Recent drilling at the El Salmiyah development well on the Abu Sennan concession demonstrated there is a much larger main target than originally anticipated.
Additional volumes from this well will push United’s production from its 22% interest in Abu Sennan to over 2,500 barrels equivalent per day (boepd) within weeks, said the broker.
Testing delivered flow rates of 4,100 bopd of oil and an additional 18 mmcfpd of gas with the company confident that El Salmiyah can produce at close to these levels.
Abu Sennan is expected to generate solid operating margins even at low oil prices as operating costs are US$6.50 per bbl, while 35%-40% of United’s Egyptian oil and gas production is contracted at fixed prices in 2020.
This includes a floor price of $60/bbl for 6,600 bbls of oil per month for the next 30 months as part of the company’s pre-payment facility with BP.
Optiva adds that Abu Sennan is proving to be an incredibly robust asset and alone is worth 4.4p per share.
“Deferral of capex in Egypt and Italy, the reduction of group-level administration costs and the potential for several divestments in the Wessex Basin of the UK places United in a strong position to conserve cash and weather the current industry headwinds,” it added.
“With this solid foundation in place, we are establishing a refreshed valuation of 8.1p per share now that a semblance of stability is returning to the sector.”
Optiva added that if the Walton Morant licence in Jamaica is granted an extension, this would add 1.8p and take United’s valuation to 9.8p per share.
Shares were trading today at 2.9p.