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Bharat Petroleum Corporation
(BPCL) Neutral
BPCL.BO, BPCL IN
Exploration successes continue
• Announces 3rd gas discovery in Mozambique: BPCL announced a
third successful exploratory well in its acreage off the coast of
Mozambique. The Lagosta well, currently at a depth of 4221m, found
168 net metres of natural gas play in high quality sands. BPCL holds a
10% stake in the acreage through a fully-owned subsidiary.
• Commercialization plans begin: The current discovery adds to the
earlier successes of the Windjammer and Barquentine exploratory
wells. While still too early to quantify the resource base (BPCL
expects reserves quantification in a year), the consortium (Anadarko
Petroleum, operator) believes that the reserves exceed the threshold
necessary to support an LNG development - we believe a resource
base of ~2-4TCF would be needed to support a permanent LNG
facility.
• Positive newsflow continues: This announcement continues the recent
positive newsflow on BPCL’s E&P assets over the last 2 months. This
adds to the Barquentine well in Mozambique, along with successes in
Indonesia and the Sergipe-Alagoas basin (offshore Brazil). In addition,
further newsflow on resource base in the Wahoo basin (also offshore
Brazil) is expected in the coming months. Anadarko Petroleum
estimates gross resource potential of Wahoo at >200MMBOE.
• Remain cautious, but…: With Brent remaining at elevated levels
(QTD average - $84.3/bbl), and the possibility of a higher than forecast
subsidy loss for the downstream PSUs, we remain cautious on the
space. However, with its emerging E&P portfolio, BPCL continues to
move towards mitigating the inherent earnings volatility of its core
business. We estimate the Wahoo and Mozambique discoveries could
add up to 6.5-8.5% of BPCL's current market capitalization.
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