(MENAFN- ProactiveInvestors)Petroceltic International's (LON:PCI) new update from the flagship Ain Tsila project in Algeria serves as a welcome reminder of the group's possible growth trajectory and future scale. News that the 2.1 trillion cubic feet gas project is moving forward - with contractors now tendering for the build - is particularly welcome for investors because so much of the recent conversation has revolved around a corporate sideshow. The Dublin headquartered firm earlier this month put on hold its attempt to raise US$175mln on the bond market for its 38.25% share of Ain Tsila until at least September. Ostensibly this is due to volatile market conditions. Also not a lot happens in London in the holiday month of August when you are trying to raise money. The company also wants to establish clarity of ownership because it is not long after emerging from a few bruising months seeing off 29% dissident shareholder Worldview; which wanted to re-order the board and get rid of chief executive Brian O'Cathain. Russian controlled Worldview's attempts were defeated in an extraordinary general meeting (EGM) last April but there is always the chance that they might have another tilt at O'Cathain. Speaking to Proactive Investors O'Cathain stressed the delay to the bond financing was temporary and the company would use the breathing space to restructure the company. The company's stake will subsequently be held within a new subsidiary Petroceltic Ain Tsila Limited. 'It makes the ownership clearer. It means that the asset is in a subsidiary that is just there for the development of the asset and nothing else' he said in an interview. Also the delay will mean Petroceltic will be nearer to sealing the contract for an engineering design and procurement (EPC) contract which is expected to be signed before the end of the year. O'Cathain sees this as a major de-risking step for Ain Tsila. Victoria McCulloch oil and gas analyst at broker RMC Capital markets in a note in July said: 'The signing of the EPC is important because it will show that the project is making very solid progress. 'This is a very material project. When it becomes operational it will account for 8-9% of Algerian gas'. Ain Tsila comprises 2.1 trillion cubic feet of gas reserves as well as 67mln barrels of condensate and 108mln barrels of LPG. In all this equates to 3.8bn barrels of oil equivalent. It is envisaged that the project will produce at a rate of 355mln cubic feet of gas per day. The field which is expected to have a 14 year production plateau already has six wells and a new programme of drilling scheduled for late 2015 will begin the first of up to 24 new wells. Aside from Ain Tsila a merger with Melrose Resources in 2012 brought production in Egypt and Bulgaria as well as exploration projects in Italy. Production for 2014 totalled 22.5mln barrels oil equivalent (boe) with 19.3mmboe coming from operations in Egypt and 3.2mmboe from Bulgaria. Revenue for the year was US$157mln. Petroceltic has told investors it expects to produce between 14000 and 15000 boepd for the 2015 financial year. Nevertheless as McCulloch says. Ain Tsila dominates Petroceltic. The company has been involved with the project for ten years and it is expected that it will reach first production in the fourth quarter of 2018. It originally held 75% of the scheme but has farmed out to Sonatrach the Algerian state company and Italy's Enel; leaving the AIM firm with 38.25%. The total capital expenditure of getting to first production has been put at US$1.5bn. Petroceltic has already received US$140mln as a 'carry' from Sonatrach and Entel. It also raised US$100mln last year in London. The company at the end of 2014 had net debt of US$153mln which means it is fully funded until 2017. However it is required to find a total of US$430mln as its share of developments to first production. There will have to be further fund raises beyond the US$175mln bond issue though any future cash raises will be cheaper than the bond because they will probably involve project finance. Petroceltic – Melrose production aside – still remains something of a field development company. As such it is most likely that despite currently being lossmaking the company will comfortably find its share of Ain Tsila's capital costs because the project's prize is great. Peak production would equate to around 52000 boepd and that should be good for a further 14 years after 2018. RMC says this could mean US$2bn in revenue a year on the basis of US$80 a barrel - gas prices in Algeria are confidential but they are closely linked to international oil prices. So what does this mean for shareholders McCullough says that if you add in the exploration potential in Italy and production in Egypt and Bulgaria you can arrive at a net asset value (NAV) of 215 pence a share. She adds though that investors are now ignoring the other assets and focusing solely on Algeria. On this basis she arrives at a NAV for Ain Tsila's proven and probable reserves (2P) of 156p. Risked at 75% she gets a NAV of 121p. This is in line with RMC's target price of 120p. Given the Petroceltic price is currently 54p the shares are cheap. So cheap in fact the company could well become a takeover target. Dragon Oil late last year made a takeover bid for Petroceltic at 230p a share before it withdrawing its interest because of the growing uncertainties over oil prices at that time. Since then Dragon Oil has itself since been taken over by the Emirates National Oil Company (ENOC). And ENOC may perhaps once it has bedded down Dragon have another look at Petroceltic. If not there could be other bidders coming along. The market is abuzz with rumours about mergers and takeovers at the moment particularly for mid-cap companies like Petroceltic.
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