present situation

This is a good summary of where Maverick is at ? ? linc energy just bought a Texan oil company and the following comparisons are being drawn::



LongGame / Falchion - thanks for your thoughts on valuation. I have added my 2 cents to the discussion below, using Linc's most recent acquisition.

The Linc deal has helpfully given us a useful metric to value Maverick.

For USD 236 / AUD 225 (at USD/AUD 1.05), Linc has acquired:

- 13,400 acres / 156 leases (predominantly salt domes)
- Historical production of 700 million BO
- 3,300 BOPD from 410 wells (177 wells currently producing)
- 20.5 million 1P / 22.3 million 2P

You will see I value MAD at AUD 1.05 per share (a "strong buy" from Spindletop08 up to about AUD 80 cents per share, to allow a margin of safety!) The break down is as follows:

- Existing 1P/2P reserves: AUD 0.49;
- PLUS 1P/2P potential: AUD 0.61;
- LESS production differential to Linc: AUD 0.10;
- PLUS other assets: AUD 0.05.

EQUALS: AUD 1.05 per share.

More detailed discussion on specific components below.

CERTIFIED RESERVE COMPARISON

MAD has certified 1P reserves of 7.8 million 1P / 25.6 million 2P. On a 2P equivalent basis, this values MAD at AUD 258 million (or AUD 0.69 per share). However, a greater proportion of Linc's 2P number are represented by 1P reseves (92% vs 30% for MAD). On the basis of relative certainty of recovery (ie 1P 90%; 2P 50%), a weighted adjustment on the reserves gives MAD a value of AUD 184 (or AUD 0.49 per shares).

2P only: MAD = AUD 0.69 cents / share
1P/2P weighted: MAD = AUD 0.49 cents / share (conservative)

MAD RESERVE UPGRADES

MAD's acreage is pregnant with likely reserves upgrade, from new acreage acquired on Blue Ridge and Boling as LongGame has identified in his post. In mid April the board announced such an upgrade would be likely "later this year". This is where it starts to get difficult to estimate. MAD's reserves are based on 840 (net) acres on Blue Ridge (which was what it had when it listed). It now has 1,739 (net) acres on Blue Ridge and 2,365 (net) acres on Boling, a salt dome with similar characteristics to Blue Ridge.

The new Blue Ridge acreage is a combination of outerband and inner fairway. If you have a look at the investor presentation in February, the vast majority (90% or so) is outerband, although much of that acreage has documented oil shows (see slide 18 and 19) and adjoins the proven Santa Rosa, Lee and Cloverleaf leases. Assuming that the 10% or so inner fairway is of comparable quality to MAD's other acreage (fair assumption I think), I would assign 0.8346 million 1P and 2.7392 million 2P to that acreage (ie (1,739 - 840) x 0.10 = 89.9 acres inner fairway; 10.7% of IPO acreage; 0.8346 million 1P & 2.7392 million 2P - this is not particularly elegant, but should approximate the "feet of pay", "recovery factor" etc of MAD's reserve engineer in the IPO prospectus). The remainder is more difficult to guestimate. If you look at the map on page 18 of the February investor presentation, and cut off the south-east corner of the new lease acquisitions (which do not have any historic oil shows) and trim a bit more off for good measure, I think it would be reasonable to run a similar calc over 40% of the remaining acreage, which I think reasonable (if not too conservative) given that the acreage runs north south along the boundary of existing leases. This gives 3 million 1P and 9.856 million 2P (ie (1,739 - 89.9 - 840) x 0.40 = 323.64 acres; 38.5% of IPO acreage; 3 million 1P & 9.856 million 2P).

Total Blue Ridge reserve upgrade: 3.8 million 1P; 12.6 million 2P.

This is ultra conservative because it essentially ignores about 36% of the new acreage acquired and makes no allowance for reserve calculation adjustments to MAD's existing acreage (eg the IPO reserve engineer discounted the "average feet of pay" by some 33%, which may be revisited with results from post IPO drilling.

The Boling acreage is more difficult to estimate. It seems to be similarly located to Blue Ridge (in terms of location on the dome's structure). MAD has more acreage on Boling. Assuming identical characteristics to Blue Ridge (ie similar net feet of pay, recovery factor etc), the best I could do is assume the same as Blue Ridge and discount it by 50% (for a margin of safety). This should be conservative given the larger acreage position on Boling and the hefty discount of 50% that I have applied (11.6 million 1P; 38.2 million 2P) x 0.50 = (5.8 million 1P; 19.1 million 2P).

Total Blue Ridge / Boling reserve upgrade: 9.6 million 1P; 31.7 million 2P.

Using the 1P/2P weighted adjustment above, the reserve potential is worth AUD 0.61 / share.

PRODUCTION

Linc's acreage is producing 3,300 BOPD vs MAD's 650 BOPD. Linc's operating wells are averaging 18 BOPD. Assuming the same for MAD, MAD would need to put an additional 147 wells online. At a cost of about $200K per well (assume $250K for good measure), that is a capital cost of about AUD 36.8 million in capex to get MAD to a comparable production level. This equates to about AUD 0.10 / share.

OTHER ASSETS

MAD's drill rigs and workover rigs no doubt have substantial value. The rigs and associated equipment sit on the balance sheet for 31 December 2010 with a value of $12 million (or AUD 0.03 per share). I have assumed a value of AUD 0.04 per share, but I suspect this grossly undervalues MADs' separate contract drilling business, particularly if it was to be run as a standalone business. Buyer's that required rigs for drilling commitments would likely value the business significantly higher than AUD 0.04 per share. Wildcat leases(and the database of prospects referred to in MAD's prospectus) may have substantial value if MAD have some preliminary success on Foothold or Edwards Reef. I have assigned AUD 0.01 per share for these assets - time will tell.

As I mentioned on a previous post, I expect the SP will increase in the later half of this calendar year as a result of the following:
(1) Trojan overhang gone;
(2) reserve upgrade (new acreage from Blue Ridge and the first Boling report;
(3) growing production on Blue Ridge, and eventually Boling;
(4) widcat drilling on Edwards Reef / Foothold.

Good luck to all holders. I intend to do a spring clean of my portfolio so I can buy some more MAD at these prices.