Subject: Research Note: MAD - positive update on production in morning meeting - current Dec average 735bopd ======================= Don Henrich, Executive Chairman of MAD, presented at the morning meeting Don addressed progress since the morning meetings with respect to production, the new rigs, and funding from the Gulf South deal. Key Points from the call:
Production for the quarter has been increasing, as a result of the workover of existing wells and contribution from new wells. Don stated that the company is following the new strategy of mover to higher producing zones in existing wells, rather than flowing them at lower rates. We expect the full impact from new wells to be seen in the 1QCY13 production, however the trend below is in line with our expectations following the last quarterly announcement. October production averaged - 500 bopd November production averaged - 600 bopd December production averaged (to date) - 735 bopd
Oil Price Received is US$103.04 and US$102.43 for October and November. We think the market has been looking at WTI oil prices and assuming downgrades will be coming through for US oil producers. We use an oil price of US$97.25 for FY13 and therefore are currently comfortable that we won't have to revise due to oil prices. MAD continues to get a premium for its oil and we expect that will likely continue going forward as volumes increase.
The new workover rigs are having an impact - One new workover rig is already working with an additional to start this week. We believe these new rigs are being put to work quickly and efficiently and have a near term impact. In total, MAD acquired 5 workover rigs and 4 swabbing rigs, bringing the total workover rigs to 11 and swabbing rigs to 6. These rigs help with maintaining the production efficiency of the field. MAD has three new drilling rigs set to be deployed on its own acreage, with the first expected in January, the second in February and the third in March 2013 bringing the total to 7 drilling rigs.
The Gulf South initial funding is expected to be received before Dec 31. The first tranche is expected for a 3 month prepayment of $9m. Details on the Joint Development Agreement with Gulf South can be found in the Company's ASX announcements on 3 Oct 12 and 3 Dec 12.
The next high impact wells to be drilled are the Gillock wells (on the newly acquired acreage) which are planned for January/February 2013.
Impact to forecasts and view We expect the market to be positive on this news. We believe a re-rating of share price won't occur until either there is success on high impact wells in 1Q CY13 or until we see a real strong increase in production, expected 1QCY13 (report in April). The received oil price for the FY to date is positive, and we believe market expectations of a downgrade based on oil price are unlikely.
Call to action We feel comfortable buying at these levels, with an upcoming catalyst by Dec 31 from the Gulf South funding, in January from the quarterly report, and in January/February from the high impact drilling in the Gillock field.
FDM Price at posting:
81.5¢ Sentiment: LT Buy Disclosure: Held
