OML 18 is already delivering excellent returns, having seen oil production increase five-fold in the past year alone. This looks set to continue, with low-risk growth forecast to expand output to 200mboepd by 2020. Operating costs are low, while visibility is underpinned by a substantial hedging position for 2016 and 2017 at US$95/bbl, a disproportionate cash sweep plus corporate guarantee from Midwestern Oil & Gas. San Leon Energy (‘the Group’) will also have the option to provide oilfield services to the operator based on 5-years of capex expected to total some US$1.5bn. The summation of these prospective cash flows alone suggest a NPV10% of around US$515m, while a 2017E projected figure of US$102.5m suggests an earnings multiple of just 2.9x, together with a 16.5% yield based on a market price of 49p/share. Even if the Group delivers only half of it ‘best case’ expectations, the shares remains quite dramatically undervalued relative to their obvious peer group. Speculative Buy – 26/08/16
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