ROSE – Updated Profile – 9p Target Share Price

Rose Petroleum plc (Symbol: ROSE) is an AIM listed oil and gas company focused on the exploration and development of approximately 80,000 acres in the Paradox Basin, Utah, U.S.A., where it is earning into a 75% working interest.  The total includes a 75% working interest in an additional 3,320 gross acres (2,490 net) acquired in April 2018.  The Company aims to achieve its key strategic objective of spudding its first well on its acreage before the end of 2018.

The Paradox acreage constitutes a project of considerable scale and prospectivity. According to the resource report prepared by Ryder Scott Company in 2014, there are potential resources of 1.1 billion barrels of oil and 2.2 trillion cubic feet of gas on the acreage. A Competent Person’s Report by Gaffney Cline & Associates (published June 2018) on the acreage covered by the recently completed 3D seismic acquisition (approximately 17,250 acres of the total circa. 80,000 acres held) and focused solely on the single Cane Creek reservoir (Clastic 21) of the multiple prospective reservoirs within the Paradox Formation has now determined gross contingent resources (2C) of 15.61 million barrels of oil and 31.23 billion cubic feet of gas with a NPV net to Rose of $122.4 million.

Rose has identified approximately 60 potential well locations on both its existing and new acreage within the area covered by the 3D seismic survey that was completed in 2017.  As stated above, this area contains contingent resources (2C) of 20.8 million barrels of oil equivalent in the Clastic 21 reservoir alone. The Paradox Basin formation is made up of approximately 24 clastic zones, of which Clastic 21 is the primary producing zone of the basin to date. Additional potential clastic reservoir zones also exist, both above and below the Clastic 21. These were also assessed as prospective in the Competent Persons Report and add further potential both within the 3D seismic covered area (which represents only 15,000 acres – or 17,250 “held at surface” – of the 80,000 acres over which Rose has a working interest) and the area outside, providing the opportunity to significantly increase resource numbers on the Paradox project in the future.

The prospectivity of Rose’s acreage is underpinned by the existence of the producing 28-11 well which is only 365 metres to the west of the new acreage. The 28-11 was drilled in 2006 by Delta Petroleum and has produced 141,000 BOE from Clastic 21. These factors give management a high degree of confidence in the potential of Rose’s acreage and, as a result, it has been decided to also proceed with the permitting of a second well location in the new acreage, the 22-1 well. The 22-1 would be a horizontal well which Rose’s management consider has an Estimated Ultimate Recovery of 894,000 barrels of oil equivalent.

Rose has assembled a highly experienced subsurface and surface operational team with extensive experience and a successful track record in the Paradox Basin. The team designed, managed and implemented a nine-well drilling programme in the Paradox Basin directly to the south of Rose’s acreage. Eight of these wells were commercial and production grew from circa 100 barrels of oil per day (“BOPD”) to over 3,500 BOPD.

The operational team has now largely completed the subsurface assessment, well location selection and basic well design and engineering for Rose’s first proposed horizontal well, the GVU 29-1. The Application for Permit to Drill process for GVU 29-1 is well underway. The Notice of Staking, which is the first requirement for the Application for Permit to Drill, was lodged and accepted by the Bureau of Land Management in April 2018 and there was an onsite inspection of the proposed well location in May 2018. It is currently expected that the Application for Permit to Drill will be granted in Q3 2018, which will permit the commencement of drilling operations soon thereafter.

Following the completion of the first phase of the well design work, the new operational team has also completed time/cost estimates for the initial well. It is currently expected that the total cost of the well (including completion, testing and tie-in costs) will be in the range of US$7-8 million, which is well below the previous budgeted forecast of US$8-10 million. Rose would also expect this to be even lower during the development phase as operations increase.

Presently capitalised at £3.8 million at the current share price of 2.65p, total investment in intangible exploration and evaluation assets was US$12.5 million at 30 June 2018.  Cash and cash equivalents at 30 June 2018 were US$2.0 million. Cantor Fitzgerald Europe have been appointed as financial adviser / joint broker to the Company and, with the updated Competent Persons Report now providing independent verification of the geological and economic strength of the Paradox project, their primary task is to assist the Company in assessing the funding options for the drilling of Rose’s first wells. Cantor Fitzgerald has initiated equity research coverage of Rose with the release of a research report on the Company. The report includes a Buy recommendation, with a target share price of 9.0p based on the assumptions set out in the report.