Some highlights from the March 8 financial hearing in Oslo with Ian Lundin and Ashley Heppenstall:
Sudan:
By the end of this drilling season we will probably have enough information to start giving some indicative reserve estimates.
The reservoir is only 1500 meters in depth and the development should be very straight forward.
We are looking at very high porosities and permeabilities.
Thar Jath in itself is a very large structure in world terms, and it should be very easy to develop, it is a very shallow reservoir, it's onshore, within 90 km away from an existing pipeline.
So unlike a lot of oil discoveries which are made in very harsh environments not near infrastructure, where infrastructure need to be put in place, we believe that we should be able to monetize this discovery reasonably quickly and reasonably cheaply.
We believe that the potential of the area is very very significant.
We are directly on trend with some very large oil fields which are currently producing over 200,000 barrels a day. And we believe the potential is similar in our block.
In terms of how soon we can reach such production figures, it remains to be seen, but we will probably look at a fairly gradual increase.
What we are doing now is we have moved the rig south to another structure called Jarayan, this will start within the next week or so, and over the next 6 weeks we will be drilling this well and testing it...
Libya:
The pipe is actually delivered, it's on ground, welding is gonna commence on the 1st of April.
At this point we have awarded all the contracts, from a technical point of view the risk is minimal or non-existent because of the simple nature of the project. It's an onshore project, shallow reservoir, with basically no geographical or logistical difficulties associated with it.
The contract has a fixed period with liquidated damages if the contractor doesn't meet his deadline. So within the balance of normal construction risk, then certain of this project is real, and we expect it to come on stream before the end of the year.
So I'd say what happened over the last month in terms of getting our final approvals of these contracts was really the last hurdle which we needed to face.
The funding is in place, so the project is a reality.
The project is fully funded from a banking facility with a group of Middle Eastern banks.
When Libya comes on stream, Libya in itself will on an annualized basis, at 24 dollars a barrel, add 300 million Swedish kronor ($30 million) of cash flow, bringing our cash flow multiple down to about 2.5.
If we look further ahead, the impact of Malaysia phase 2, it will generate in excess of 100 million USD.
It will bring our cash flow multiple down to probably less than one(!).
In terms of profit: the impact of Libya coming on stream will add around 20 million dollars (200 million kronor) of additional profit,
Debt:
Our only debt today is $50 million against the UK...
The balance sheet today is extremely strong.
We have already put in place a debt facility to fund our Libyan project, and we are well on our way to putting in place a debt facility to fund our Malaysian project. We are in discussions with a group of project banks and we look to fund about 2/3 to 3/4 of that project through project debt.
We have very close relationships with Barclays and ABN.
Valuation and netback
We have looked at all our different projects and all the different agreements we have with the governments: taxes, royalties and costs, How much of every barrel produced flows to Lundin Oil?
At about $24 a barrel, Malaysia, Libya and Sudan netback $5-6. UK nets back over $8 a barrel.
You have got to compare that with the (less than) one dollar a barrel which Lundin Oil is currently valued at.
The objective over the next 2-3 years is to try to bridge the gap between our current valuation and this valuation in terms of netback.
Source: kamera.com
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