Po Valley Energy Offshore Permit Award

Po Valley Energy (PVE) has taken a major step forward in expanding its asset portfolio with the approval of its first offshore exploration permit in the Adriatic Sea. The permit, AR94PY, includes the Carola and Irma discoveries that, if developed, could add 25bcf of gas to its production and development assets, an increase of 164%. The company remains profitable and is fully funded for its current work programme. We expect this to be supplemented through debt and farm-outs as PVE continues to execute its growth strategy.


Established asset portfolio
PVE has an expansive asset base with two fields, Sillaro and Castello, in production and two projects, Sant’Alberto and Bezzecca, under development with first gas expected by end 2013. However, while operating margins from these assets are certainly attractive, courtesy of favourable Italian fiscal terms and strong gas prices, the overall potential for share price gains is somewhat limited as only 15.1bcf of reserves and contingent resources booked are against these assets.

Carola/Irma significantly expand resource base
AR94PY offers PVE a step change in resource potential with 25bcf of contingent resources having been identified from studies and drilling of three wells over the permit’s Carola and Irma targets. Securing a partner to fund what would be PVE’s largest development project to date has required securing the exploration permit. The company will now be looking to move this forward rapidly to a development concession and to find a partner to develop the field with drilling expected in 2013 and first production in 2015.

Valuation: AR94PY upside but liquidity required
Our core NAV remains largely unchanged at 36.6c (Australian cents) based on current production and development projects with current exploration and appraisal targets pushing our RENAV on to 47.7c. On a risked but undiluted basis we would expect AR94PY to add 17.1c to this valuation if it is taken through to development. However, this is unlikely given the funding constraints it would put on PVE. Instead we expect the company to seek a farm-out in return for a carry and back costs. A 50% farm-out in return for a one well carry would add 4.3c to our valuation, while a two well carry would add 15.2c. However, achieving gains that would reflect these valuations will require more share liquidity without which we expect PVE’s share price to continue to remain well below our NAV.

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