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Mining Capital

VSA Capital Market Movers - Independent Oil & Gas

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Independent Oil & Gas (LON:IOG)
Independent Oil & Gas has announced an update in relation to the Harvey license area. Following the release of an upgraded resource for the field IOG has now provided an updated valuation estimate. The best estimate for the resource was 114BCF although with c21% of the resource off license, the volume attributable to IOG is currently 90BCF. We note, however, that the company is looking to license the entire resource.

With this significant resource alongside the Thames Pipeline strategy which materially reduces the infrastructure capital requirements the economics appear attractive, in our view. Based on the best estimate resource and using a 10% discount rate for the entire structure the NPV comes to £159m with an EMV of £79m whilst on IOG’s license area the NPV is £126m with an EMV of £63m assuming 50% CoS in each case. The CPR assumes dry hole costs of £8.5m for the planned well. This is, in our view, has the potential to be the most attractive prospect within IOG’s portfolio. IOG is progressing plans to drill as soon as possible although has made a firm commitment to drill within two years.

We reiterate our Buy recommendation.


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