Roc Oil Company (ROC) has a maintained Buy/High Risk recommendation and target price of $2.74/share from market analyst Macquarie Research Equities.

Roc Oil Company Ltd (ROC): No EPS Dilution Expected…AZA is a highly profitable company

ROC Serious About Taking Out AZA — In a presentation today the CEO of ROC Oil made it apparent that they believe AZA is a major positive for ROC. Citi estimates that AZA (AZA.AX; A$1.41; 1H) increases ROC’s production by ~50% in 2009. Given the oil receives premium unhedged pricing and the company expenses little exploration, we believe the deal is highly eps accretive (+ ~70%) to ROC and will provide short-term upside if the BMG Phase 2 development proceeds. We maintain our Buy/High Risk (1H) recommendation and target price of $2.74/share on ROC.

ROC Suggests Minimal Reserve Downgrade at AZA’s BMG Project — Following mixed success with the Basker-6 well, it was widely speculated in the press that the field’s oil reserves could be reduced by ~40%. Today ROC clearly suggested that this would not be the case. ROC believes they are purchasing ~12MMboe of pure oil reserves at BMG. Grossed up this equates to ~32MMbbls of oil. This suggests that they see a ~7% oil reserve downgrade and are taking a cautious approach to the gas/condensate resource. Given ROC’s estimates, we think the market is being overly bearish on reserves.

AZA Should Provide Positive Newsflow — ROC talked up AZA’s plans to expand the BMG field, believing that an expansion is all about the oil. ROC appears relaxed about the reserves after substantial due diligence. However, we think given current market conditions, the risk involved could have been too much for ROC’s bankers, and consequently it is funding the deal via equity.

Rival Bids Still Possible for AZA — A sagging ROC price would only increase the chance that rival bids for AZA surface once reserve certainty and details around the BMG Project expansion ion (AZA 40%) are revealed.