E&P Ophir Energy (OPHR) takes an important step in convincing investors of the viability of its Fortuna floating liquefied natural gas (FLNG) venture offshore Equatorial Guinea by attracting oil services giant Schlumberger (SLB:NYSE) as a farm-in partner.
We have previously reported on market scepticism over the destiny of the project but news it has signed a non-binding heads of agreement with Schlumberger for a 40% stake should go some way to addressing any concerns. As such the shares rise 6% to 89.2p
Under the agreement Schlumberger will reimburse 50% of Ophir's past costs. This should be enough to cover Ophir's share of capital expenditures up until first sales of LNG. A definitive agreement between the two companies is expected in the second quarter of 2016 ahead of a Final Investment Decision on Fortuna.
A positive trading update accompanies the farm-in announcement with production ahead of guidance. Notably the company says its production base has a post-tax operating cash flow breakeven price of around $15 per barrel of oil equivalent and expects to end 2016 with a net cash position of between £225 million and $275 million.
Deutsche Bank, which has a hold recommendation and 125p price target, says: ‘In our view, the deal will likely be seen as a supportive disposal which is NAV neutral (a rarity in the current environment) and balance sheet enhancing via the removal of forward capex liability. ‘Confidence may also now build around a Core NAV cum EG FLNG of c. 130p and drive a re-rating from the current multiple of 0.65x Core NAV towards the upper-end of the sector’s trading range (0.3-1.2x excluding outliers).’