KOS
Sanction FPSO #2 and the Exploration Looks
Free
¦
Bottom Line: Although Teak 4 was a disappointment and we lower our TP
to $22/sh, there are signs of progress elsewhere. 1) acid washes at the
original Jubilee wells appear to be showing some promise. Recompleting 9
wells would have cost around $450m (gross) or $0.31 a KOS share, a small
but important cost avoidance. 2) KOS is closer to the Deepwater Tano
exploration campaign, 3) appraisal and pressure testing of the TEN project
has firmed up larger and oilier reserves than pre-drill expectations, 4)
Morocco seismic processing has confirmed presence of potential targets.
¦
2H12 Newsflow: Aside from Deepwater Tano drilling catalysts (Wawa,
Tweneboa Deep, DT Sapele in our risked NAV), we await confirmation that
acid washing can avoid redrilling capex at Jubilee, for the capital cost
estimate at the TEN project, the 2nd FPSO and the further appraisal of
MTAB (Mahogany East, Teak, Akasa and Banda). As we look into early
2013, KOS should drill the Liwenyi prospect in Cameroon and release
further details on its 2013 Morocco drilling program.
¦
Valuation Option: The timing of liftings has caused us to decrease earnings
in 2012 and raise them in 2013 with a limited effect on overall cash flow. We
continue to see value in KOS shares with the stock trading for less than our
carrying value for Jubilee and for TEN ($14.32/sh). This leaves upside in
MTAB discoveries, in Jubilee, and exploration discoveries as upside from
here.
of Liftings Impacts EPS
The decrease in 2012 earnings and increase in 2013 reflect the timing of liftings as KOS guided to being underlifted in
2012, and we see a reversal in sales the following year with KOS entering a more normalized lifting schedule in 2014. Our
cash flow decreases by only 5% when averaging the change over 2012 and 2013.
Exhibit 1: Old vs New Earnings Estimates
Old vs. New EPS 2011 2012 2013
Old 0.24 0.47 0.94
New 0.24 0.13 1.08
% Change 0% -73% 15%
Consensus NM 0.34 0.66
vs Consensus NM -63% 64%
Old Vs. New Cash Flow
2011 2012 2013
Old 394.2 662.4 823.7
New 394.2 485.2 931.9
% Change 0% -27% 13%
Change in NAV
Old 9,227 $25.01
New 8,189 $22.19
Change, $M (1,038) ($2.81)
% -11% -11%
Source: Company |
