Arden also upgraded the price target from 10p to 14p, implying some 276% upside to the current price of around 3.7p.
In a note, Arden analyst Daniel Slater highlighted that Barracuda brings potential for significant production additions.
“Barracuda has four existing wells, and ADM plans to drill a fifth well in order to carry out a flow test in Q4 2021,” Slater noted.
“On success this well would be brought onto production and a further five wells then drilled.
“Based on existing Barracuda data and field analogues, ADM estimates each well could produce at 4mbbl/d gross, recovering 73mmbbl overall from the D-1B reservoir. There is then further potential at other reservoir levels.”
Slater’s ‘risked’ valuation sees the Barracuda stake being worth 14.1p per share, based on a US$65 per barrel brent crude price, whereas a US$55 oil price sees the stake worth 9.6p per share.
Wednesday saw ADM Energy announce the results of an equity raise to support the acquisition that had been unveiled on Tuesday.
The investment will be by way of an acquisition of a 51% interest in KONH, which holds an indirect interest in a Risk Sharing Agreement (RSA) for the field. It is expected to complete in the second quarter this year.
KONH holds, through its subsidiary Noble Hill – Network Limited (NHNL), a 70% indirect interest in the rights, benefits and obligations under the RSA relating to the Barracuda area of OML 141.
The RSA represents a type of service contract commonly used in the Nigerian oil and gas industry by which NHNL will be compensated in cash out of profits (calculated based on agreed-upon measures and outcomes) generated from development of the field.
ADM will provide technical and financial support to the investors in NHNL, while the RSA consortium will provide funding for all upcoming capital expenditure and a Competent Person’s Report (CPR).