Nice to see directors buying, increased his interest stake by 0.2% - how close to zero is his cost base? Even if it is 20c this has increased his cost base by less than 1cent. If it stops the shares falling 1c it is a fantastic trade for them.
Good to see another buy recommendation on the basis 'it's gone down a lot but they've got lots of pure oil reserves so should go up'....not even sure what the purpose of the word 'pure' is in this sentence so I'll chalk it up to another - albeit minor - bizarre thing about this company. Really - if the reserves are there - they should just sell the assets for 1-2 billion $s (easily achievable) and put shareholders out of their misery, relies heavily on the first qualifier.
If people are willing to overlook all the overly bullish and ostensibly incorrect research that has already been published to date maybe this latest spec buy recommendation will bring in the next wave of investors! Existing analysts should be furiously revising their price targets at the moment, hard to conceive these will not be reined in significantly in the light of the Q4 dry well extravaganza. Guess this will be published around March as they hope beyond hope for some positive news before then so it doesn't look as bad as it should.....or maybe coverage will just be quietly dropped.
My impression is that at the current valuation of $270mln the market is saying $55mln cash, $60mln production, $4mln gulf carry, $20mln equipment and therefore $131mln undeveloped reserves. Assuming this is all proved undeveloped reserves the market is therefore saying ~13mln bbl PUD oil reserves - however I think even this is too bullish.
I have examined all the wells drilled on Blue Ridge (not just on MAD's lease). Data has been analysed to establish a creaming curve, i.e. how are well results changing with time? Typically highest rate and EUR wells are drilled at the beginning field's life and results deteriorate more wells are drilled, due to dropping pressure, interference as well spacing drops, water moving around the reservoirs etc. etc. This analysis is frustrated by there often being many wells per lease, however the effect of this is to flatten the curve, results for 2000+ will be unaffected. On the x-axis it shows the decade when wells were drilled, the y-axis shows the Gross EUR/well. For 2000+ the EUR/well is 33Mbbl Gross or 24.8Mbbl Net.
On the basis of the above I have re-run the valuation I published last year. Due to the hugely disappointing results from Nash and Boling Domes I have slashed my assessment of the proved reserves and associated value for those properties, I now believe their total proved reserves (developed plus undeveloped) are in the order of 5 MMbbl. Using the previous assumptions for costs this gives value for the reserves of $116mln, this assumes they significantly reduce the amount of dry wells they drill by just focusing on the best areas. In my view this still has a long way to fall, excluding cash I think a company valuation of ~$140mln is fair, so assuming they don't rip up their cash drilling dry holes but do something value adding ~$195mln or share price of 43c dropping to 31c if they can't convert the cash into at least equivalent value (i.e. they drill more dry high profile wells). Other question is will the Gulf South deal be expanded? It has morphed and shrunk a lot over the past few months so I find it hard to put value on it beyond the $4mln they have available at present.
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