A bullish independent audit (and separate economic analysis) of oil and gas micro-cap Rose Petroleum's (ROSE:AIM) newly acquired Mancos and Paradox shale projects in Utah is exciting investors. The shares are up 124.3% at 2.08p.
Alongside the news stockbroker FinnCap has initiated on the stock with a 'buy' recommendation and 5p price target. We first flagged the story in January (30 Jan) when the group acquired acreage in Germany and we also previewed today's news in the latest of issue of Shares, published on 22 May.
In March Rose agreed a $19 million deal to enter the US and now a competent person's report (CPR) from consultant Ryder Scott estimates the group's 230,000 acres in Utah could contain up to 1.45 billion barrels of oil and 4.79 trillion cubic feet of gas. It is worth remembering that, due to the lack of drilling activity to date, these are prospective resources and as such involve a considerable degree of uncertainty.
Nonetheless the market seems enthused by the potential on offer. Another expert, Christie Ward Schultz, puts a value on Rose’s interests in the Paradox shale at $1.47 billion for a 30 year life-of-field, while for Mancos this is estimated at $941 million. It estimates ‘finding and development’ costs for Paradox at $19.50 per barrel of oil equivalent and $16.91 for the Mancos. If correct these figures suggest the prospective developments would still be commercial in the event of a significant retreat in oil prices.
FinnCap analyst Dougie Youngson comments: 'The updated CPR is an important first step for Rose post acquisition of the assets. The next crucial step is funding and we understand the company is currently examining the various options available. Once funding is secured, the company can then start its work programme, which should potentially yield opportunities to upgrade our target price as the company moves the asset base from prospective to at least contingent resources.'