Deutsche Rohstoff AG (DE:DR0G) generated group sales of €32.1m and EBITDA of €23.5m in H117, significantly de-risking consensus full year forecasts, which imply 600% revenue growth in 2017. Sales are to be further enhanced in the coming months with a planned 50-well drilling programme across Cub Creek, Elster and Salt Creek. DRAG’s metals and mining investments saw a strong recovery during the first half of 2017, underpinned by a strong rise in the price of zinc, copper and a number of rare earth commodities.
Significant drilling activity ahead in the US
Management expects a strong increase in net production in H217 as drilling activity ramps up across Salt Creek, Elster Oil & Gas and Cub Creek. Production in the first half was dominated by Cub Creek at 79% of net group total, and is to benefit from the addition of seven wells from the Haley drilling site from mid-September in addition to 16 wells from the Litzenberger drilling site, which are expected to add to production in Q118. A US$25m gross investment in Elster is driving a 20-horizontal well program which is expected to augment production in Q118. Lastly, Salt Creek has 33 drilling proposals outstanding, which are currently being executed – six of these were start to add to production in September 2017. As highlighted in our initiation report, well pad returns are highly leveraged to the oil price with break-evens at c US$35/bbl.
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