Tap turning, says Hartleys

TAP Oil has almost turned a corner in its Gulf of Thailand oil production, prompting broker Harteys to reverse its recommendation, putting a speculative buy on the Perth-based producer.
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Haydn Black


Energy analyst Simon Andrew said Tap's debt had been slashed from $US58 million ($A77.6 million) to $16.8 million over the past 12 months, significantly reducing balance sheet risk, while its short-term risks would be reduced by hedging almost half of its production from the Manora oil field at $42.15/bbl until February 2017.

By using consensus oil price forecasts, Andrew said Tap's base case valuation of was 28 cents per share, but by using a $40/bbl oil price, and given the volatility in oil prices, he has put a 12 month target on Tap of $0.20.

Tap was last traded at $0.092/share.

While first quarter revenue was down 35% to $US8.5 million due to an average oil price of just $US25 per barrel and 10% lower production of 3461bopd (net), output should rise back towards 5000bopd as two new producers are brought online by the end of the current quarter.

The company is also expected generate $2.5 million in revenue per month through to the end of 2016 from the remaining 2.6PJ under its John Brookes third party gas contracts, a vital source of income in the two years between Tap selling out of the Harriet Joint Venture in Australia and starting up Manora.

With lower field development costs and staffing reductions to reduce annual overheads by $A1.7 million, Andrew said Tap was close to finding its feet again.

He valued Manora at $133 million, multiples of its market capitalisation of $38.04 million, and said the remaining third party gas sales are worth $11 million.

Tap's Australian, Thailand and Myanmar exploration assets were given no value, with Tap looking to monetise its Australian permits, Myanmar being at such as early stage and Thailand offering little obvious upside.

Andrew says the oil price is likely to be volatile for the rest of 2016 due to the ongoing glut.

"As is the case for any company with debt, a sharp decline in the underlying commodity prices can have an impact on cash flow," he said.

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