Unconventional oil in the Illinois Basin (Indiana)

Look to drilling activity, oil price and the balance sheet

High NAV sensitivity

Unconventional oil in the Illinois Basin (Indiana)
Dome Energy is a US-focused E&P company producing ~650boe/d, net of royalty, with 1P reserves of ~7.0mill boe as at YE’18. It has broadly two operations: unconventional activities in the Illinois Basin and legacy operations that span across a fairly wide range of operating regions and wells. The Illinois Basin is the core operating area, where the company has identified 108 drilling locations that it characterizes as ‘sweet spot wells’.

Look to drilling activity, oil price and the balance sheet
A key factor in Dome’s operations is success in its drilling activity in the Illinois basin, where we have assumed 12 wells drilled per year, which compares to the company’s target of 20 wells per year. Given WTI at USD 60/bbl, we estimate each well to have an undiscounted FCF contribution of USD 1,296k and an NPV12 of USD 657k. We estimate the net ~650boe/d of tail production from legacy assets to decline by 5% per year, offering cash flow to cover the majority of debt obligations and SG&A with WTI of USD 60/bbl. With net debt of USD 29.2m at YE’18 and a market cap of USD 9.5m the balance sheet constitutes a concern for Dome, and success in the Illinois Basin is required to meet the debt obligations.

High NAV sensitivity
We find that there is a high NAV sensitivity in Dome Energy towards commodity prices, drilling activity and well performance. We test three scenarios, of drilling 2 wells/yr, 12 wells/yr and 20 wells/yr. With WTI at USD 60/bbl, the NAV moves from SEK 15, to SEK 47, and to SEK 69. Based on 12 wells/yr, a USD 10/bbl change in oil price from USD 60/bbl has a ~30% impact on operating cash flow. A 20% higher well performance results in a 59% higher NAV, while a 20% weaker performance has a 65% negative effect on our NAV.

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