Yesterday, Nostrum oil and Gas announced the updated plans for the completion of the GTU-3 project.
The Company notified about delaying the launch of GTU-3 until April 2018. The initially planned shutdown of the first two blocks of the GTU was postponed until the end of the winter period due to delays in delivering the parts necessary to connect the third unit to them.
According to the reasons stated in the press release, the completion of the connection implies hydrostatic tests of welded joints before starting the gas, which can not be carried out at temperatures below zero. In this regard, the Company intends to minimize idle periods by accommodating downtime during connection and during hydrostatic tests in one period in April 2018.
Thus, in the current year, downtime will not exceed several days. At the same time, the delay in connection will affect the production level in 2018, as the Company recognizes the inability to increase production above 45ths boepd.
At the same time, the plan to increase production to 100ths boepd by 2020 remains relevant and the project costs remain at the level of $532mn.
The news is negative for the price of shares. However, we see no reason to change our recommendation, since our target price is calculated taking into account the risks characteristic for the GTU-3. Nostrum intends to provide a new production plan before the end of this year. We expect that the revised production schedule will coincide with our forecast, as our production levels already take into account the risks of unforeseen delays. We believe that the correction of NOG LN will be short-term and fundamentally stocks retain their growth potential. We maintain our BUY recommendation with 12M TP GBp502 / share.