant to justify a country entry for each of Chevron and Woodside. Sintana’s current share price broadly reflects the value of initial carries on each block pre-3D seismic. Since the 3D seismic has now been shot, the value has already increased significantly. The latest financing of Impact Oil & Gas implies a value of ~US$790 mm for the 20% stake in the Venus discovery. The valuation is conservative because Impact is not carried and its cost of capital is high. Applying this value, corrected for Sintana’s relative % stake in each licence, suggests that drilling success unlocks C$0.68/sh (~US$195 mm) in each of Sintana’s PEL 83 and PEL 90 and C$1.00/sh (~US$290 mm) at PEL 87 for a total of C$2.38/sh. Our ReNAV for the business assuming 33% chance of success is C$0.94/sh. Total and Shell have achieved a >85% success rate on their first 7 wells. Our unrisked NAV for Sintana is C$2.78/sh.