Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Mirabaud maintains 'buy' recommendation for Regal Petroleum after SV-58 oil well results

Broker Mirabaud noted this week’s update from Regal Petroleum (AIM: RPT), announcing the long-awaited results from the SV-58 well at the Svyrydivske gas and condensate field in Ukraine, which flowed at 395 boepd (barrels of oil equivalent per day) with the aid of new customized jet perforation technique.

The new approach, which Mirabaud said was a major technical breakthrough, will now be applied to all remaining B-sand layers in SV-58. The broker said that while this represented an important step for the company, its initial modelling assumptions for the first well were too aggressive concerning well productivity, leading it to alter the model from a B sands only development to a combined B and T sands project with the same reserve base and a higher risk factor.

As Ukraine’s macroeconomic position has somewhat stabilized, Mirabaud decided to use a more “generous” discount rate of 15% to offset the valuation impact of the aforementioned alteration.

The 'buy' rating for the stock was maintained as Regal still offered valuation upside with the technical progress representing a turning point, however the price target was lowered to 130 pence per share.

The previous model was based on a 169 mmboe (million barrels of oil equivalent) development, in line with Ryder Scott’s 2005 2P reserve report. However, Mirabaud said that the recovery factor of 75% used in the Ryder Scott report is unlikely to be achieved, and that the T sands needed to be included to some extent to hit the 169 mmboe number, leading it to change the model into a combined B and T sands development, with higher drilling costs to reflect the impact of deeper T sands development wells.

The first year productivity assumptions were also lowered to circa 1,100 boe/d (barrels of oil equivalent per day) per well from circa 1,500 boe/d, while the total number of wells was increased to circa 95 from 70.

The risked core NAV (net asset value) was recalibrated from 133 pence to 130 pence, still representing a 50% upside to the current share price.

Disclosure: The author holds no positions in the company