Fastnet Oil & Gas: Aggressive Strategy Replicates Cove Model

Fastnet (FOI.IR) is a very different company to most E&Ps. While the early in/farm-down and drill model is tried and tested, no other company has as aggressive a monetisation strategy to exit through asset sales within three years of IPO. Fastnet shares a number of directors and advisers with Cove Energy and this has clearly influenced the approach. Whether it works will ultimately depend on drill success, but for now Fastnet certainly represents an exciting ride for high-risk investors.

Morocco to the fore for the next 12 months
One year on from AIM IPO and the asset portfolio is already complete. Top of the tree is Foum Assaka, where, with Atlantic Margin specialist Kosmos, the partners are leading the chase for Jubilee-type deepwater fans offshore Morocco. Fastnet is the only company partnering with Kosmos in Morocco, a testament to the credentials of the team. Strong in-country links have more recently brought the Tendrara onshore block, which could be the first well to drill for Fastnet in late-2013 or early-2014.

Irish assets in a resurgent Celtic Sea
Celtic Sea offshore Ireland is the other area of focus. The recent deal with Petronas to farm in to Deep Kinsale is a major move for what could be something of a Barryroe lookalike. Licensing elsewhere in the basin has allowed Fastnet to build the largest position of any company, with results of a major 3D shoot awaited with interest.

Funded for now but farm-outs critical
Management has made the commitment that there will be no further equity raises following a December 2012 £15m top up. To deliver, the company now needs to secure farm-outs for both the Celtic Sea and offshore Morocco to fund drilling of Foum Assaka and possibly Deep Kinsale in 2014.

Valuation: Neither farm-outs nor wells priced in
Ascribing a valuation remains speculative until farm-outs are in place and drill targets have been selected. However, given the momentum to date and industry appetite for quality assets, a valuation of 41p per share would seem appropriate assuming deals can be struck. In saying this, equities significantly trail industry deals, although given the speed of progress with Fastnet, this is possibly one company that could buck this trend in style.

To Read the Entire Report Please Click on the pdf File Below.