maverick drilling & exploration buy $2.40

Key Points


Investment thesis: Maverick offers exposure to large scale, low cost oil
production growth in a stable environment well disposed to the oil industry.
Maverick is undervalued on EV/resource metrics relative to peers and on
NPV measures using conservative reserve assumptions. The current share
price implies commercialization of only ~20% of 2P reserves (<½ 1P).


Business strategy: Patient aggregation of small contiguous landholdings to
achieve critical mass at high equity interest; systematic research of historical
well results and production data, combined with modern seismic to identify
bypassed pay and new plays; disciplined development via low cost structure
and control of drilling capability to drive production growth.


Value proposition: 192 mmbbl net 2P oil reserves, low cost structure
($US4-8/bbl capex, $US8-10/bbl opex, gross basis) delivering breakeven full
cycle development below $US50/bbl. Compound annual production growth
of ~80-90%, lifting current levels of 600 bopd to 10-15 kbd within five years.
EV/2P reserves = $A2/bbl, approximately 1/8th of that of peers at $A16/bbl.


Pros: Large reserves base; $6-10/bbl oil price premium to WTI; low cost
structure; rapidly growing production; access to rigs and services; local
knowledge; in-house exploration capability; short lead time from discovery to
sales; favourable regulatory environment; low capex at risk per well;
reserves upside (~40% of acreage still to be assessed); some project
diversification (3 projects, multiple horizons). Tertiary recovery potential.


Cons: Low production rate per well (~10-15 bopd for shallow wells) requires
~1,500+ wells for full 1P development; potential for reserves disappointment;
key-person risk; need for additional equity before self-funding (from 2015).


Risks: Exploration/appraisal outcomes; reserves size; production trajectory;
cost containment (critical to reserve commercialization); access to funding
(recent $50m raising covers FY13 only).


Next steps: Apply drilling fleet to Blue Ridge, Nash and Boling Domes,
compete seismic evaluation, undertake extension drilling, update reserves
for acreage not previously included, acquire additional acreage.


Valuation: Base case NPV (1P reserves, $US95/bbl real WTI, 12% WACC)
of $2.15. Upside to $3.20 on 2P reserves. 12-month price target (1P) =
$2.40. Valuation includes assumed further $50m raising CY13.


Price catalysts: Production growth, oil prices, exploration outcomes.

We initiate with a Buy
recommendation and 12 month price target of $2.40/sh.
John Young
+61 3 9640 3846
[email protected]