First Berlin – Deutsche Rohstoff AG Research Update (07/10/2021)

First Berlin Equity Research has published a research update on Deutsche Rohstoff AG (ISIN: DE000A0XYG76). Analyst Simon Scholes reiterated his BUY rating and increased the price target from EUR 24.00 to EUR 28.00.

Twelve wells, each with a horizontal length of 2.25 miles, are due to start producing from the Knight pad in Colorado in December. At a net cost of USD54m this is the most extensive drilling programme undertaken by DRAG so far. We expect these wells to be the main contributors to the ca. 0.9m BOE increase in annual production from 2.7m BOE to 3.6m BOE which we model for 2022. In recent weeks DRAG has made several announcements regarding the acceleration of the development of its oil and gas business in Wyoming and Utah. The acquisition of existing production and the drilling of new wells in these two states accounts for the balance of the output growth we forecast for next year and we expect operations in Wyoming and Utah to be the main drivers of output growth at DRAG post-2022. In July of last year DRAG's Bright Rock subsidiary acquired 28,000 net acres in Wyoming. The area acquired is over five times the size of the 5,000 net acre land package held by Cub Creek and has five wells producing at an approximate rate of 300 barrels/day. DRAG is currently drilling a two-mile horizontal well in Wyoming's Powder River basin to assess the viability of large scale drilling from this acreage. We expect the first month's production from this well in December to come in at 25,000 BOE. DRAG's management sees potential for a further 100 net two-mile horizontal wells on this land if the first well is successful. Recent newsflow causes us to revise upwards our forecasts for the company's oil and gas output in 2022 and 2023 by 20.0% and 16.8%%, respectively. Meanwhile, the average level of the oil futures curve for 2022 and 2023 is now 12.1% and 10.4%, respectively, above its level at the time of our most recent 29 July update. We have raised our price target to €28.00 (previously: €24.00) and maintain our Buy recommendation.