Selan Exploration Tech to buyback shares worth Rs 12.66 cr

MUMBAI: Selan Exploration Technology said it would buyback its shares worth Rs 12.66 crore from the open market at a price of Rs 230 a piece. The company would buyback its shares of Rs 10 a piece from the existing shareholders for a maximum price of Rs 230 a piece, Selan Exploration Technology said in a filing to the Bombay Stock Exchange. The buyback size represents 25 per cent of the aggregate paid-up equity capital of the company. The offer would open on January 23, while it closes on January 4, 2010, the company added.

Analysis of FY08 results:

The company witnessed a volume-led growth in FY08 as its sales volumes saw a growth of 23.5% year on year while the realizations improved by 6.7% during the year. Crude oil production from its three oilfields grew from 100,963 barrels in FY07 to 120,226 barrels in FY08.

The highlight of FY08 is the upgradation of the proven and probable (2P) reserves of its Bakrol oilfield from 43.22 million barrels estimated earlier to 73.3 million barrels after the completion of the current drilling campaign in the field.

The company kept up its efforts to further develop its oilfields in FY08. It drilled seven new wells in the last quarter of FY08, which was the prime reason behind its dazzling performance in the first quarter of FY09.

The company hopes to continue these efforts, as it aims to identify eight to ten more prospective drilling locations and take them up for drilling in FY09.

Environment clearance:

Selan had obtained the environment clearance for the oilfields at Bakrol, Indrora, Lohar and Ognaj in FY08. It is now awaiting the mining lease for the Ognaj oilfield from the Gujarat state government.

Once complete, the Ognaj oilfield would be handed over to the company by Oil and National Gas Corporation (ONGC) and development activities would commence.

Meanwhile, the cash flow from the company’s operations grew from Rs17.98 crore in FY07 to Rs28.7 crore in FY08. The return ratios were also maintained — return on capital employed at 27.1% and return on net worth at 23.6% — despite the high capital expenditure undertaken by the company to develop the oilfields during the year.

The current valuation is much cheaper compared with that of the other domestic exploration companies such as ONGC and Hindustan Oil Exploration Company. THAT IS WHY THE COMPANY MIGHT HAVE THOUGHT OF THE BUY OF ITS THE SHARES, AT A PRICE NOT EXCEEDING Rs.230 per share.

It is worth noting that in September, 2008, Sharekhan came out with a buy report on the Company, with an expected price target of Rs.345.

Earlier My friend Ashish Chug (New Delhi based equity analyst) mentioned the following in a well known web-site:

SELAN EXPLORATION:

• Five oil fields, 100% stake holder
• Three variables: oil prices, production, exchange rate
• Cost of production is only $14-15 per barrel
• Producion of 1.2 lakh bpd, production will go up to 5-6 lakh barrels per day
• Exponential inc in production expected, cash flow will go up.. now