Raymond James update. Surprised there was no share price target increase (I think they are still using $80 oil, and haven't factored in Shell yet...assume it's only a matter of time)!
RJ Update - BZP: Two Thumbs Up from Shell; Story Comes to Light
BZP: Two Thumbs Up from Shell; Story Comes to Light
- BPZ has signed a memorandum of understanding (MOU) with Shell (RDS.A/$79.45) for development of Blocks Z-1, XIX, and XXIII. The MOU includes a 50/50 venture in the blocks, which BPZ will operate. Shell is also helping to refurbish the platform at Albacora and drill the company’s first well at the field. BPZ will initially retain its 100% interest at Corvina, Delfin, and Mero as well as 100% interest in the oil assets at Albacora. At Albacora, BPZ will preliminarily own 100% of the oil and 50% of gas assets, and Shell has the option to buy a 50% stake in the Corvina and Albacora starting July 2012 and ending January 2015.
- Shell will commit to a drilling program comprised of three phases for an approximate $300 million, with theoption to exit at the end of each phase (at which time all interests revert back to BPZ). Together, the companies will appraise the Mancora gas play and deepwater prospects at Block Z-1 as well as other prospects in the blocks. Shell will also help to meet the contractual requirements for BPZ’s acreage, including 2D and 3D seismic surveys at Blocks XXIII and Z-1 and drilling of 12 new wells. Following this, BPZ and Shell will share costs equally. Longer term, Shell may also purchase a 50% interest in the power plant project and has initially agreed to jointly develop a liquefied natural gas (LNG) project, which would require validation of a minimum of 4 Tcf of gas in place.
- The deal highlights three main things that further enhance out outlook on the stock: (1) added support for the enormous reserve potential present in BPZ’s leasehold; (2) accelerated development of the blocks increases the present value of the potential in Peru; and (3) widened flexibility on the balance sheet with the help of investment from a major integrated. We reaffirm our Strong Buy rating based on the merits of the transaction.
- Recap on catalysts: BPZ is currently drilling the 20XD well at Corvina (should add 23 MMbbl of oil-in-place and 5-6 MMbbl to proved reserves based on a 25% recovery factor). The 15D will be the next location and should be completed sometime in October. Over the next few months, BPZ will finalize financing negotiations with the International Finance Corporation, after which construction of the power plant will begin. Also, with Shell’s help refurbishing the Albacora platform and drilling the well, we expect that the original time line for the field—results from the company’s first well in March/April 2009 and completion volumes online from temporary facilities in 3Q09—may be brought forward |
