INDO - Indonesia Energy Corp (INDO) - Results for 2nd well surpass expectations

Indo announced that it has discovered oil in its Kruh 26 well. The discovery follows similar success at the initial Kruh 25 well and was largely expected. Drilling was done in only 18 days at a cost below initial expectations of $1.5 million. Drilling encountered a larger-than-expected pay zone implying that reserves may be higher than expected. Production for the first two wells is expected in the fourth quarter, in line with expectations.Drilling continues albeit with fewer wells to be drilled in 2021. The company still plans to drill 18 wells in 2021-23 but will only do three in 2021 instead of five. The company has faced several drilling delays since it started its drilling program, mostly due to COVID issues. The most recent delay does not change our overall profile of valuation for the company, but we will be watching future drilling to see if the company can stay on track.Oil prices are back above $75. After crossing $75 in June and July and then dipping to $65 in August, Brent oil prices have soared back above $75. With production from the two Kruh wells expected to come on line in October and oil prices high, the company should see a big jump (management says 100%) in production and revenues. We see EBITDA turning positive in 2022 and climbing to $5 million in 2023.Rating remains Outperform with a $8.00 price target. The discovery of oil at the Kruh 26 well was expected but the performance of the well is encouraging. Drilling results lead us to believe drilling costs, production rates, and reserves per well may surpass management's type curve for future wells. We continue to use type curves in our models but believe there could be some upside. We have adjusted our models to reflect lower drilling in 2021 which has largely been offset by an increase in assumed near-term oil prices. Read More >>