Bharat Petroleum
High-quality oil find in offshore Brazil
Event
Petrobras, the operator of the BM-SEAL-11 concession in offshore Brazil, has
confirmed the presence of excellent-quality oil in the SEAL-M-426 discovery
made in Oct 2010. This is a find of a “fresh oil province” as per Petrobras,
though no reserve estimates have been indicated as yet. BPCL through its
upstream subsidiary BPRL holds a 20% stake in the block. BPCL’s upstream
footprint as well as potential has been growing through partnerships with large
explorers like Anadarko and Petrobras. We have conservatively valued its
upstream portfolio at Rs90/sh in our SOTP based target price of Rs808/sh,
with no value assigned to this block yet. We reiterate Outperform.
Impact
Ultra-deepwater cretaceous light oil find validated: According to BPCL,
this well in the Barra formation of the Sergipe Alagoas basin was the first
ultra-deepwater (2311m) drilling in the region. Petrobras said that testing
revealed very high quality light oil of 43 degree API in the upper sections, and
slightly denser oil of 32 degree API at greater depths (expensive benchmark
crude grade Brent has an API of 38.1 degree). It also confirmed that the
reserves located at sub-surface depths of between 5,050-5,400 meters have
excellent porosity and permeability, which indicates high probability of
recovery.
Prospectivity of region has been high: This region has had multiple large
finds in various basins, which indicates that the whole area is highly
propsective. BPCL’s own Wahoo discovery is a prime example of where large
net pays of 195ft and 90ft were encountered 2 km apart. The Barra discovery
cretaceous reservoir is expected to have an areal extent of 70 sq km,
according to BPCL.
Upstream programme of BPCL robust: BPCL plans to drill 16 wells this
year, and has investments of US$3bn lined up for only upstream exploration
and development over the next 5 years (30% of overall planned capex, see
Fig 3). At roughly 1/12th of upstream giant ONGC’s capex, this is beginning to
assume significant proportions.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs808.00 based on a Sum of Parts methodology.
Catalyst: Capping of subsidised LPG cylinders, commercial production from
Bina refinery
Action and recommendation
We believe that apart from the upstream portfolio, BPCL’s core business of
refining is set to receive a boost from the startup of the high-complexity Bina
refinery. It is also strategically shifting away from a totally subsidy-dependent
business model through spending a total of US$10bn over the next 5 years on
subsidy-free businesses like upstream and refining
High-quality oil find in offshore Brazil
Event
Petrobras, the operator of the BM-SEAL-11 concession in offshore Brazil, has
confirmed the presence of excellent-quality oil in the SEAL-M-426 discovery
made in Oct 2010. This is a find of a “fresh oil province” as per Petrobras,
though no reserve estimates have been indicated as yet. BPCL through its
upstream subsidiary BPRL holds a 20% stake in the block. BPCL’s upstream
footprint as well as potential has been growing through partnerships with large
explorers like Anadarko and Petrobras. We have conservatively valued its
upstream portfolio at Rs90/sh in our SOTP based target price of Rs808/sh,
with no value assigned to this block yet. We reiterate Outperform.
Impact
Ultra-deepwater cretaceous light oil find validated: According to BPCL,
this well in the Barra formation of the Sergipe Alagoas basin was the first
ultra-deepwater (2311m) drilling in the region. Petrobras said that testing
revealed very high quality light oil of 43 degree API in the upper sections, and
slightly denser oil of 32 degree API at greater depths (expensive benchmark
crude grade Brent has an API of 38.1 degree). It also confirmed that the
reserves located at sub-surface depths of between 5,050-5,400 meters have
excellent porosity and permeability, which indicates high probability of
recovery.
Prospectivity of region has been high: This region has had multiple large
finds in various basins, which indicates that the whole area is highly
propsective. BPCL’s own Wahoo discovery is a prime example of where large
net pays of 195ft and 90ft were encountered 2 km apart. The Barra discovery
cretaceous reservoir is expected to have an areal extent of 70 sq km,
according to BPCL.
Upstream programme of BPCL robust: BPCL plans to drill 16 wells this
year, and has investments of US$3bn lined up for only upstream exploration
and development over the next 5 years (30% of overall planned capex, see
Fig 3). At roughly 1/12th of upstream giant ONGC’s capex, this is beginning to
assume significant proportions.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs808.00 based on a Sum of Parts methodology.
Catalyst: Capping of subsidised LPG cylinders, commercial production from
Bina refinery
Action and recommendation
We believe that apart from the upstream portfolio, BPCL’s core business of
refining is set to receive a boost from the startup of the high-complexity Bina
refinery. It is also strategically shifting away from a totally subsidy-dependent
business model through spending a total of US$10bn over the next 5 years on
subsidy-free businesses like upstream and refining
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