OREANDA-NEWS. September 08, 2010. TNK-BP plans to reach production capacity of 2.74 MMBOED in 2016, which implies more than 45% growth compared to 2009 levels, Vice President Sergei Brezitsky said. He also added that TNK-BP plans to increase investment in exploration and production by 50% to USD5bn in 2013. Growth of its oil production capacity will come mainly from new projects in Eastern Siberia, on the Yamal Peninsula, in Orenburg. The company plans to invest USD800m in the development of the Yamal deposits in 2011, with an additional USD1.5-1.8bn to be invested in 2013, reported the press-centre of OTKRITIE Financial Corporation.

View: We believe that these are very ambitious development plans if they only rely upon organic growth. Reaching 2.74 MMBOED of production capacity depends on many factors, the most important of which is concessional taxation (still under discussion). In our opinion, if TNK-BP acquires some production assets it could reach the targeted production levels. For instance, TNK-BP is mulling the purchase of USD5-10bn of parent company BP’s assets, which include North Sea, Venezuela, Vietnam assets. We assume that acquisition will be positively perceived by the investment community.

Valuation and Action: TNK-BP trades on a 2010 EV/EBITDA of 2.5x, which implies a 40% discount to Russian market peers. We reiterate our BUY rating on TNK-BP Holding with a target price of USD2.52/share.