Wentworth is just too cheap

Wentworth Resources (WRL) is pursuing an exploration programme in the Rovuma Basin in east Africa, one of the most successful frontier oil and gas locales of recent years. Indeed, its strategic partner, Anadarko Petroleum, was a key participant in Cove Energy's huge finds in the basin.

But with pure exploration plays on London's junior market out of fashion, the key attraction of Wentworth is its substantial near-term cash generation prospects from a handful of gas wells in the Mnazi Bay concession in Tanzania. Delivery of first gas to a dedicated pipeline is expected in the current quarter. As more of the wells are tied-in, Wentworth anticipates bringing production up to 80m cubic feet of gas per day (MMscf/d) before ramping up to 130MMscf/d in 2016.

All of this production is bound for the Madimba processing facility, which is operated by the state-owned Tanzania Petroleum Development Corporation (TPDC) with which Wentworth has a 17-year supply agreement at a fixed well-head price of $3.07 per thousand cubic feet of gas linked to US-CPI inflation.

If Wentworth does manage to hit the plateau rate of 130MMscf/d at Mnazi Bay, its share of the output should generate a yearly average free cash flow of $25m (£16.3m) over 2016 to 2020, according to broker Oriel Securities. That's equivalent to a mammoth 37 per cent free cash-flow yield at the current share price. Oriel puts a value on this production of $111m, 64 per cent above the current market capitalisation.

There is also significant potential for exploration to add to the 667bn cubic feet of gas identified so far in the Mnazi Bay concession. Drilling at the Tembo-1 well encountered an 11-metre gas-bearing interval in late December and initial results from drilling at the Kifaru-1 exploration well in Mozambique should become available in 30 to 40 days. Wentworth also hopes to formally reclassify some of its resources as reserves - another potential boon for the share price.