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magazineIndependent gets pearl of a gas deal with Oyster
The scope for considerable share price upside means investors should be adequately compensated for the risks associated with small cap oil exploration and production firm Independent Oil & Gas (IOG:AIM).
Completion of the company’s acquisition of Oyster Petroleum (28 Oct) helps underpin its natural gas ‘hub’ development strategy in the southern North Sea.
This involves bringing on a number of fields in close proximity at the same time in order to share infrastructure and reduce costs.
Good time to buy
An inconclusive result from the company’s hotly anticipated Skipper well (30 Sep) has created an interesting entry opportunity as that news pulled down the share price.
House broker FinnCap’s 110p price target implies upside of 664% at the current 14.4p price.
The Oyster deal cost an initial £1m, rising to as much as £5m depending on certain milestones. It adds tax losses of $25.6m (£20.5m) which can be offset against future production. FinnCap reckons first gas may be possible as soon as 2018.
Ahead of this, a number of incremental catalysts in 2017 could fire the share price. These include a fresh audit of the Oyster assets, submission of a field development plan and agreements with service providers.
An existing £10m convertible loan facility should fund acquisitions and administrative costs through to 2018.
The balance between risk and reward looks attractive. Buy at 14.4p.
Important information:
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