Wednesday, June 15, 2011

Selan Oil - Buy and Wait For The Gains To Appear

Towards the end of the previous fiscal Selan Oil began drilling it's first well in the Lohar, Gujarat Onshore field. Selan also intends to dig another 7 wells in Karjisan fields in FY11. The corporate has spent close to Rs 80 crore and nearly 2 years in mapping the unexplored fields for which it holds the licence to operate. The expectations from both Lohar and Karjisan are positive, and even though it may be speculative to count the chickens at this stage, the success of the first well at Lohar will lead to drilling of another 8-9 wells.

The aim is to get around 1.25 to 2.5 lakh barrels of crude per annum from Lohar. This would effectively raise Selan's Oil production to about 400,000 barrels in FY2012, including production from Indrora and Bakrol.

The other positives for Selan are:1) All proven fields.. 2) zero debt...3)Rs 80 cr for drilling oil...4.. survey completed..5. drilling commenced in the lohar field.. 6. Selan will drill 10 oil wells this year.. 7.. seismic done with 3d.

Annual production from existing fields is 2.5 lakh barrel per year from 20 wells. With another 15 wells in 2 new fields production could begin to ramp up over the course of the year. For the moment, cash flows of Selan cover it for the cost of drilling new wells, but there is a likelihood that a foreign strategic partner may be brought in as Selan has discovered Shale gas in some fields, and the latest rock fracturing technology rests with a few US corporations.

Back of the envelope calculations indicate EPS for FY12 will be Rs 60-65 as production is estimated is 4 lakh barrel, going upto EPS of Rs 115 in FY13 as production may reach 8 lakh barrels.


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