Recommendations

Enegi Oil

BUY, target price £1.50
Analyst: Stephane Foucuad, +442079365241
             
Event
EnegiOil announced that the company has secured the offshore portions of Garden Hill South and Garden Hill Central. Garden Hill South onshore is a discovery and Enegi Oil believes the structure extends offshore. This could increase the company’s risked contingent resources by 89% and risked prospective resources by 8%. The successful bid was based upon Enegi committing to work expenditure of CAD$600,000 in exploring the parcels during the initial five-year period of a nine-year Exploration License.

Comment
This is very encouraging news for Enegi Oil as it highlights the strength of the position of the company in the region. The price paid for the licence appears very reasonable. Additionally, the upside associated to a drilling success at ongoing operations at Garden Hill South well would be higher if the continuity of the structure is proven. On a P50 basis, this would add 4.7 mmbbl to the company’s existing 6.7 mmbbl oil of contingent resources. We anticipate the market will react favourably to the announcement.

Valuation & Recommendation
We have increased our Target Price for the company from £1.00/sh to £1.50/sh on the back of resources addition. A success at Garden Hill South would increase our valuation for the group to £2.55. This would imply a 400% upside to current share price. We maintain our buy recommendation on the stock that is trading at about 65% discount to our estimation of valuation. The company has a low risk profile compared to other exploration peers given a good cash position (c.£6m at the end of June 2008) and much anticipated Garden Hill South high impact appraisal well due in the next three weeks.

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