Jacka Resources A Spec Buy

This story features COOPER ENERGY LIMITED. For more info SHARE ANALYSIS: COE

 – Jacka Resources offers a number of catalysts
 – Tunisia offers significant upside
 – Australia and Nigeria other potential positives
 – DJ Carmichael reiterates Spec Buy rating

By Chris Shaw

Jacka Resources ((JKA)) is a junior energy play with operations in both Australia and in overseas locations such as Tunisia and Nigeria. DJ Carmichael covers the company and has reiterated a Speculative Buy rating, seeing a number of key potential catalysts in coming months.

The major possible catalyst comes from the Hammamet West-3 appraisal well in offshore Tunisia. Jacka has a 15% interest in the well, where joint venture partner Cooper Energy ((COE)) has entered into a Letter of Intent for Grup Servicii Petroliere (GSP) to commence drilling the well by December this year.

The appraisal well will assess the resource potential of the Abiod formation in Hammamet West, which DJ Carmichael estimates could be as high as 17 million barrels net to Jacka. On the broker's numbers, success at Hammamet West could offer upside of as much as 40c per share to Jacka on an unrisked basis assuming a commercial oil discovery is made.

The potential of the well is good given two exploration wells drilled previously encountered hydrocarbons. As DJ Carmichael notes, further positives are that the prospect lies in relatively shallow water and is close to shore, which would minimise future development costs.

Funding will be a key risk, as DJ Carmichael notes Jacka's share of funding the well will be around $7.2 million, which compares to a cash balance at present of around $6 million. This means additional funding will be required prior to drilling commencing.

Elsewhere, DJ Carmichael notes an update of the Aje project in offshore Nigeria is expected soon, with the key being an extended well test expected to be undertaken in February. This offers the potential for near term cash flow as well as an updated development plan for the field. 

Jacka has a 5% revenue earning interest in the Aje field and DJ Carmichael sees this as undervalued by the market at present. Current 2C resource of 10 million barrels of oil equivalent, if converted to resources, adds as much as $100 million to net present value on DJ Carmichael's numbers.

In Australia there is also an upcoming drilling decision on WA-399-P in the Exmouth Basin, where Jacka has a 15% stake. Global oil and gas player Apache is the operator and has a 60% stake and early seismic data suggests Gaxelle is the most prospective with reserve potential of 40-60 million barrels of oil equivalent.

Factoring in the upcoming potential catalysts for Jacka and recent share price weakness, DJ Carmichael views the company as a compelling speculative buying opportunity. As evidence, the broker has Jacka as one of its top three “High Conviction” plays for 2012. 

DJ Carmichael's price target for Jacka stands at $0.48, down from $0.51 previously to account for an updated estimate of Jacka's cash balance. Given a market capitalisation of less than $40 million at present none of the brokers in the FNArena database cover Jacka.

Shares in Jacka today are higher in a stronger market and as at 11.40am the stock was up 0.5c at $0.15. Over the past year Jacka has traded in a range of $0.079 to $0.245. 

 
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms