Sharekhan is bullish on Selan Exploration Technology has recommended hold rating on the stock with a target price of Rs 220 in its research report dated September 11, 2017.
Sharekhan's research report on Selan Exploration Technology
Large 2P reserve base but poor track record of production ramp-up is a cause of concern: Selan Exploration Technology (Selan) holds 2P in-place reserves of 86.4mmboe (million barrels of oil equivalent) but the recovery rate is low at 2.9mmboe (3.4% of the 2P reserves). The company has chalked out a phased development plan for its major oil fields and targets additional production of 5.3mmboe. Majority of incremental production is expected to come from Bakrol (3.9mmboe) followed by Karjisan (0.62mmboe), Lohar (0.41mmboe) and Indrora (0.38mmboe) fields. We highlight here that the company has not been able to monetise its large reserve base and, thus, could not achieve its annual production target of 5lakh barrels (FY2017 production of 1.7lakh barrels was well below the target oil production). Thus, we remain cautious on production uptick in the near to medium term and maintain our Hold rating on Selan (trades at EV/boe of $6.5/boe on 1P reserves, which is at 9% of premium to large domestic peers).
Selan’s stock price has run up sharply by 19% in the past one month on hopes of ramp- up in oil production in the near to medium term based on the company’s guidance on potential large oil reserves. However, we remain cautious on the production ramp-up given the poor track record to monetise large hydrocarbon reserves.
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