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VSA Capital increase target price to 124p

On 13 June, Independent Oil & Gas (IOG) signed an SPA with Verus Petroleum to acquire its subsidiary Oyster Petroleum. The acquisition remains conditional to Verus transferring certain licences into Oyster and will see IOG create an additional hub in the Southern North Sea (SNS) increasing its 2C resources by 320.7BCF (c53mmboe).

No Further Appraisal Required

The licences being acquired by IOG contain the Vulcan East, Vulcan North West and Vulcan South fields, collectively known as the Vulcan Satellites and require no further appraisal. The Vulcan Satellites lie 30-45km east of IOG's Blythe field. IOG is in advanced discussions with regards to an export route for its SNS hubs. Once these are arranged IOG will be able to prepare the Field Development Plan (FDP).

On completion of the transaction IOG's combined 2P reserves and 2C resources will increase to 102.3mmboe. Oyster also has a significant cUS$25.6m of losses which can be carried forward to improve the economics of any producing asset acquisition.

Skipper Appraisal Well Successfully Completed

IOG also recently announced that its Skipper well was drilled to 3,860ft retrieving good quality reservoir condition oil samples allowing it to finalise the Skipper field FDP. Whilst testing of the samples will not complete until September 2016 the early indication is that the samples appear to be within IOG's anticipated range of 50-150cP and better than the CPR's estimate. This indicates that the oil appears to be significantly less viscous than first thought and more mobile within the reservoir.

Recommendation and Target Price

We assume that the Oyster transaction will complete successfully in the coming months and therefore maintain our BUY recommendation but have increased our TP to 124p. However, this is contingent on the completion of the acquisition and in the case that it should not we will revert back to our core NAV of 74p.

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