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 31.00 to EUR 43.00.
The oil and gas NYMEX futures strips have both risen steadily in recent months. For 2022, average realised/futures oil pricing is 63% above its mid-December level while the equivalent figure for natural gas is 81%. Meanwhile the average levels of the 2023-30 oil and gas futures strips have risen by 21% and 59% respectively over the same period. Based on DRAG's published expansion plans in Utah and Wyoming, we now see fair value for the share at €43.00 (previously: €31.00) and maintain our Buy recommendation. Our price target does not include additional upside potential from further drilling of the still substantially undeveloped land DRAG acquired in Utah (3,000 acres) and Wyoming (67,500 acres) during 2018-21 when commodity prices were much lower than they are now. By comparison, the Cub Creek subsidiary's Colorado land package, which has been the mainstay of the group's production during the past five years, is only 5,000 acres. DRAG's growing land position is reflected in its oil and gas reserves. Proven reserves climbed 43.0% to 29.2mBOE in 2021 while probable reserves jumped from 3.8mBOE to 19.4mBOE. We estimate North Dakota/Utah/Wyoming accounted for 80% of the increase in proven reserves and 100% of the increase in probable reserves. Further reserve growth in these states is likely as DRAG and other industry players continue developing their land in Utah and Wyoming.
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