Sintana Energy Inc. (TSX-V: SEI): Major discovery at PEL83

Major discovery at PEL83
• Galp Energia has announced a major discovery of light oil in reservoir sands of high quality at the Mopane-1X exploration well on PEL83.
• Drilling is continuing to explore deeper targets.
• A DST is expected to be carried out in the coming weeks.
• On completion of operations, the rig will move to drill Mopane-2X.
• Pending the results of the well test, this could be very material to Sintana. The structure had been previously estimated to hold up to 10 bn bbl of oil in place. Assuming 30% recovery factor, this implies ~150 mmbbl net to Sintana’s 4.9% interest in the block.
• This is the first well of a drilling campaign likely to include at least four very high impact wells with three different operators.
• We have increased our target price from C$0.90 per share to C$1.15 per share as (1) we have increased our chance of development at PEL83 to 40% and (2) we are now basing our unrisked valuation of each offshore block held by Sintana on the recent farm-out transaction by Impact Oil & Gas assets in Nambia to Total Energies.
• We note that Sintana will be carried to commercial production by Galp, resulting in no dilution associated with funding the development of PEL83.


Impact farms out Namibian interests to Total
Impact is farming out ~10% in PEL56 in return for a full carry to commercial production. In addition, Impact will receive ~US$99 mm in cash for past costs. Even if the carry will be rapid from after tax cashflow, this suggests that Total is valuing the 10% interest in PEL56 at at least US$400 mm (assuming a US$4 bn development) plus US$99 mm. Assuming a similar unrisked value at the other blocks (assuming success) would lead to an unrisked values of Sintana’s 4.9% interest in each of PEL90 and PEL83 at ~US$250 mm (~half of US$400 mm + US$99 mm) or C$0.86/sh and of Sintana’s 7.3% interest in PEL87 at US$365 mm or C$1.26/sh (we previously assumed ~US$195 mm for PEL 90 and PEL83 and ~US$290 mm for PEL87 based on the publicly available terms of the latest financing of Impact Oil & Gas).

Value build-up
We assume 33% chance of success for PEL90 and PEL87 and 40% at PEL 83. Our unrisked NAV for Sintana is C$3.39/sh. We note that the shares of Galp increased by ~8% on the announcement. This represents ~EUR735 mm of incremental equity value. Correcting for the relative interests in the licence (Galp holds 80%/Sintana 4.9%) suggests a theoretical “like for like” increase of ~EUR45 mm/C$65 mm (C$0.24 per share) in the equity value of Sintana.