Salamander makes its strike

After testing its recent Angklung discovery in East Kalimantan, Salamander Energy estimates that the Angklung structure contains mean gas resources of 290bn cubic feet (bcf), with upside potential of 420 bcf. What's more, the discovery de-risks adjacent prospects such that the Angklung area is now estimated to hold mean resources of 750 bcf, with upside potential of 1.23 trillion cubic feet and drilling chances of success of the order of 50 to 60 per cent.

The drilling rig is now being towed to the Gulf of Thailand, where it will drill three exploration wells and six development wells on the Bualuang field. The first of these will be the East Terrace exploration well, which is estimated to contain 7m barrels of oil with further upside potential of 14m barrels, and which should start drilling before the end of the year.

Elsewhere, in partnership with Lundin Petroleum, Salamander has been awarded a new licence in the latest Indonesian licensing round - the South Sokang block in the Natuna Sea. The block contains an as yet undrilled frontier basin and the partners will shoot seismic surveys during the first three-year exploration phase.

FinnCap says...

Buy. Salamander's operating update provides encouraging evidence that prospectivity on the Bontang production sharing contract remains significant, with 750 bcf identified in the Greater Angklung area alone. With a better than 50:50 chance of success, it has the potential to become another core area for Salamander as it expands its resource base. With lower-risk exploration drilling set to commence on the Buluang licence, we believe Salamander may be due a re-rating closer to our 300p total net asset value estimate. Importantly, these estimates don't reflect similar Lower Pliocene aged prospects further away from Angklung, suggesting the longer-term exploration potential has a lot of running room. We forecast 2011 EPS of 22.9p.

Evolution Securities says...

Neutral. This latest newsflow suggests there are far greater positive implications for the rest of the licence block. Salamander may well want to fast-track the exploration prospects of Kecapi and Bedug into 2011 due to the chances of success being estimated at greater than 50 per cent. However, in terms of risked net asset value, we see today's news as broadly neutral, given the poor track record of exploration to date. We expect a relief rally, while the de-risking of follow-up prospects of 1 trillion cubic feet across six prospects is also good news.