wilson htm update

Maverick Drilling & Exploration Ltd – March 2013 quarterly: Production up, but drilling rate disappoints

Announcement details:
• Production: Average gross production of 873 bopd, up 44% on the prior quarter. April production of 1,196 bopd, up 9% on March (1,062 bopd).
• Revenue: Cash received from oil sales of $US5.0m. Average oil price received ~$US110/bbl, $US15/bbl above WTI.
• Drilling:
1. Blue Ridge Dome: 21 wells drilled, 18 successful, success rate 86%.
2. Nash Dome: 2 wells drilled, 0 successful, success rate 0%.
3. Boling Dome: 0 wells drilled.
• Cash: $US51m.

WHTM view:
• Initial analysis –
1. Production continues to trend upwards, growing at about 150 bopd/month over the past 6 months. This suggests a June 2013 running rate of ~1,400-1,500 bopd and a December 2013 running rate of ~2,300-2,400 bopd. We estimate MAD’s share would be ~70-75% of these amounts. These amounts could be boosted with favourable results from the high impact prospects currently being targeted.
2. Drilling success rates are in line with expectation, at ~85% for Blue Ridge Dome and 78% overall for the quarter.
3. Drilling rates are lower than expected, with 23 wells drilled for the quarter, a rate of ~1.5 wells per rig per month. We had been expecting around 2 wells per rig per month.
4. This appears to be due to two factors: (a) the number of operational rigs is down; MAD has 6 rigs in service at the end of April, lower than the 7 rigs previously targeted; and (b) the drilling time for wells appears to be longer than expected, even allowing for the longer times for the deeper, high impact wells.
5. The 12 wells of the Gulf South joint development project have been completed. No further guidance has been provided on when the next tranche of wells might be funded under this arrangement.
6. MAD continues to receive a higher premium for its oil sales relative to WTI than we have assumed in our revenues ($15/bbl vs $6/bbl).
• Earnings implications – Under review, future production growth is likely to be somewhat slower than we had estimated (partly offset by higher revenue per barrel).
• Investment view – Buy recommendation retained. Price target of $2.40 share under review. Current share price $0.675/share.

Figure 1: Production rate (by quarter and with April 2013 monthly actual)

Source: WHTM analysis of company data