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Energy Firm 'Days Away from First Oil'
Research Report

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Tom Erik Kristiansen, an analyst with Pareto Securities, reviewed this oil and gas company's recent announcement.

In a May 31 research note, Pareto reported PetroTal Ltd. (SLG:TSX.V) is on track for first oil in June 2018, which, five to seven months ahead of the original, Q4/18 target date, "should lift market confidence in PetroTal's ability to continue to deliver on its guidance. Also, costs are coming in 25% below the estimate. On this news, Pareto increased its target price on PetroTal (Sterling Resources Ltd.) to CA$0.75 from CA$0.60 per share.

Last year, PetroTal was amalgamated with Sterling Resources Ltd. and now trades as Sterling Resources Ltd. on the TSX Venture Exchange under the ticker symbol SLG.

Production at PetroTal's Bretaña, in Peru, is expected to start at 1,000 barrels per day (1 Mbbl/day) and gradually increase to 2.5 Mbbl/day by October 2018, "when water handling facilities are scheduled to be in place," wrote Pareto. Subsequently, the company will ramp up production to 10 Mbbl/day by 2020 via 11 wells.

Having an estimated net back of about US$38 per barrel at current prices, PetroTal would become cash flow positive from 2019. By year-end 2020, the company should get its cash balance to where it exceeds enterprise value, based on an assumed, long-term Brent oil price of US$70 per barrel. Further, the report explained that "this is based on a relatively low estimated recovery factor of 12% that the company believes it can double, which, if realized, would lift output to around 20 Mbbl/day in the early 2020s."

If PetroTal's ramp-up is successful, "the company's share price has greater than five times' upside potential," Kristiansen indicated. Pareto's current net asset value on PetroTal is CA$1.15 per share. "As such, PetroTal has a large repricing potential, and we expect announcement of first oil to trigger further share price appreciation near term."

Pareto has a Buy recommendation on PetroTal, whose shares are trading at around CA$0.29 per share.

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Disclosures from Pareto Securities AS, PetroTal, Research Report, May 31, 2018

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Overview over issuers of financial instruments where Pareto Securities AS have prepared or distributed investment recommendation, where Pareto Securities AS have been lead manager/co-lead manager or have rendered publicly known not immaterial investment banking services over the previous 12 months: PetroTal Ltd.

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