Third production field on the horizon
Italy-focused PO Valley Energy Ltd (PVE.ASX) continues to make good progress across its asset base. Full-year results confirmed a strong return to form at Sillaro following installation of a new three-phase separator. However, price pressure and a move to a new gas offtake agreement have affected profitability. Continued strong cash flows mean the onshore development programme is fully funded, while the recent EIA approval of Bezzecca now paves the way for what will be PVE’s third production field to come online around end 2014.
Bezzecca EIA paves way for third production field
With PVE announcing final EIA approval for the 4.2bcf Bezzecca field, the final regulatory steps should now be a formality ahead of tying in the existing Bezzecca-1 well to the Vitalba gas plant. We now expect gas to be flowing from around end 2014 adding a third production field to the portfolio.
Other project activity continuing
Successful drilling at Gradizza in 2013 now means this is a viable 2.7bcf net development in 2015. Meanwhile, pre-FEED studies continue on the 47.5bcf offshore Teodorico project that would represent a step change in scale for PVE. On the exploration front, the most likely 2014 drill candidate remains the 17bcf Selva Stratigraphic prospect in the Podere Gallina licence.
Production firm, but pricing pressures hits margins
As signalled at the half year, production firmed in H213 at above 70,000scm/d following installation of a new three-phase separator at Sillaro, although an increase in water cuts in some reservoirs has reduced rates in Q114. Coinciding with a reduction in Italian gas prices, this has put pressure on margins.
Valuation: RENAV of A$0.33
With production unlikely to increase during 2014 until Bezzecca is commissioned, we forecast an ongoing PBT loss of c €0.5m. However, the company should be PBT positive once again from 2015 driving strong operational cash flows that will fund the near-term onshore appraisal and development programmes. Reflecting weaker gas prices, our core NAV drops to A$0.12 while the major offshore Teodorico project drives our RENAV of A$0.33. Although the onshore activities are fully funded through cash flow and debt, Teodorico will require a farm-out deal and updates around this will become increasingly important during 2014.
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