more tea leaves

Gang, an update of an old post of mine from late February, since people seem to be bringing out the dreams / tea leaves / crystal balls again.


In October 2011 Linc Energy (LNC) completed a purchase of ~13,400 net acres of oil leases in the same region that Maverick is operating, containing 20.5 million barrels of 1P and 22.3 million barrels of 2P oil, while producing at a rate of ~3,300 BOPD. The deal cost Linc US$261 million.

This means they paid US$873.4 per acre per million barrels of 2P oil.

MAD currently hold ~3600 acres of Blue Ridge, totalling 72.9 million barrels of 2P oil. We're waiting on reserves updates from Nash (~2700 acres, under two weeks) and Boling (~4500 acres, under two months). Let's assume (and these are woefully big assumptions):
- the Nash and Boling reservoirs are similar in geology, productivity, structure etc. to Blue Ridge; "initial flowrates" have been similar, but that doesn't necessarily mean anything, so:
- since they are less developed than Blue Ridge, but have produced in the past, let's apply a 75% reduction to what *might* be there as 2P on an "acre-for-acre" basis.

Then, your Nash acreage gives you another 22.8 million barrels of 2P oil, and your Boling acreage another 13.7 million barrels of 2P oil. This totals to 109.2 million barrels of 2P oil all up for MAD.

109.2 million barrels of 2P oil on ~10800 acres at Linc prices gives a market cap of US$1.03B, however since we produce much less oil per day than Linc at the time of their deal, I'm just going to divide that number by two. This gives a US$515m market cap, or A$493m, or $1.32 share price - where we're at right now.

What you have to ask yourself is:
- will Nash and Boling be adjudged to have more than a quarter of the 2P reserves (per acre) of Blue Ridge? Pop that from 25% to 100% and you get $2.64ps.
- does the market care more about reserves than flowrates, such that my blanket "divide by two" for the flowrate differential is unfair? Assume the market goes crazy for MAD (lol) and ignores that and you also get $2.64ps.
- do you *Really* want to start dreaming and remove both of the above two limiting assumptions, and get $5.28ps?

Tea leaves are tea leaves people, see em for what they are. Personally, I'm reading em at around $2 or so.