Jefferies & Co. Raises Target on EXXI

BIJU PERINCHERIL, Jefferies & Company, Inc. (02/07/2011)
"NAV increases as we roll to '12 reserves. The recent acquisition boosts EXXI's low-risk development opportunity, while its ultra-deep program still has material upside optionality. However, current NAV falls short of upside needed for a Buy rating.

Increasing NAV to $33 from $31 on FY12 reserve forecast prior PT based on FY11 reserve forecast. 2012 proved reserves assumes 62% growth to 735 bcfe from 2010 levels, [which] does not include any potential contribution from ultra-deep operations. Our proved NAV calculates to $26/share. On top of the P1 NAV, we are including 630 net bcfe (5 tcfe on gross basis) of probable credit for the ultra-deep program, which translates to $7/share to arrive at our NAV of $33/share.

Next catalysts: 1.) Blackbeard East is drilling below 32,600 feet in the Frio section and will likely test the Tuscaloosa formation; 2.) Davy Jones #2 confirmed continuity of reservoir sands in the Wilcox and drilling ahead to test the Tuscaloosa; 3.) Laffite well drilling below 18,000' and only weeks away from getting through the salt weld; 4.) Valentin-Pontiff deep gas-sidetrack well and further appraisal wells to determine the size of what appears to be prolific discovery; 5.) Exploration wells targeting conventional targets, such as Ashton, Crete, Onyx; and 6.) Review of recently acquired GOM properties, potentially identifying a multiyear development opportunity."

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