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Carnarvon Petroleum Limited — From Hero To (Almost) Zero

Carnarvon Petroleum Limited (ASX: CVN) shares were smashed today, losing 31.4% to close at just 12 cents, after the junior oil explorer said data from its Phoenix South-1 well was incomplete, and that a more comprehensive update is expected towards the end of the first quarter of 2015.

Talk about going from hero to zero.

In mid August, Carnarvon trumpeted the Phoenix South-1 discovery as…

“… the most significant new oil play in the North West Shelf since the Enfield discovery opening up the Exmouth Basin almost 20 years ago. The implications on the rest of our acreage are still being assessed, but the potential is extraordinary.”

At the time, Carnarvon shares soared as much as 275%, jumping from 8 cents to 30 cents.

Carnarvon Petroleum

Source: Carnarvon Petroleum presentation

Between then and now, Carnarvon have also reached agreement to divest the balance of their Thailand assets, a transaction that once complete in mid February 2015, is expected to leave the company with a cash balance in excess of almost $100m.

After today’s plunge back to 12 cents, Carnarvon Petroleum is capitalised at just $112m, and has an oil production related receivable of $26m.

If the Thai transaction does complete, the market today is effectively valuing the Phoenix South-1 discovery at less than zero.

As a special situation play, this looks very interesting.

As with any investment, it’s not without its risks, the two biggest being the Thai transaction falls through and the discovery formerly known as “the most significant new oil play in the North West Shelf” turns out to be uneconomic.

That said, the odds look to be in your favour.

At these prices, Carnarvon Petroleum Limited may be worth a small punt.

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Bruce Jackson does not own shares in any company mentioned above

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