Antrim advances North Sea oil fields

Antrim Energy (AEY) began producing oil from the Causeway field in the North Sea during the third quarter - a major milestone that should generate substantial cash flow. However, initial net production of about 1,600 barrels per day (bpd) came in below expectations because the clean up of the horizontal production well took longer than anticipated. The company expects electric submersible pumps to help boost production to nearer the 3,500 bpd net rate early next year.

Meanwhile, it's full steam ahead at Antrim's other projects. The follow-on development of the nearby Fionn field remains on track to begin production in mid-2013. This should net Antrim another 900 bpd in the first year. The company also has an 8.4 per cent interest in a new satellite oil field discovery, Cormorant East, in the North Sea, where operator TAQA just received field development plan (FDP) approval. First oil is expected there by the year-end and broker RBC Capital estimates that this will contribute about 350 bpd to Antrim's net production in 2013.

The hope is that the three fields will generate enough cash to bring Antrim's biggest development project, Fyne, to production by November 2014. The company owns 100 per cent of the 11.7m barrel oil field and expects initial production to be around 12,000 bpd. But it will first need to submit an FDP for approval by 11 January 2013.

RBC Capital says...

Sector perform. Antrim ended the third quarter with $25m (£16m) of cash and no debt. Combined with expected cash flow from Causeway, we are comfortable that should be enough to fund development of Fionn and participate in the Cyclone exploration well - which operator Premier Oil began drilling this month. We estimate that Cyclone could add up to 24p to our 76p risked net asset value in the event of drilling success. However, the company appears to have limited scope to fund further significant exploration activity in 2013, which is a key value driver for exploration and production companies such as Antrim.

Westhouse Securities says...

Buy. Antrim's shares trade at a slight discount to our core net asset value of 53p a share because of lacklustre initial production rates at Causeway. That said, the shares previously looked fully valued on an enterprise value to risked proven and probable reserves basis. Antrim needs to improve production rates and deliver some near-term exploration success to merit a premium to its North Sea peers. We have risked the Cyclone well with a 15 per cent chance of success; but on an unrisked basis, positive drill results could add $100m (£63m) net to Antrim. Approval of a FDP for the Fyne field, which we have heavily risked, would also result in clear upside. Expect a loss per share for 2012 of 23¢, but EPS of 21¢ for 2013. Risked net asset value is estimated at 70p.