Tuesday, January 4, 2011

Selan Exploration - Multibagger

 This has been recommended by us on earlier occasions also on your channel and it has gone up few times from those levels but we believe that even at the current price this stock may turnout to be a potential multi-bagger.
The financials of Selan Exploration for the past two years have been almost flat. There was not much increase in either production or whatever has been happening is mainly because of the fluctuating oil prices. The revenues and profits are inline with the oil prices but there has not been any substantial increase in production in the last two years. But what is happening behind the scenes is that for the past two years, this company is doing 3D contour mapping of not just the Bakrol field, which is giving them major production as of now but for the other fields also. The new technologies which are available enables the company to identify the reservoirs where if drilling is done will give them about 10-15 times more oil than what the current wells are producing.
To give a rough calculation, the company is doing about 2.5 lakh barrels every year from about 20 wells, which means that each well is giving them close to 12,000-13,000 barrels, and the new wells are capable of producing 1-1.5 lakh barrels per year which means that if the company starts drilling now two new wells will help them double their production. For the past two years this company has been doing just 3D seismic surveys and contour mapping.
I believe that time is now right that maybe in the next three-six months the company may start drilling wells and 10 wells will almost quadruple there production now. So, the bad part maybe coming to and end and this thing may get start reflected in the company’s topline and the bottomline in probably year 2011-12. If you see the valuations at which the recent deals have taken place, if you talk about Cairn-Vedanta deal, if you apply just 50% of that valuation to only the Bakrol field where we have the data for 2P reserves you get a mind boggling figure.
At the current valuation it may just be a fraction of the valuation for the Bakrol field and leave aside the other fields which are still virgin where no data has been declared and I believe this is a stock where institutional investors will find value even when the stock goes to four figure mark because by that time the production would have got ramped up significantly—probably the 2P reserves data for the other fields might also get announced by the company and the financial numbers would start looking a lot better than what they are now. This is a company where the drilling is happening or the production is happening just in one field, which is a Bakrol field—operating margins are anywhere between 80-85%.
Once the ramp-up happens and with oil prices being steady and at higher numbers, I think this maybe a stock to watch out for in the years to come. The only thing is that as of now there are a few unknowns; the first is that when they start drilling is something, which nobody knows about but I believe that since they have already spent about two years in data acquisition drilling can happen in the next probably three to six-months. Oil exploration by nature is a risky business but I think the risk is getting mitigated because of the fact that all the fields are proven fields. So, in the years to come, we may see a massive scale up in the production of the company and this maybe a stock to watch out for, for the future.

Courtesy: http://www.moneycontrol.com/news/market-outlook/looking-for-multi-baggers-here2ashish-chugh_509826-0.html

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