BNK is rated Sector Outperform with a $4.50 target; its upside scenario target is $5.80. GLTA

 

May 15, 2013

Bankers Petroleum Ltd.

Engineering-Led

Our View: Site visit to Albania highlights management's new 'engineeringled'

strategy is generating tangible gains

Key Points:

Analogy: In meetings with investors we often compare the Patos Marinza

oilfield to a vintage car that management hoped to “buff up” and

sell on. However, a quick sale proved illusive, and parts of the aging

asset started to wear and break, and the field’s performance failed

to live up to its billing. Given a sales-led strategy that focused upon

quick gains, initial improvements were often offset by new problems

(collapsed wellbores, water-handling constraints, etc.). Bankers, however,

has recruited experienced engineers who have resolved many of the

asset’s issues (water encroachment, pump breakages, etc.), and they are

now seeking a long-term approach to field performance (greater well

monitoring, polymer flood, etc.) and through 2013-14 the company is

replacing existing equipment with more efficient kit to further improve

performance and reduce costs. This engineering-led strategy, which draws

heavily on the team’s experiences in Canada, is starting to deliver

sustainable gains, and while Bankers is still no dragster, we believe

shareholders are enjoying a more comfortable ride.

Engineering focus: The reduction in drilling costs on a per well basis from

$1.5m in Q1/12 to $1.2m in Q1/13 was mainly due to improvements

in drilling practices and well construction - the average drill time

has improved to roughly 12 days/well. Bankers has made several

improvements over the past year to optimize production with improved

down-hole pump run lives, reduced rod and tubular wear, and reduced

well servicing frequency. Looking ahead, the production engineers are

keen to automate down-hole monitoring of the production wells so that

they can react more quickly to any faults, to limit down-time, equipment

damage and repair costs. Combined with a focus on the central and

northern areas of the field, production has risen steadily, and in Q2/13 todate

output has averaged ~17,500b/d, up from 16,919b/d in Q1/13.

Valuation: Bankers looks good value – it is trading well below our core

NAV of C$4.52/share and total NAV of C$5.24/share; its valuation looks

unchallenging on conventional metrics – EV/bbl of ~$3.80/bbl on a 2P

basis, and a 2013E cash flow multiple of 2.7x